DC Circuit Arguments Slam FCC on AWS-3 Designated Entities

FCC handling of designated entities SNR Wireless and Northstar Wireless got probing Friday by Judge Harry Edwards as he repeatedly criticized the idea that ostensible investor protections gave Dish Network de facto control of the DEs when the FCC hadn't worried about those same protections in past DE situations. Judge Patricia Millett tore into the DEs' assertion that they had made substantive changes from the original terms of their investor agreements with Dish, in the nearly two-hour U.S. Court of Appeals for the D.C. Circuit oral argument (docket 18-1209). The DEs are challenging the FCC's 2020 rejection of the AWS-3 bidding credits -- the second time the agency did so (see 2011230062). New Street Research's Blair Levin said the panel appeared to side with FCC arguments, as was expected.

"We don't send a case like this back, with a long, long opinion" unless there's a concern the challenged parties "don't really understand what it is they need to do," Edwards said. Agencies "don't have to hand-hold them through the process, [but] you have to explain to parties what counts on the scale and what doesn't count on the scale."

Judge Ketanji Brown Jackson said the D.C. Circuit prior panel didn't seem to be ordering that the agency and DEs work out a cure but that the DEs get a second shot at curing control problems. The FCC wasn't obligated to permit a cure, but it "is supposed to be a force for good," helping DEs get leverage against investors through discussions, said Hogan Lovells' Cate Stetson, outside counsel for the DEs. Millett disagreed that the 2020 opinion indicated the DEs have a right to negotiate with commissioners or the Wireless Bureau. Stetson said that precise language isn't in there, but it's standard for such staff discussions to occur and the court was instructing the FCC "to do what it does."

“We are not asking for an iron-clad opportunity to sit down and cure every deficiency," Stetson said, "We are looking for guidance" that would give the DEs a little more leverage in dealing with Dish.

The DEs had fair notice under the FCC's 2015 order of what needed to change, and the DEs' axing the management services agreement left untouched several other problematic areas, said commission attorney Maureen Flood. The totality of circumstances, plus superficial changes to put rights that give the DEs a guaranteed minimum price for selling out to Dish, “you are led to the same place the commission and the court was at” previously: the DEs are too heavily incentivized to sell to Dish, Flood said.

Millett and Stetson debated whether terms of the DEs’ ability to lease spectrum without Dish approval had changed among different iterations of the DE/Dish agreements. "You didn't just cure things, you changed things that created new problems," Millett said. Put options and letting an investor have a say in the leasing of major assets are common investor protections, and the FCC has never before found impermissible control due to the existence of a put, Stetson said. Edwards indicated he was troubled by the agency finding de facto control of the DEs due to the existence of puts plus often-vague issues of totality of control when it hadn't done so in past comparable DE situations.

Millett and Flood spent minutes discussing whether bureau decisions can be taken as road maps for what commissioners will decide. The court has found in the past that the commissioners can't be bound by staff decisions, Flood said. “They are your agent,” Millett responded, calling it “troubling” that the agency feels bureau decisions have no weight as indicative of likely agency direction. Flood said since the commissioners aren't bound, there's no point in directing bureau staff to sit with DEs potentially for months, working out terms. Edwards retorted that such bureau input "is not useless" to an attorney seeking at least some guidance. It's technically correct it wouldn't be an abuse of FCC discretion to not have such meetings, but it's "ungenerous" of the agency to maintain such talks are valueless, he said: "That's ridiculous."

Jackson and Millett pushed back on DE arguments it was "punished" by a lack of FCC guidance on how to cure the Dish de facto control issues. The judges said the DEs agreed at the auction's outset they would put up the money necessary to buy spectrum rights, so not getting a discount off that price isn't punishment. Stetson said the DEs committed to pay as DE status.

Asked if SNR's petition is moot because the company is now wholly owned by Dish, Stetson said SNR notified Dish it intends to exercise its put terms, but it hasn't filed an application with the FCC seeking agency approval of a transfer of control. It said that application will likely be filed this spring.