Under an order handed down Tuesday by the D.C. Circuit Court of Appeals, two DISH Network affiliates that had participated in the 2015 Advanced Wireless Services (AWS-3) auction as small businesses, will be given an opportunity to cure issues of de facto control that had prompted the FCC to disqualify collective bid discounts of more than $3 billion accrued by both entities.
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 were eligible 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 noncontrolling stake, the FCC ultimately rejected the credits upon concluding that SNR and Northstar “have a financial dependency on DISH of unprecedented size and scope.” Accordingly, the agency held both companies liable for full payment of their gross winning bids.
On the deadline for submitting full payment, SNR and Northstar informed the FCC that they would default on paying for a portion of the licenses they had won during the AWS-3 sale. The companies also challenged the FCC’s decision to deny the bid credits before the D.C. Circuit Court. As they informed the court they had structured their relationship with DISH “by doing exactly what the Commission instructed: closely examining past relevant precedents,” SNR and Northstar accused the FCC of acting in an arbitrary and capricious manner in using a standard “that had never been applied before . . . in reviewing Petitioners’ applications for bidding credits.” Asserting, “parties must be given fair notice of the rules,” Northstar and SNR argued that the FCC should “not penalize Petitioners for failing to anticipate that change.”
Although the D.C. Circuit upheld as reasonable the FCC’s determination that DISH exercised de facto control over Northstar and SNR, the three-judge panel remanded the case to the FCC “to give Petitioners an opportunity to seek to negotiate a cure for the de facto control the FCC found that DISH exercises over them.” Siding with the companies’ claim that the FCC failed to provide clear notice of its plan to apply a new review standard and that any related opportunity to cure defects in DE control would therefore be denied, the panel concluded that “an opportunity for the [petitioners] to renegotiate their agreements with DISH provides the appropriate remedy here.” In briefs and in oral arguments before the court, the FCC claimed that providing such an opportunity for cure would create “an incentives problem, or ‘moral hazard’” which would provide little reason for prospective bidders to comply with the DE rules “if, when ultimately denied bidding credits post-auction, they are entitled to haggle with the Commission.” While emphasizing that “nothing in our decision requires the FCC to permit a cure,” the appellate panel ruled for the companies in declaring: “if the very opportunity to seek [a cure] is to be foreclosed, applicants must have clear, advance notice to that effect.”
Applauding the remand, an SNR spokesman told reporters that the court “rightly noted . . . that SNR should have been afforded the opportunity to come into compliance, as has been the FCC’s practice.” As a DISH official affirmed that “we look forward, along with Northstar and SNR, to working with the FCC to address any concerns they may have,” FCC Press Secretary Tina Pelkey welcomed the court’s decision to uphold FCC findings of de facto control, adding that, “going forward, we need to make sure that [the DE] program is available only to legitimate small businesses that actually control their own destinies.”