Dish, the FCC, and a sly trick to leave American taxpayers $3bn short

Are things really as dysfunctional at the watchdog as they seem?

Analysis A row has erupted over the $3bn discount Dish Networks hopes to bag on the slice of US government radio space it bought for wireless broadband.

It's put a spotlight on the process of auctioning frequencies to private biz – and thrown the Federal Communications Commission (FCC) in the hot seat.

One of the regulator's five commissioners, Ajit Pai, put out a statement complaining about "abuse of the designated entity program" in the AWS-3 auctions that raised a staggering $41.3bn for 1,611 licenses nationwide.

A good chunk of that money is supposed to go into the Treasury's coffers – hence the fury over Dish's discount.

Pai called for an "immediate investigation," complaining about "loopholes that allow big businesses to rip off the American people to the tune of billions of dollars." He was "outraged," and promised to "do everything in my power to stop it from happening again."

The FCC's designed entity (DE) program is intended to make it easier for small businesses to compete with the main telco companies on spectrum, by providing them with an after-the-fact rebate on their bids.

Dish is far from a small business – but it used two companies that are small to bid for radio frequencies: it holds an 85 per cent stake in the companies, allowing it to funnel its bids through the upstarts, and apply for $3bn off its $13.3bn bill.

As such, Pai's statement should be seen as a reasonable concern: large companies abusing rules designed to aid competition in order to save themselves money. But in an FCC that has become increasingly fractious and partisan thanks in part to the net neutrality issue, that's not how it played out.

Mockery

An FCC official disdainfully mocked Pai and his chief of staff Matthew Berry in industry publication Broadcasting & Cable, pointing out that both of them would have known that Dish has not received the rebate yet and its application would first have to go through an approval process before it was.

"As someone who cut his teeth in the Office of the General Counsel, Commissioner Pai should know FCC rules," the official said. "At the very least his Chief of Staff Matthew Berry should know the rules since they were last modified on his watch. So either they are playing fast and loose with the truth or they simply don't know their stuff."

That withering response was met with an equally discourteous reply from Pai's spokesman: “Instead of engaging in ad hominem attacks, we urge FCC officials to focus on conducting a top-to-bottom review of what has gone wrong with the DE program and not letting any Fortune 500 company get away with receiving over $3 billion in taxpayer subsidies intended to help small businesses."

This public back-and-forth comes is just one example of repeated public posturing from FCC Commissioners, often bizarrely played out through the FCC's own website – with commissioners pumping out statements and blog posts criticizing colleagues and officials.

So while FCC chair Tom Wheeler makes statements about what he thinks should happen with net neutrality and municipal broadband, Commissioner Michael O'Rielly repeated uses the FCC's blog to complain about how the FCC is run (by Wheeler and the staff), and criticize whatever it is that Wheeler last said.

When the FCC voted 3-2 in favor of changing the definition of broadband to 25Mbps from 4Mbps, both Pai and O'Rielly made aggressive statements against the decision - during which Wheeler as chair was seen smiling and shaking his head. They also publicly lambasted their colleagues over a $640,000 fine against AT&T.

And of course whenever the topic of net neutrality has appeared, the two camps have been falling over themselves to issue insults and accusations. Of course, this being Washington DC, it is all fed by, and feeds into, partisan politics, where posturing and bellowing the party line is more important than good policy.

It's the politics, stupid

One quick look on Twitter, and the "conversation" between Republicans and Democrats reveals each side is focused on obsessively following every step of the agency and loudly decrying whatever it is the other side has just said, with little time given to fact or logic.

Which leads back to the auction issue.

While Pai is undoubtedly right that the rules were not intended for Dish Networks to save billions of dollars, the FCC seems more determined to fight with itself than look into whether its rules need improving.

As one long-term follower of the FCC (on the Democrat side) Harold Feld has pointed out, the auction rules this time clearly failed to introduce much competition since AT&T walked away with the bulk of the licenses. Combined with Dish and Verizon, the vast majority of available spectrum has been swept up by the biggest incumbents, further strengthening their positions.

Even worse, Dish is not actually a wireless provider. It has no clear plans to use the spectra it has paid billions for and it is already sitting on a stash of other spectra from earlier auctions. Speculation is rife about whether the company actually plans to launch itself as a wireless company or is looking to buy out blocks and sell or lease them for a profit later on. Any questions about its plan have been met with the cop-out that it can't provide information "because of the FCC’s anti-collusion rules."

Looking forward?

What makes the auction rules all the more important is that in 2016 there will be another auction for especially valuable spectra for cellphone coverage: the 600MHz band which provides a particularly useful combination of traveling long distances and decent-enough building penetration which makes it ideal for mobile networks.

Whether the FCC manages to rethink its approach in time for 2016 or will continue to be sucked into its own drama remains to be seen, but there is no doubt in anyone's minds that it won't happen this month.

The proposed net neutrality rules will likely be released to the commissioners this week in time for a public meeting on 26 February. You can expect to see more outraged Pai statements, snippy O'Rielly blog posts and more eye-rolling smirks from Wheeler. ®

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