By Thomas Gryta, Ryan Knutson and Shalini Ramachandran
Dish Network Corp. ran away with nearly half of the wireless
licenses sold in a record setting government auction, leaving a
large slug of the scarce resource in the hands of a company that so
far has no ability to offer cellphone service.
The satellite TV broadcaster, working with partners including
mutual fund giant BlackRock Inc. and employees of private-equity
firm Madison Dearborn Partners, topped wireless market leader
Verizon Communications Inc. for licenses in New York, Chicago and
Boston; won 702 of the more than 1,600 licenses on offer; and
placed $13.3 billion worth of bids, topping all rivals except
AT&T Inc.
In what appeared to be an unprecedented move, Dish also secured
all of its winning bids through entities that qualified for a 25%
discount set aside by the Federal Communications Commission for
small businesses. As a result, Dish and its partners will only owe
about $10 billion, saving more than $3 billion that otherwise would
have been paid to the government.
The aggressive showing deepens the intrigue around Dish Chairman
Charlie Ergen's intentions for the wireless business. Dish and Mr.
Ergen have amassed a trove of valuable wireless spectrum the past
several years, but the company doesn't have a cellphone network or
an agreement with another carrier that would allow it to start
selling wireless plans.
The moves also have raised grumbling about Dish's access to
bidding credits. Former FCC officials said big companies have set
up entities to try to take advantage of similar discounts in the
past, but on a much smaller scale, and regulators sometimes
disallowed them after the fact. Dish may be in perfect compliance
with the rules, however, one of the former officials said.
Roger Sherman, chief of the FCC's Wireless Telecommunications
Bureau said in a blog post Thursday that bidders would be reviewed
to make sure they complied with the rules.
Dish declined to comment on its performance in the auction,
citing FCC anticollusion rules that don't lift for several more
days. "The auction's success is a win for the FCC, the American
Taxpayer, the Public Safety community and small business," the
company said in a statement.
The auction that closed this week was the first major sale of
spectrum by the FCC in six years. It drew an enthusiastic response
from the industry, pulling in $44.9 billion in bids, twice the
total from the last auction, in 2008. AT&T topped the bidding,
spending $18.2 billion for 251 licenses. Verizon committed to pay
$10.4 billion for 181 licenses, and T-Mobile US Inc. paid $1.8
billion for 151. Sprint Corp. didn't participate.
AT&T paid the most for a single license: $2.8 billion for
one of the main licenses for the New York City area. Three main
licenses in the area were bought by Dish for $3.4 billion. Many of
the licenses Dish acquired were for one-way uplink airwaves, which
are less attractive and weren't aggressively sought by other
carriers.
Dish could try to make money of its growing pile of spectrum in
a number of ways: Build a network to offer wireless service,
partner with an existing carrier, lease it to others who might need
it, or treat it as a financial asset and sell it when it
appreciates.
There are risks as well. Another major auction is planned for
2016, and new competitors like Google Inc. and Cablevision Systems
Corp. are eyeing the wireless business.
Former Republican FCC Commissioner Rob McDowell, who stepped
down in 2013, said Mr. Ergen told him and other officials of his
vision of becoming a wireless carrier while he was on the
commission.
"I think his strategy is built around a confidence that spectrum
will only become more valuable going forward," Mr. McDowell said.
"The market might be telling us...that with the explosion of the
Internet of everything, where wireless connectivity will be the
oxygen, spectrum that was thought of before as being junk is now
incredibly valuable."
Dish won its licenses through entities called SNR Wireless
LicenseCo and Northstar Wireless. Filings with the FCC describe
both as a "very small business" with revenue below $15 million.
Northstar has an address in Fairbanks, Alaska, and SNR in Falls
Church, Va. Filings indicate Dish owns 85% of each.
Dish and its affiliated entities were bidding aggressively in
the auction, staying active into the late rounds in 19 of the 20
most expensive licenses. Often more than one Dish entity was
bidding, and they frequently each bid the same amount in the same
round on the same license. In one of the major New York licenses,
both Dish entities bid the winning amount of $1.32 billion.
Under FCC requirements, Dish has to offer wireless service to
40% of the population covered by its older spectrum licenses within
three years. By March 2021, it has to build out to at least
70%.
Mr. Ergen has said that selling the spectrum to another carrier
or building out a wireless network from scratch would be relatively
unlikely options.
Major corporations have previously won small business credits.
In a 2000 auction, the old AT&T's wireless division backed
Alaska Native Wireless LLC, an Anchorage-based entity that filed
for a small business credit. Salmon PCS LLC, which also won a small
business credit as a bidder in that auction, was backed by Cingular
Wireless. Doyon Communications, which participated alongside Dish
in the latest auction, was also a backer of Alaska Native
Wireless.
The credits were set up by a 1994 law to make sure some spectrum
licenses are awarded to entities controlled by women, minorities
and small businesses. Over the years, one former FCC official said,
"the larger guys got smart" and set up partnerships with entities
that qualified.
Stephen Wilkus, who worked at Alcatel Lucent as a wireless
engineer for 27 years, quit a year ago to take part in the spectrum
auction. After putting together a partnership that included some
family members as investors, some with a controlling interest in
other companies, he was advised by three different attorneys that
he wouldn't qualify for small business credits. Given that, he was
irked to see entities related to Mr. Ergen, a billionaire, obtain
that same credit.
Mr. Ergen has pursued a variety of avenues into the wireless
business over the past three years, so far without success. He
tried to buy the carrier MetroPCS, which ultimately merged with
T-Mobile, and made an unsuccessful bid in 2013 for Sprint, losing
out to Japan's Softbank Corp.
Finding a way into wireless is crucial, because the days of
heady growth in the company's core satellite TV business are
numbered. Pay TV operators are battling rising costs and the onset
of "cord-cutting," as consumers drop connections in favor of more
affordable online video options.
Kate Linebaugh contributed to this article.
Write to Thomas Gryta at thomas.gryta@wsj.com, Ryan Knutson at
ryan.knutson@wsj.com and Shalini Ramachandran at
shalini.ramachandran@wsj.com
Access Investor Kit for Deutsche Telekom AG
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=DE0005557508
Access Investor Kit for SoftBank Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=JP3436100006
Access Investor Kit for AT&T, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US00206R1023
Access Investor Kit for BlackRock, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US09247X1019
Access Investor Kit for Cablevision Systems Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US12686C1099
Access Investor Kit for Deutsche Telekom AG
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US2515661054
Access Investor Kit for DISH Network Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US25470M1099
Access Investor Kit for DIRECTV
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US25490A3095
Access Investor Kit for Verizon Communications, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US92343V1044
Subscribe to WSJ: http://online.wsj.com?mod=djnwires