Stop DISH’s Spectrum Squatting
&
Make Spectrum Great Again!
DISH’s spectrum squatting is bad for consumers, bad for the economy, bad for the Internet, and bad for America.
What has DISH done?
Spectrum policy is important, but it’s a complex, sometimes boring topic, so it’s easy for bad behavior to fly under the radar. What DISH has done over the past five years is a case in point.
DISH, a satellite TV provider, has been trying for a long time to figure out something to do besides satellite TV [1]. In 2011, DISH saw an opportunity. Two small satellite-phone companies, DBSD and TerreStar, had gone bankrupt. While their actual businesses were flops, they had received – from the government, for free – sizable chunks of spectrum, fairly similar to the spectrum already used by normal cellular networks. The Federal Communications Commission hadn’t allowed cellular service in these bands because it was trying to foster the satellite-phone market, but this had largely failed. (Hence the bankruptcies.)
DISH bought DBSD and TerreStar for low prices, knowing full well that their existing legal authority covered satellite-phone use, not cellular use. Existing rules on the books did allow the companies to use their spectrum terrestrially, but only in a limited fashion, and only as long as they maintained their satellite businesses. So DISH applied to the FCC to make an exception and give it much broader – and much more valuable – cellular authority.
Promises, promises…
What did DISH promise in return? It said it would “launch a hybrid satellite and terrestrial mobile and fixed broadband network…to provide American consumers with greater choice for mobile broadband services.” It talked about “ushering in competition” [2] – in particular, “creating a competitor against the mobile broadband incumbents” [3] (i.e. Verizon and AT&T), against whose “market power” DISH claimed it would provide “a much needed check.” [4] DISH also talked about “optimizing underutilized spectrum” amid “a looming spectrum crunch,” all while “continuing to ensure the availability of a robust [satellite-phone] offering.” [5]
“DISH’s planned entry into the wireless market,” the company gushed, “could not come at a better time for American consumers,” groaning under the yoke of the telecom duopoly and facing ever worsening network congestion [6]. DISH claimed that “unleashing the 40 MHz of S-Band spectrum” held by DBSD and TerreStar would, on a macroeconomic level, “increase GDP by almost $7 billion, create 28,000 jobs, and increase government revenues by over $1.87 billion.” [7] Meanwhile, DISH itself, it said, “is prepared to spend billions of dollars more on infrastructure and employ tens of thousands of Americans” in order to “deploy and operate a full-fledged terrestrial broadband wireless network.” [8] In fact, it wasn’t just going to build; it was going to build “aggressively” [9] and “expeditiously.” [10]
The road not taken
Other parties, including T-Mobile and MetroPCS, argued that the FCC should consider alternate ways of freeing up the spectrum rather than simply handing over expanded rights to DISH for free. Perhaps some or all of the spectrum could have been auctioned off – generating billions of dollars for taxpayers – with DISH retaining certain satellite rights or getting a discount at the auction. But DISH complained that any complex rule changes would waste valuable time: “If…the Commission considers a fundamental change in the licensing and allocation…[then] the spectrum is likely to remain fallow for years.” (DISH also made veiled legal threats, raising the specter of “potential litigation.”) [11]
Granting DISH’s wishes
Ultimately, DISH got what it wanted. The FCC concluded that, if it was going to allow cellular operations within this piece of satellite spectrum, it would have to give the rights exclusively to DISH. Otherwise, third-party cellular operations might interfere with DISH’s satellite-phone system. Most of all, the FCC wanted “to make this spectrum available efficiently and quickly.” [12] It emphasized that “[t]imely deployment of wireless networks in this band is vital.” [13] It acknowledged that some commenters had doubts about DISH’s true intentions but noted that DISH had “committed to ‘aggressively build-out a broadband network’” and stated starkly:
“We expect this commitment to be met…”[14]
That was in 2012. What’s happened since then?
Nothing.
Really? Nothing?
Really.
Has DISH launched a network? No. It hasn’t even begun to. And, in the words of the FCC itself, “DISH’s Co-founder, Chairman of the Board, President and Chief Executive Officer” – Charlie Ergen – “has stated that it has no current plans for build-out of its own spectrum.” [15]
Has it ushered in competition, providing a much needed check on the mobile broadband incumbents? No. In fact, when asked this February if there was “room” for a fifth mobile operator in addition to Verizon, AT&T, T-Mobile, and Sprint, DISH’s CEO said point blank, “I don’t personally see a fifth carrier…I don’t personally think you could start a fifth network…[A]t least DISH couldn’t.” [16]
Has it put underutilized spectrum to good use and spent billions on infrastructure, creating jobs and contributing to economic growth? No. Indeed, by DISH’s own logic, it’s effectively destroyed tens of thousands of jobs and billions of dollars of GDP by ensuring that so much spectrum, which would otherwise have been deployed, continues to lie fallow.
And what about that satellite-phone system that the FCC was so concerned about protecting from interference? It doesn’t exist. Shortly after the FCC granted DISH’s wish, DISH shut down the business and wrote off the satellites. Mission accomplished.
(Oh, and, to add insult to injury, DISH is currently giving itself huge tax deductions as it depreciates all the spectrum it’s purchased. We’re not sure this is actually legal, [17] but DISH is doing it anyway.)
Don’t say we didn’t warn you…
So what’s DISH’s plan? If you ask anyone in the financial world, they’ll tell you that Plan A is simple: sell the spectrum to Verizon or AT&T. One investment bank even treats the prospect of DISH building its own network – as it committed to the US government that it would “aggressively” do – as a “bear case”: highly unpleasant but, thankfully, improbable.
It’s hard to act too surprised. After all, even back in 2011, one anonymous commenter on a telecom industry blog wrote:
“Everyone knows Ergen is not going to build out a network. No one trusts him, including the FCC. They are not going to put their eggs in that basket because they know he will make them look foolish. It is inevitable. This guy, as smart as he is, will never build the network.”
It wasn’t just anonymous commenters who were suspicious. In fact, several public-interest groups had proposed a quid-pro-quo to the FCC: DISH would get to use its spectrum for a cellular network, but, to guard against market consolidation, it would be prohibited from selling the spectrum to Verizon or AT&T. But the FCC rejected this proposal, arguing that its existing rules would already allow it to shoot down any harmfully anti-competitive transaction.
Meanwhile, DISH has tried to sell its spectrum to the big carriers. But, according to media reports, the potential buyers found DISH’s asking price “ridiculously expensive” and “balked.” [18] Nonetheless, DISH keeps holding out for more and twiddling its thumbs.
Who cares?
All of this leaves the country in an absurd position. In the name of making spectrum available to consumers as quickly as possible and protecting a nonexistent satellite-phone operation, the FCC handed a windfall profit to a multi-billion-dollar company (with a billionaire owner) that has gone back on every single promise it made. Consumers haven’t benefited; they’ve suffered, even if they haven’t realized it.
Why does this matter? Because the cost and availability of wireless spectrum impact everyone. These days, smartphones are ubiquitous. Work, play, research, romance: it all happens on mobile devices. When the supply of usable spectrum increases, mobile networks get cheaper and better. Download speeds increase, congestion falls, and the price of service drops. In fact, one big reason that phone bills haven’t skyrocketed as data traffic has exploded is that the FCC has done a great job over time of freeing up more and more spectrum for cellular service and Wi-Fi.
So, by hoarding spectrum and just sitting on it, DISH has made your mobile devices slower, less reliable, and more expensive to use than there’s any reason for them to be. It’s not a small effect, either – the amount of spectrum DISH is now squatting on, including not just what it purchased from the bankrupt satellite companies but additional bands it’s also hoarding, amounts to about 1.5 Verizons’ worth in terms of total capacity. That’s spectrum that could have been put to good use. Instead, it’s being held hostage because a billionaire stubbornly believes it can make him even richer.
What next?
Fortunately, there’s a way out. When the FCC gave DISH the right to use its satellite-phone spectrum for a cellular network, it imposed a clear, strict deadline. If DISH doesn’t provide reliable coverage and service to 70% of the population in each of 176 geographic areas by March 7, 2020, then its licenses automatically terminate. The spectrum itself doesn’t go away, of course; the FCC will just re-auction it, ending the whole pointless saga of DISH’s spectrum squatting. While March 7, 2020 may sound far away, it really isn’t. Building out networks is a slow, difficult, expensive process; going from 0% to 70% in less than four years is likely impossible. Indeed, drawing on sworn statements from DISH’s own key network experts, the company itself said in 2012, while arguing against tough proposed build-out requirements, that “[e]ven at four years, a 30 percent…coverage requirement is aggressive and likely unrealistic.” [19] If 30% in four years is “aggressive and likely unrealistic,” then what do you call 70% in four years? A lost cause.
So why isn’t DISH worried? Why did DISH CEO Charlie Ergen say in February that the 2020 deadline isn’t “anything that keeps us up at night”? [20] Because he expects to keep getting special treatment. Again, ask anyone in the financial world: they’ll laugh off the deadline, confident that the FCC will never really enforce it. Somehow or other, Wall Street believes, DISH will get away with it all.
But why? It doesn’t make any sense. DISH hasn’t lifted a finger to meet any of its promises. The favors the FCC granted it in 2012 were all obtained under false pretenses. DISH said it would create jobs; it hasn’t. It said it would “enter the market as a new and vibrant competitor” against Verizon and AT&T; it hasn’t [21]. It said it would “unleash” great quantities of spectrum; it hasn’t [22]. Most of all, it said it would provide coverage to 70% of the people in the country on a specified timeframe, fully aware that, if it didn’t, all of its rights would vanish in an instant. But by the sworn statements of its own executives, it’s already out of time; there’s no way it can honestly meet the deadline. It’s dithered for far too long.
So DISH can wait another four years and continue to waste the nation’s spectrum, hoping to bamboozle the FCC with a bunch of excuses about how, even though it made no attempt to live up to its end of the bargain, it deserves to keep its licenses. That’s what we expect it to do. But it’s not going to work. The FCC is going to look at the history, look at DISH’s actions, and realize that the company was never what it claimed to be.
Some free advice to make spectrum great again
The jig is up. So why drag the process out for four more years? There’s nothing stopping DISH from just doing the public a favor, cutting its losses, and giving back the spectrum. Four more years of waste and delay add up to four more years of slower downloads, crummier streaming, and cracklier calls. DISH, it’s time to stop playing games with our airwaves. Cancel your licenses and move on. Now, we know you’re very busy not building out a network, so to help you get started we found a tutorial explaining how to cancel your licenses online:
It looks simple. No filing fee required.
One way or another, it’s time to end DISH’s shenanigans and MAKE SPECTRUM GREAT AGAIN!
Endnotes
[1] It even bought Blockbuster Video, only to shut it down two years later. Remember Blockbuster?
[2] DISH Application for Transfer of Authorizations, August 22, 2011, p. 3.
[3] DISH Application for Transfer of Authorizations, August 22, 2011, p. 22.
[4] DISH Application for Transfer of Authorizations, August 22, 2011, p. 26.
[5] DISH Application for Transfer of Authorizations, August 22, 2011, p. 3.
[6] DISH Comments in WT Docket No. 12-70, May 17, 2012, p. 2.
[7] DISH Comments in WT Docket No. 12-70, May 17, 2012, p. 3.
[8] DISH Comments in WT Docket No. 12-70, May 17, 2012, p. 8.
[9] DISH Comments in WT Docket No. 12-70, May 17, 2012, p. 18.
[10] DISH Comments in WT Docket No. 12-70, May 17, 2012, Exhibit 2: Declaration of David Zufall, p. 1.
[11] DISH Comments in WT Docket No. 12-70, May 17, 2012, p. 16-17.
[12] FCC AWS-4 Report & Order, December 11, 2012, p. 3.
[13] FCC AWS-4 Report & Order, December 11, 2012, p. 75.
[14] FCC AWS-4 Report & Order, December 11, 2012, p. 75.
[15] FCC Memorandum Opinion & Order re: SNR and Northstar, August 18, 2015, p. 44.
[16] DISH 2015 Q4 earnings call, February 28, 2016.
[17] The Tax Court has held that taxpayers may only amortize intangible assets that are held in connection with the conduct of a trade or business. In particular, in a 2011 decision, the Court upheld the IRS’s conclusion that “the mere grant of a license by the FCC is not sufficient for an activity to qualify as an active trade or business” (see Broz v. Commissioner, 137 T.C. No. 5). In 2013 the U.S. Court of Appeals for the Sixth Circuit affirmed this decision on appeal. In our view, the DISH entities that hold terrestrial spectrum licenses are clearly not conducting any trade or business – they’re not doing anything with them – and hence should not amortize the cost of the licenses.
[18] David Crow, “US wireless: After the spectrum rush,” Financial Times, February 17, 2015.
[19] DISH Comments in WT Docket No. 12-70, May 17, 2012, p. 22.
[20] DISH 2015 Q4 earnings call, February 28, 2016.
[21] DISH Comments in WT Docket No. 12-70, May 17, 2012, p. 20.
[22] DISH Comments in WT Docket No. 12-70, May 17, 2012, p. 2.