Today the Federal Communications Commission voted in favor of a Report and Order that would alter the bidding rules for Designated Entities, which are small businesses and rural services providers that discounts in spectrum auctions in an effort to promote competition.
In practice, however, the DE rules are often abused. In the AWS-3 auction, two companies affiliated with Dish received DE status and have applied for $3.3 billion in discounts. While Dish insists that it and its affiliates followed all rules, Pai and others have accused them of gaming the system.
Pai warns that the Order approved today will allow DEs to buy spectrum at taxpayer expense and then lease it to the major networks for a profit, subverting the goal of DE rules, which is to encourage competition:
This Order paves the way for DEs to obtain a 35%, taxpayer-funded discount on auctioned spectrum and then turn around and lease 100% of that spectrum to AT&T, Verizon, Sprint, or T-Mobile. Will it further the public interest to allow a “small business” with no plan beyond regulatory arbitrage to purchase discounted spectrum and then flip it to our nation’s largest wireless carriers? Let’s see. Will that large wireless carrier face increased competition when it leases the spectrum? No. Will it face competitive pressure on its pricing? No. Will consumers, including those in rural areas, have a new competitive alternative to choose from? No. Will eliminating the safeguard “reserve the DE program for companies that actually intend to use their spectrum to serve customers,” as former Commissioner Michael Copps put it when he and his fellow Commissioners established these rules? Quite the opposite. But I don’t want to be accused of focusing solely on what today’s decision won’t do. So let me shift gears and discuss what voting in favor of 100% leasing will do. Will it increase concentration in the wireless market? Yes. Will it mean that large companies can access discounted spectrum (rather than purchasing it at full price)? Yes. Will it make the politically well-connected owners of shell DEs very wealthy? Yes. And will it create new incentives for companies to continue to try to game the system? Absolutely. For these reasons, I respectfully dissent.
Read the commissioner’s full dissent here.