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FCC votes unanimously to deny auction credits to Dish

In a setback for Dish’s spectrum strategy, the Federal Communications Commission voted unanimously to deny the $3.3 billion in auction credits to two small wireless companies in which Dish had a financial interest.

Dish’s participation in the AWS-3 auction was widely criticized when it was discovered that the pay TV provider, through two designated entities, SNR Wireless and Northstar Wireless, was the second largest bidder in the auction at $13.3 billion; $10.3 billion after discounts.

FCC chairman Tom Wheeler circulated the order last month rejecting the $3.3 billion in discounts requested by the two small wireless companies. More recently, the commission voted to change the rules ahead of the broadcast incentive auction planned for March 29.

“I’m proud that our thorough, fact-based analysis ensures that bidding credits only go to the small businesses our rules aim to serve,” FCC chairman Tom Wheeler said Monday in a statement.

Dish insists it did nothing wrong, but simply followed the FCC’s rules. Although Dish has an 85 percent non-controlling interest in the two companies, the FCC commissioners disagreed, finding that Dish has control over the two companies, making it ineligible for the 25 percent bidding credit.

“DISH entered into about two dozen separate contracts with the two companies. Those agreements give DISH control over nearly every aspect of SNR and Northstar, including decisive input into their policy, financial, employment, business, marketing, technology, and deployment decisions,” GOP commissioner Ajit Pai said in a statement.

“In addition to its dense web of contractual controls over the supposedly independent small businesses, DISH used those businesses to carry out an unparalleled level of coordination during the auction. Analysis shows that they engaged in nearly 4,000 instances of coordinated bidding,” Pai said.

 The FCC’s action is a blow to Dish, a company that has been amassing wireless spectrum in a strategy to offset the company’s core pay TV business. Dish lost 81,000 pay TV subscribers in the most recent quarter.

As a result of the FCC’s action, Dish chairman and CEO Charlie Ergen said that  company the company may be more likely to sell or lease its current spectrum holdings instead of trying to compete in the wireless marketplace. Ergen also said having to deal with the extra financial pressure could put into question the company’s willingness to bid in the upcoming incentive auction planned for March 29.

Read the FCC’s order here.