February 2, 2015 / 10:57 PM / 3 years ago

UPDATE 1-FCC member seeks investigation of Dish auction discount

(Adds FCC official, Pai office and Dish comments, details of the bidding discounts)

Feb 2 (Reuters) - A member of the U.S. Federal Communications Commission on Monday called for an investigation of a $3 billion discount granted to partners of Dish Network Corp in the government's recent auction of wireless licenses.

Republican Commissioner Ajit Pai of the five-member FCC called on agency Chairman Tom Wheeler to review the award, saying that giving such a lucrative break to a company as large as Dish "makes a mockery" of the small-business discount program at the taxpayers' expense.

In a relatively common process for FCC auctions, Dish and partners invested in separate companies with little to no revenue that can receive a 25 percent discount in auction bidding as "very small businesses."

The companies spent $13.3 billion at the record-setting auction but provisionally received a $3.3 billion discount. The government gives such discounts with the goal of helping new entrants to the industry better compete with incumbents.

Following standard procedure, FCC officials will now scrutinize the details of legal and financial ties of those separate companies to Dish and other corporations to ensure their independent operations.

An FCC official on Monday said the agency will evaluate whether applicants are the ones "running the show" by reviewing agreements with Dish on bidding, financial dealings, management, day-to-day operations and network sharing.

The agency will also study what the companies' comments and actions after the auction indicate about their relationship, as well as data on their bidding activity, the official said.

Dish had an 85 percent non-controlling ownership interest in the bidding entities, Northstar Wireless LLC and SNR Wireless LicenseCo LLC, which were also backed by financial firms Catalyst and BlackRock Inc.

FCC rules do not prohibit corporations from backing small entities, but are meant to reject firms that serve as a front for corporations or plan to quickly flip the acquired spectrum.

"Our approach - publicly disclosed ahead of the auction - was based on (designated entity) investment structures that have been approved by the FCC in past wireless spectrum auctions, including structures used by AT&T and Verizon," a Dish spokesman said in a statement.

The FCC is also weighing whether to alter bidding credits eligibility and rules for its auction of highly coveted low-frequency airwaves planned for 2016. And an official in Pai's office said they would do whatever they can to close discount loopholes for that sale. (Reporting by Alina Selyukh in Washington and Luke Koshi in Bengaluru; Editing by Gopakumar Warrier and Christian Plumb)

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