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DISH’s Behavior Deserves Greater Punishment
FCC Headquarters, Washington, DC.
Mark Twain famously exhorted people to “buy land, they aren’t making any more of it.” The same could be said of wireless spectrum. The finite amount of wireless spectrum coupled with the growing demand for wireless products and services could soon drive up prices and drive down services unless the industry adopts a fair long-term approach. Unfortunately, at least one satellite company has shown a tendency to only look out for themselves rather than American consumers.
The Federal Communications Commission (FCC), the agency tasked with overseeing wireless spectrum, is faced with impending spectrum shortages. The agency has moved to auction additional wireless spectrum currently owned by the government or broadcasters that is not being widely used.
Ideally, these spectrum auctions should be a win for consumers, industry, and taxpayers. The wireless industry can purchase the spectrum they need, and consumers can benefit from the additional services and competition that would result. The government can generate significant new revenues without additional taxation, and companies who are no longer using spectrum can gain fair market value for it.
For these benefits to occur, however, it is imperative that the auctions be fair. This was not the case last year when DISH Network tried to game the system for its own benefit.
Prior to a spectrum auction last January, DISH invested in a pair of small companies with little to no revenue. DISH then used these companies to purchase 702 of the more than 1,600 spectrum licenses available in the auction. Why did DISH bid through these small companies rather than do it themselves? Because DISH was egregiously trying to qualify for a 25 percent small business discount being offered by the FCC.
These discounts were set-up by the FCC to help new companies get a foothold in the wireless market, not prop up multi-billion dollar satellite companies. Through its shell companies, DISH placed $13.3 billion worth of bids and hoped to cheat taxpayers of roughly $3 billion through its inexplicable use of the small business discount.
Fortunately, an FCC review of DISH’s behavior concluded that the shell companies would not qualify for the small business discount. Unsurprisingly, these companies later surrendered their claims on roughly 200 spectrum licenses worth $3.5 billion, and received a penalty of more than $500 million.
Republican FCC commissioners have since hinted that a Department of Justice antitrust review may be appropriate. The US Senate Committee on Commerce has also expressed concerns about DISH’s anti-competitive behavior and have requested documents from the FCC on last year’s auction. These examinations are a good start.
With the FCC holding another spectrum auction this year, it is critical that DISH’s behavior be punished swiftly and severely. At a minimum, the company should not be allowed to bid on the same licenses that it tried to gain through nefarious means and later surrendered.
DISH’s actions put in jeopardy the integrity of the incentive auction, and stood to cheat consumers and taxpayers out of several billion dollars. Companies that try to cheat the system must not be welcomed back with open arms, or other bad actors will soon emerge to try it themselves. DISH needs to be an example of why the FCC and the marketplace won’t tolerate such behavior.
Published in Culture, Domestic Policy, Science & Technology
Should there even be a small business subsidy to game?
You’re blaming the wrong party here. While Dish Network (and it is not all caps, as it is not an acronym or abbreviation) may not have qualified for these discounts, why aren’t you asking the more important questions? Such as, in a country that prizes equality under the law why does the government get to decide to offer favored status to anyone? An auction is designed to maximize revenue to the taxpayers, so why does government get to decide who gets to manage the spectrum?
I humbly offer the position that your indignation is misplaced.
Silly EJ – Don’t you know it is the job of the Federal Gubmint to pick the winners and losers???
I’d ask “why are there sex and race set-asides,” but I don’t want a bunk at a Hillary Fun Camp.
I also want the government to require open competition availability of programming where the providers is getting the benefit of limited rights of way (burying cable, RF spectrum). Thus, no more government enabled unit bundle pricing, instead availability of a la carte selections. Right now, the oligarchy robs the public with government help.
Back when I had my 4 GHz BUD (big ugly dish), I could get a wide variety of programming packages. The 12 GHz firms (only two, due to limited spectrum) copied the cable providers as dictated by programmers, so that you can only buy expensive bundles of 90% garbage. Very soon I will consign it all to the garbage bin.
It’s surprising to see on Ricochet an article defending such blatant political corruption, as if American businesspeople were doing something shocking when trying to defend themselves against the depredations of crooked politicians caught in the act of making legislated payoffs to their favorites, at the expense of innocent citizens. I only wish the powers of government were being used to catch and prosecute the crony socialists, not the corporate representatives of the widows and orphans (and retirees) whose property rights are being savaged.
In addition to KP and EJ–the tax code in general, nor subsidies in particular, should be used for social engineering–I offer the following:
It’s a company management’s fiduciary duty to the company’s owners–the ones whose money is actually at risk in an enterprise–to see to the company’s, and those owners’, welfare and not others’. Private sector businesses are not social welfare agencies, nor should they be.
Such a review may, in fact, be appropriate. Keep in mind, though, that neither monopolies nor monopoly power are not illegal. Only the abuse of monopoly power is illegal.
Based on what illegal behavior, exactly? Don’t waste bandwidth on allegations or behavior you don’t like. Cite the court case and the ensuing conviction.
I’ve seen no evidence the FCC has moved to compensate the broadcasters for this, have you? If not, on what basis do you justify this taking?
This isn’t relevant, unless you can show the government needs this money, and for what purpose.
Eric Hines
I immediately thought of the tax code as well. Ethically, DISH Network’s action doesn’t seem very different from various loopholes regularly exploited by accountants and taxpayer households across the country.
Spectrum auctions are almost always universally labeled “disappointing” by the government. They are consistently overvalued.
Wireless carriers need/want huge amounts for the concept of TV everywhere. Video is a big hog. But so are video rights on budgets. Government doesn’t understand that. It makes no sense to pay high dollar for spectrum if you can’t afford the programming people want streamed over it.
The government does not pick winners and losers because the winners win without government assistance. What the government does is pick which of the various losers to keep on life support at taxpayer expense.
Seawriter
Not only that, has anyone ever noticed how often live streamed video channels freeze up for buffering? I’ve got a (fully wired) fast broadband connection from Time Warner Cable, and a chronic case of digitus interruptus for a couple of years now.
It was so bad on MLB.TV that I had to cancel. Netflix was down a couple of weeks ago. Acorn is hit and miss every other night. Dealt with tech help, etc., but it may come down to living in a college-adjacent neighborhood, with torrents of students downloading video every evening. The Bandwidth Bandits.
Not enough mental bandwidth to deal with the whole net neutrality regulatory elephant squatting atop our cable modems, or the way the White House turned Tom Wheeler into their marionette, Dilly Dally in a dark alliance with Mr. Bluster.
Just please if we ever press the “undo” button all the wickedness of this administration, that somewhere between repealing Obamacare, unplugging mullahs with centrifuges, etc. please let the FCC go back to their narrow mandate, clearing channels for honest communicators and customers, sans pirates and brigands.
This is exactly right- I commented on the alleged bandwidth limitation a few years ago in the context of the “Fairness Doctrine”.
Because channel numbers are now virtual, it’s no longer necessary for stations to be anchored to their old analog frequency. Now 74% of all television in the US is in the UHF band. Of the 26% in the VHF band only 2% are in the area of channels 2 through 6 adjacent to the FM band.
To free up this area some more, two stations in Los Angeles attempted to share a single bandwidth in the summer of 2014. KLCS and KJLA, the PBS affiliate and a Hispanic language station each successfully pumped out a high-def channel and three standard-def sub channels. The FCC is now trying to convince broadcasters to give up the rights to their sub channels and individual signal.
That’s because we are ALL supposed to be winners, right? After all, we don’t want losers to feel bad about themselves.
To elaborate on the “picking winners and losers” argument in several comments above, there are huge drawbacks to these silly small business discounts. What, exactly, is a small business supposed to do with nationwide spectrum?
Competition in the wireless industry is not going to be brought about by some plucky new startup. This isn’t a widget maker trying to build a better mousetrap. This game is all about scale. The FCC already has to rig the competition to keep two companies with somewhat less scale floating on their own: Sprint, with no backbone network and terrible spectrum, and T-Mobile, with no backbone, but an improved spectrum position thanks to their AT&T breakup fee.
Rather than manipulating the competitive landscape through merger regulation and spectrum rules, the FCC should encourage a free and open market by moving as much spectrum into private hands as possible, regardless of company size or existing market share.
If the industry need more competition, it will likely need to come from behemoths like Google, Comcast and, yes, even Dish.