FCC To Dish: No, You Are Not A Small Business, You May Not Use Small Business Discounts

The FCC has an auction process to sell spectrum to businesses. The FCC also is charged with promoting competition. So there’s a credit available to small businesses who play in the auction. But this week, the FCC has had to tell one behemoth that small means small, and that no amount of pretending otherwise will actually change that.

A bit of background on spectrum auctions: All wireless communications — TV, radio, wifi, cell signals, 4G, and so on — fly around in the electromagnetic spectrum. Visible light takes up a small slice of that spectrum, and the rest is where radio waves, microwaves, x-rays, and other kinds of radiation travel. So far, so good.

Certain stretches of the EM spectrum are better than others for specific kinds of signals. There’s a comparatively narrow stretch of radio frequencies where cell phones, broadcast TV, and other signals can work, so there’s a lot of competition for those frequencies.

If everyone just flung all their stuff out there at once, there would be chaos. Signals would collide and interference would be rampant — nothing would work. So the FCC regulates the airwaves. Each company gets a range of frequencies assigned to them that they are allowed to use, and that is their chunk of spectrum. When businesses merge, spectrum is one of the valuable assets they bring with them.

The FCC currently allocates spectrum through an auction process. There are a lot of complicated details about where the spectrum comes from and who can bid, but in general, it’s an auction. However, the FCC also has a mandate to protect and encourage competition. Letting the biggest companies (i.e. Verizon and AT&T) waltz in with their moneybags and snap up all the spectrum because they can bid most would be the opposite of encouraging competition — it would let a pair of businesses become essentially a duopoly, which would be bad for everyone.

So the auctions have a system of handicaps and credits, to ensure that smaller businesses can stand a chance to participate. The FCC has spent a lot of time and energy in the past couple of years discussing the rules of the most recent auction, which concluded in January, and the next one, which takes place in 2016. And that’s where this most recent ruling comes in.

In the last auction, two small businesses, SNR Wireless and Northstar Wireless, each bid on and won a stretch of spectrum to use. Because they are small businesses, they received a combined $3.3 billion in small business credits toward the $13.3 billion winning bid, meaning they paid $10 billion. That’s a pretty good discount.

But there’s one problem: those businesses aren’t exactly small, free-floating entities. They are both owned by Dish.

Dish claims that it has non-controlling interests in each company, and so they should still be eligible for the small-business credits. But that “non-controlling interest” isn’t exactly a minority stake; Dish owns a full 85% of each company.

The FCC decided this week that no, seriously, Dish does not get to claim small business credits just because their subsidiaries were the faces that did the bidding. In a statement about yesterday’s vote, FCC chairman Tom Wheeler said, “Small businesses require an on-ramp into the mobile marketplace to provide more choices for consumers. Our competitive bidding rules were designed to do just that — give bona fide small businesses an opportunity to acquire valuable spectrum.”

Bona fide being the key words there. The FCC’s review process concluded that SNR and Northstar are not, in fact, genuinely small businesses.

Dish has a few options now: they can pay the $3.3 billion difference, they can appeal, or they can pay a penalty.

Dish has not indicated what it intends to do. Although the satellite pay-TV company does not in fact provide any mobile services, they have been stocking up on spectrum where possible. The rumor mill has it that the company is in talks to buy T-Mobile, and as far as those negotiations are concerned any spectrum Dish is sitting on is an incredibly important factor. Dish being unable to use the discount may be a major factor in those as-yet-unannounced merger plans.

FCC says Dish can’t use $3.3B in credits in airwaves auction [Associated Press]