During oral arguments on Monday, a three-judge panel of the D.C. Circuit Court of Appeals peppered representatives of both the petitioners and the FCC with questions concerning the FCC’s decision last year to deny a pair of DISH Network affiliates $3.3 billion in bid credits accrued during the Advanced Wireless Service (AWS)-3 auction.
SNR Wireless LicenseCo and Northstar Wireless LLC—both of which are owned 85% by DISH—participated in the AWS-3 auction as small business designated entities (DEs) that qualify for a discount of 25% off of their gross winning bids. Together, SNR and Northstar posted gross winning bids of $13.3 billion on 702 licenses during the AWS-3 auction, resulting in a total net debt of $10 billion to the FCC once DE bid credits were applied. Although DISH informed the FCC that the economic interest it holds in both DEs constitutes a non-controlling stake, the FCC ultimately rejected the credits upon concluding that SNR and Northstar “have a financial dependency on DISH of unprecedented size and scope.”
Both entities appealed the FCC’s order to the D.C. Circuit Court, claiming that they had complied with the DE rules and had modeled their relationship with DISH on agreements that had been approved previously by the FCC’s Wireless Bureau. Arguing that the FCC should have allowed both entities to modify their agreements with DISH, counsel for SNR and Northstar told the appellate panel that it is “a basic administrative law principle” that, before an agency can “punish” parties for violating the rules, it must provide “fair notice of what those standards are.” Although counsel for the petitioners also debunked as “fallacy” the argument that the high dollar amount of SNR and Northstar’s total gross winning bid demonstrates their level of dependence upon DISH, Judge Cornelia T.L. Pillard disagreed, stating “it’s not really a fallacy” as small businesses without significant financial backing normally would exercise great care to avoid overbidding. Pillard also remarked how it appeared to her as if SNR, Northstar and DISH were “operating interchangeably,” as she questioned the extent to which modification of the SNR-Northstar-DISH agreements would address the FCC’s concerns.
Meanwhile, FCC counsel Maureen Flood advised the court that DISH, SNR and Northstar had “cherry-picked” provisions from multiple past agreements that had been approved by the Wireless Bureau and modified the terms in ways that had never been seen by the agency. Responding to a question posed by Senior Judge Stephen Williams, Flood also argued that the five FCC commissioners who voted to deny the bid credits are not bound by the previous de facto control decisions of the agency’s Wireless Bureau. Countering that the extent to which the FCC commissioners are bound by bureau-level decisions “is not really the issue,” Williams emphasized “the question is notice” of the FCC’s intention to depart from previously-established rules and precedent.