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Dish Network Tricks FCC, Taxpayers in Spectrum Auction

July 2, 2015

Dish Network may have used a set of subsidiary small businesses as front groups to buy electromagnetic spectrum transmission licenses from the Federal Communications Commission, at a discounted rate for which it would have otherwise been ineligible.

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Dish Network may have used a set of subsidiary small businesses as front groups to buy electromagnetic spectrum transmission licenses from the Federal Communications Commission, at a discounted rate for which it would have otherwise been ineligible.

Two companies, both of which Dish Network owns a majority stake, Northstar Wireless LLC and SNR Wireless LicenseCo LLC were eligible for a 25 percent discount on the amount of their winning spectrum auction bids, reducing the amount owed on a $13.3 billion bid to $10 billion.

Competition Benefits Consumers

Brent Skorup, Mercatus Center research fellow says spectrum auctions give winning bidders a financial incentive to increase quality of service for consumers.

“Everyone knows cell phone towers are out in cornfields and on top of buildings, so those are fairly expensive to deploy, I think somewhere around several hundred thousand dollars,” he said. “So one way to increase capacity is to build towers and bring wires out to those towers and the other main way is to add more spectrum.”

“For consumers, that would look like, if you have a smartphone, probably a cheaper data plan, you’ll get more data per month for the same price, and more competition,” Skorup said. “When smaller carriers get more spectrum, they can compete better with other carriers.

Steve Pociask, president of the American Consumer Institute, says Dish Network’s rent-seeking gamed auction rules, cheating small businesses with less resources and taxpayers out of spectrum licenses and money.

The Collusion Channel

“If was another bidder, and I was interested in bidding in one of the Chicago licenses and I see all this activity and all these participants very interested in the license I’m interested in, I may want to step around and do something else or drop out or decide to go for some less desirable license that’s not as busy, meaning one that has four competitors and not seven. So I start to move around and I’m lost. So there’s a misallocation that results from that.”

Pociask says the evidence of collusion is clear.

“When you start to look at the bidding that took place, you’ll see that these things could not have happened by chance, that there was what appeared to be a pattern in the data that was so overwhelmingly significant in the direction, the conclusion of some is that these parties—the two designated entities and Dish—were coordinating their activities,” he said.

Pociask says the Dish Network-owned subsidiaries’ bidding behavior is key to the scheme.

“What’s important here too, is that the prices were tied,” he said. “Why is that important? Because the FCC has a rule that says, in the course of a round, if it happens that two companies come in with the same bid—the exact same amount—that they will randomly select one of them as the leader for the next round.

“So, by bidding ties they managed to save themselves money by coordinating,” Pociask said.

Michael Bates (bates@batesline.com) writes from Tulsa, Oklahoma.

Internet Info:

Milton Mueller, Cato Institute, “Property Rights In Radio Communication: The Key to the Reform of Telecommunications Regulation”: https://www.heartland.org/policy-documents/property-rights-radio-communication-key-reform-telecommunications-regulation