FCC Plans To Reauction AWS-3 Licenses Surrendered by Dish-Affiliated DEs

FCC officials said Friday the reauction won't happen until after the TV incentive auction is complete. Former FCC officials said they expect an AWS-3 auction in late 2016 at the earliest. A former FCC spectrum official said a reauction is unlikely while the DE legal challenge is still before the courts.

Northstar is giving up its claim to two major licenses, for New York City and Chicago, plus licenses for Tampa/St. Petersburg and Pittsburgh, as well as many less valuable licenses in smaller markets, said a letter to the FCC. SNR said in a separate letter to the FCC it's giving up licenses for Chicago, the Boston area and Charlotte, North Carolina.

Northstar Wireless is expected to be granted licenses with aggregate gross winning bids of $5.62 billion, covering 3.7 billion MHz-POPs, Dish said. SNR Wireless is expected to be granted licenses with aggregate gross winning bids of $4.27 billion, covering 2.9 billion MHz-POPs. Northstar is keeping 84 percent of the MHz/POPs it bought in the auction, SNR 82 percent, Dish said. The two declined 197 licenses, while electing to pay for 505.

FCC Wireless Bureau Chief Roger Sherman sent both DEs letters (available here and here) Thursday elaborating on the interim default payment obligations they face. The letters of the reauctioned licenses fetch less than the original auction price, the companies are obliged to make up the difference.

Dish could potentially have to pay if either DE goes out of business, Sherman said. “Under the Commission’s rules, winning bidders that choose to selectively default continue to remain responsible for their default obligations to the Commission,” he wrote. “Until a license for the relevant spectrum is won in a subsequent auction, the Commission cannot determine the full amount of the default payment that is owed.” The letters say the two DEs aren't disqualified from bidding in future auctions, including the TV incentive auction.

Dish and the two DEs are expected to keep an average of 75 MHz of spectrum nationwide, covering more than 23 billion MHz-POPs, Dish said. Dish also said that as a result of the latest move the two DEs will retain their ability to bid in future spectrum auctions “including any re-auction of the AWS-3 licenses retained by the FCC” and will not be deemed "current defaulters" under FCC rules.

Northstar’s letter, filed Thursday, explains its intentions and asks for clarification that it and its investors will retain the ability to bid in future spectrum auctions. It said it “respectfully disagrees” with the FCC’s determination it wasn't eligible for bidding credits in the AWS-3 auction. SNR filed a similar letter at the commission.

BTIG analyst Walter Piecyk said in a research note it's unclear when the FCC will reauction the spectrum. “It could take two years given the FCC’s priority with the incentive auction, the timing of which looks increasingly at risk,” he predicted. The DEs could also buy the spectrum at the same price “and the 15 percent fine would have effectively become a financing cost to the $3.4 billion payment,” he said. “If someone outbids them, there would be no incremental cost.”

“The decision of the two Dish Network partners shows that money doesn't grow on trees even if it’s used for wireless spectrum,” said Roger Entner, analyst at Recon Analytics. “Even as Dish spends ‘only’ $10 billion on the AWS-3 licenses it still doubles its debt. Dish's action is another warning sign regarding the inflated expectations for the incentive auction that are based on the AWS-3 auction. The licenses that Dish's partners are giving up are some of the best markets in the country and the FCC will have no problem finding buyers for them.”

That Dish is giving back the spectrum and paying the penalties indicates it hadn't lined up any deals with, for example, Sprint or T-Mobile, to buy or lease it, satellite industry consultant Tim Farrar told us. And Dish likely won’t have any major undertakings involving broadband at least through summer 2016, given the incentive auction and then election season starting, and that the joint Dish/Sprint experiment in Time Division-LTE likely won’t be sizably expanded anytime soon because of the cost cutting at Sprint.

Dish CEO Charlie Ergen “is going to be … twiddling his thumbs for the next year to 18 months,” Farrar said. Dish’s experience not having a buyer lined up for the licenses could mean few if any spectrum speculators taking part in the incentive auction, which could be good news for AT&T, T-Mobile and Verizon and bad news for the FCC, Farrar said. “It seems increasingly likely [bidders] won’t have to pay much more than the reserve price,” he said. Talk about a $60 billion incentive auction “can be thrown out the window,” he said.

But Jefferies analyst Mike McCormack said in a research note Dish appears to be looking to the future in the spectrum surrendered. "It is possible that the selected licenses were chosen in such a fashion as to not impact a potential future sale of the portfolio to Verizon," he wrote.