T-Mobile US (NYSE:TMUS) told the FCC that the agency should prohibit Dish Network (NASDAQ: DISH) and its designated entity (DE) partners from bidding in the future on AWS-3 licenses on which the Dish DEs "selectively" defaulted. T-Mobile also wants the FCC to consider Dish and the Dish DEs "former defaulters," requiring them to provide 50 percent greater upfront payment if they want to participate in the upcoming 600 MHz incentive auction.

The position, outlined last week in a letter to the FCC, indicates that T-Mobile is taking as hard a line as AT&T (NYSE: T) against Dish and its partners, which the larger carriers have accused of manipulating the bidding process in the AWS-3 spectrum auction that ended in January. Dish has said that it followed all of the FCC's rules, but the FCC voted to strip Dish's DE partners of their status as small businesses and removed a 25 percent bidding discount they had applied for.

Dish's two DEs, Northstar Wireless and SNR Wireless, made $13.3 billion in gross provisional winning bids for 702 licenses during the FCC's AWS-3 spectrum auction earlier this year. Only AT&T spent more money in the event. The DEs hoped to receive a 25 percent small-business credit, lowering their total expense to around $10 billion, but the FCC ruled that they should not receive the discount since the agency said they are effectively controlled by Dish. (Dish disagrees with that ruling and the issue is currently in court.)

In response, last month Dish's DEs, in which Dish holds an 85 percent economic stake, decided to give up around a third of the paired AWS-3 spectrum licenses they won earlier this year in the AWS-3 auction -- mostly spectrum licenses covering New York, Chicago and Boston. The licenses that Dish's DEs are relinquishing represent around $3.4 billion worth of their winning bids; they will keep about $9.8 billion worth of the licenses they won at the auction.

Dish will have to pay a 15 percent penalty on the gross value of these bids, or $515 million, and the FCC can move to re-auction them. Dish's DEs could potentially be able to bid on them in the future, a point AT&T has sharply criticized.

"By winning licenses using entities that violated the rules, and then selectively defaulting, Dish deprived other bidders of the ability to fairly win licenses that they intended to immediately put to use. Dish also has seized control of the timing of the release of spectrum assets from the FCC which is now faced with delaying deployment of the defaulted licenses until a re-auction sometime in the future," Kathleen O'Brien Ham, T-Mobile's senior vice president of government affairs, said in the letter. "And, to the extent that it reacquires some or all of the defaulted licenses, absent Commission action to prevent it, Dish (which has yet to serve a single wireless customer) will effectively give itself an extension of time to meet the build-out requirements for the defaulted licenses -- an outcome that should trouble the Commission -- again with potentially little to no financial consequence for their improper behavior. The dangers and distortions of insincere and strategic bidding designed to prevent a rival from acquiring licenses is well documented and should not be countenanced by the Commission."

A Dish spokesman declined to comment.

Ham said that "for these reasons, prohibiting Dish and its surrogate DEs from re-acquiring AWS-3 spectrum in a subsequent auction would appropriately punish that behavior and is consistent with the Commission's often-stated emphasis on maintaining the integrity of the auction process."

"In contrast, allowing the Dish DEs to re-acquire licenses on which they selectively defaulted creates the perverse incentive for Dish surrogates to participate in a re-auction for the sole purpose of bidding up the licenses to avoid or minimize the penalties they otherwise would incur (perversely amounting to the FCC shouldering the carrying costs of those licenses that Dish and its DEs otherwise would have to bear, just as other auction winners must do)," she added.

For more:

- see this FCC filing (PDF)

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