DISH DISH Network Corporation

By Ryan Knutson, Shalini Ramachandran and Thomas Gryta 

Dish Network Corp. gave some ground in its tangle with federal regulators for wireless licenses.

Two affiliates of Dish have surrendered their claims on about $3.5 billion of spectrum licenses after they failed to secure small-business discounts. The entities, however, will retain about $9.8 billion of the licenses they won in an auction by the Federal Communications Commission. They paid the FCC a $413 million penalty Thursday for defaulting on about 200 licenses. The default on the roughly 200 licenses resulted in a penalty of more than $500 million.

Stepping away from the access to airwaves comes after the FCC concluded this summer that the $13.3 billion in winning bids by the two Dish-backed companies--Northstar Wireless and SNR Wireless--didn't qualify for a 25% small-business discount because Dish effectively controlled the entities.

The ruling was a blow for Dish Chairman Charlie Ergen, who has been amassing a hefty holding of spectrum despite not offering wireless service to customers. Dish's affiliates have maintained that they qualify as small businesses under the FCC's rules and are appealing the disqualification in federal court.

Mr. Ergen said this summer the FCC's decision to reject the discounts made it less likely Dish would enter the wireless business, and more likely it would sell or lease the airwaves. "I'm not going to cry about it or lose any sleep over it," Mr. Ergen said during a conference call with investors in August. "It's just disappointing."

At the auction, which ended in January, Dish's affiliates came away with nearly half of the wireless licenses sold, or about 700. Their winning bid total was second only to AT&T Inc. and ahead of Verizon Communications Inc. Dish itself didn't have any winning bids.

Dish's partners could still have to pay more, however. The $3.5 billion worth of airwave licenses Dish is relinquishing must be re-auctioned. If the airwaves sell for less than that amount, they must pay the difference. Dish has provided a guarantee to the FCC to cover the difference, a person familiar with the matter said.

On Thursday, the entities wired $413 million to the FCC to cover the penalties, less funds they already have on deposit with the agency.

That auction won't occur until after the conclusion of another major auction happening next March, an agency official said.

Paying the full price for the licenses could theoretically lift some restrictions that apply to small business bidders. But the Dish entities are unlikely to take advantage of that in the near term as they continue to assert that they are eligible to receive small business discounts.

In September, SNR and Northstar sued the FCC in the U.S. Court of Appeals in Washington, asking the court to overturn the FCC's decision that neither company qualified as a "very small business" under the agency's rules. If their legal challenge succeeds, they would be able to claim all the licenses they had winning bids for in the auction, the official said.

Write to Ryan Knutson at ryan.knutson@wsj.com, Shalini Ramachandran at shalini.ramachandran@wsj.com and Thomas Gryta at thomas.gryta@wsj.com

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(END) Dow Jones Newswires

October 01, 2015 18:48 ET (22:48 GMT)

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