August 2015 – Wetmachine

Every now and then, the D.C. Circuit throws you an interesting little curve ball. This opinion issued last week would appear to knock a serious hole in the argument made by the cable and telcos against the FCC’s reclassification of broadband as a Title II telecom service.

The case, Home Care Association of America v. Weil (HCAA) addresses the legal question that takes up about a quarter of the main brief for petitioners: does the Brand X decision that the Telecom Act was “ambiguous” mean that the FCC gets deference under the Chevron Doctrine when it reexamines the question in 2015 and comes out the other way? Or can Petitioners argue that the statute is not ambiguous and explicitly precludes the interpretation the FCC now gives it? Under HCAA, the D.C. Circuit appears to find that once the Supreme Court decides a statute is ambiguous, that settles the question. If the statute was ambiguous for an interpretation in one direction, it is still ambiguous — and thus subject to Chevron deference — when the agency reverses course. Nor does the agency have a higher burden when it reverses course then it did when it first made the decision.

Good lawyers can always distinguish cases, of course — as can a conservative panel of the D.C. Cir. that wants to find a particular result. Furthermore, Petitioners have lots of other arguments to make that are not impacted by the HCAA decision. Nevertheless, it seems clear this case is good news for the FCC (and those of us who support the FCC), and Petitioners will no doubt need to spend a good portion of their reply brief explaining why HCAA doesn’t dictate the result here.

I explain in more detail below . . . .

Generally, I loath the cliche “be careful what you wish for.” But I can think of no better way to describe the vast consternation in the spectrum world over the licenses won by SNR and Northstar in the AWS-3 Auction. If you don’t recognize the names off-hand, that’s because most of the time people just refer to them as the “DISH Designated Entities” or the “DISH DEs.” As detailed in many articles and petitions to deny SNR and Northstar their DE credits (totaling $3.3 billion), most people regard SNR and Northstar as “sham” or “fake” DEs, owned and controlled by DISH.

But here’s the funny thing. As far as anyone can tell from the filings, DISH, SNR and Northstar followed the precise letter of the law. And, what’s even more surprising, if you look at the results, this was the most successful auction ever for DEs. Both SNR and Northstar are minority owned (as defined by the FCC’s rules). All the “loopholes” DISH used with regard to ownership interest and bidding coordination were designed to make it easier for DE’s to get capital, win licenses, and benefit from partnering with a larger telecommunications company — which SNR and Northstar certainly did.

As a result, as noted by my usual frenemies at Phoenix Center, as measured by every traditional metric, the AWS-3 auction was the single most successful auction in awarding licenses not merely to small businesses, but to minority owned firms specifically. By every past criteria ever used, the AWS-3 auction results ought to be celebrated as a ginormous success for the DE program. Every aspect worked exactly as intended, and the result was exactly what people claimed to want. Indeed, as noted by Phoenix Center, even the $3.3 bn in bidding credits was in line with other spectrum auctions as a percentage of revenue.

Except, in classic “be careful what you wish for” fashion, when you scaled these results up to their logical outcome, no one was really happy with the result (except for DISH). Which has now prompted FCC Chairman Tom Wheeler to circulate an order denying SNR and Northstar their designated entity credits. As a result, SNR and Northstar (meaning their financial backer DISH) must cough up $3.3 bn within 30 days of issuance of the Order or — unless granted a stay or extension — the licenses will revert back to the FCC. Oh yes, and the FCC might need to deduct an additional $10 bn from the auction revenue. And there might be default charges (the FCC charges a penalty for defaulting on payments so people don’t bid and hope they find the money later). Or it might get more complicated, since there has never been a clawback of this magnitude before.

In Part 1, I will explain what exactly happened, why DISH did not violate the rules as written and why SNR and Northstar are technically “minority owned.” Along the way, we will consider some delightful ironies about the whole business.

In Part 2, I’ll tackle why the FCC decided that it could yank the DE discount anyway, and try to figure out what happens next.

More below . . . .

Month: August 2015

New D.C. Circuit Decision Knocks Fairly Large Hole In Anti-Net Neutrality Case.

So What’s This “Designated Entity” Thing, and Why Does DISH Owe The FCC $3 bn When They Didn’t Break The Rules?