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Administrative Alchemy Yields Gold for DISH

FCC transmutes mobile satellite licenses into terrestrial/satellite licenses.

We reported in last May’s edition of FHH Telecom Law that the FCC had proposed to alter the satellite licenses held by affiliates of DISH Network to allow terrestrial operations.   DISH had bought the licenses out of bankruptcy proceedings, the satellite-oriented mobile communications business having proven not to be a viable business model, at least in this band for the original holder of the licenses. In connection with that acquisition, DISH urged the FCC to modify its licenses to permit (in addition to the Ancillary Terrestrial Component  (ATC) of those licenses) terrestrial service without any concomitant obligation to provide satellite service. 

The FCC had already made such terrestrial-sans-satellite service possible in 2011 by reallocating the pertinent 2 GHz band to permit, on a co-primary basis, both satellite communications and terrestrial fixed/mobile communications. All that remained was for the Commission to create technical and service rules for the new terrestrial service in this band (to be dubbed AWS-4) and modify the licenses accordingly. The Commission has now done that by a Report and Order issued just in time to be placed under DISH’s Christmas tree.

The proposal drew surprisingly little opposition, given the fact that DISH’s licenses would approximately triple or quadruple in value (from something over $2 billion to around $8 billion) as a result of the fundamental change effected by the license modification.   The limited wrangling that did occur at the FCC concerned the degree to which mobile operations in the new service would have to protect operations in the immediately adjacent, soon-to-be created, AWS “H” block. The FCC wanted to be sure that the H block downlink operations in the 1995-2000 MHz band would not suffer interference from the AWS-4 uplink operations in the 2000-2020 MHz band.  This necessitated placing some constraints on out of band emissions by the AWS-4 operator (DISH) that would marginally impede the utility of the 2000-2005 MHz portion of DISH’s spectrum.

Apparently never having been warned about the discourtesy of looking a gift horse in the mouth, DISH argued strenuously that the modified licenses it did not yet have should not be impaired by these protective measures for the H block. The FCC nevertheless stiffened its backbone and adopted strong measures to protect the H block – perhaps in part because there are only 10 MHz to be auctioned in this new band, and if five of them were impaired, the value of the licenses would be materially reduced.  

With that issue resolved, the FCC went on to adopt relatively standard service rules for the new service: EA-based license areas and build-out requirements of 40% of total population within four years and 70% within seven years.   The interesting quirk here is that the penalty for failure to meet the final benchmark is not loss of license (as the Commission recently imposed on WCS licensees) but loss of only those EAs where the build-out has not been met. This nice little stocking-stuffer permits DISH to simply abandon those EAs with marginal economic value to it since it would have little incentive to serve them anyway. Of course, this policy completely undercuts the utility of having satellite-based mobile operators in the first place – the very carriers who would have the technical ability to serve very rural areas economically are now no longer required or incentivized to do so.  

Under the service rules, DISH is now the only party authorized to provide such service, if it wants. But because the Commission has granted complete flexibility of use to the AWS-4 licensee, DISH itself has no obligation to provide satellite service at all. What’s more, a lessee or assignee of this spectrum can be relieved by DISH of any obligation to protect satellite operations in the territory involved. Without such protection, satellite service could not as a practical matter be offered in those areas. And once the obligation to protect satellite operations is removed by sale or lease, it is gone forever. 

In short, although the entire license modification arrangement adopted by the Commission was expressly set up to protect DISH’s right to provide satellite service at the same time that it offers terrestrial service, neither DISH nor its successors have any obligation to actually offer any satellite service whatsoever.

Several commenters had suggested that the FCC should not simply hand DISH a windfall by radically changing its licenses; rather, those commenters argued, the spectrum should be made available for others to bid on in a fair auction. This had been the recommendation of the Commission’s own National Broadband Plan.   As noted above, however, the FCC felt it had to protect DISH’s right to provide satellite service while relieving DISH of any obligation to provide that service.   So the FCC, ignoring its own recommendation to itself, regretfully gave DISH the windfall.

Finally, some commenters had sought the imposition of restrictions on DISH’s ability to lease, wholesale, or sell its license rights to the big carriers.  The FCC declined to impose any such conditions.   

There remains only for the FCC to complete the statutory process of modifying the DISH licenses.  Once that is done, the FCC will have completed perhaps the single largest act of public largesse in American commercial history.

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