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.