U.S. court grants Dish affiliates new chance to win $3 billion in auction credits

WASHINGTON/NEW YORK (Reuters) - Two companies largely owned by Dish Network will have an opportunity to nullify about $500 million in fines and be eligible once again for $3.3 billion in credits for a wireless spectrum auction, if they can demonstrate that they are independent entities, a U.S. appeals court ruled on Tuesday.

FILE PHOTO: A Dish Network receiver hangs on a house in Somerville, Massachusetts, U.S., February 21, 2017. REUTERS/Brian Snyder/File Photo

Northstar Wireless LLC and SNR Wireless LicenseCo LLC won 43.5 percent of the wireless spectrum licenses up for bid in a 2015 government auction and expected to use credits covering 25 percent of the $13.3 billion in bids. But the Federal Communications Commission ultimately said the firms, which are 85 percent owned by Dish, were ineligible for the small business credits.

The FCC adopted new rules in 2015 to prevent companies from using similar tactics in future auctions.

After being denied the credits, Northstar and SNR did not complete all purchases of spectrum and were fined hundreds of millions of dollars. The exact amount depends on a final re-auction but the two firms have made partial payments to the FCC totaling about $500 million.

The appeals court said the FCC reasonably found that Dish exercised “de facto” control over the companies, but it must offer an “opportunity” for the firms to renegotiate agreements with Dish that could give them enough independence to satisfy the FCC. But the court added: “Nothing in our decision requires the FCC to permit a cure.”

Dish said it was “pleased this has been referred back to the FCC. We look forward, along with NorthStar and SNR, to working with the FCC to address any concerns they may have.”

Dish shares were up 1.5 percent on Tuesday.

Tina Pelkey, a spokeswoman for FCC chairman Ajit Pai, said the court found the FCC “reasonably determined that Dish abused a program designed to help small businesses. This is an important victory for American taxpayers.”

She added the firms “claiming over $3 billion in taxpayer-funded discounts were not independent small businesses, but rather under the control of Dish. Going forward, we need to make sure that this program is available only to legitimate small businesses that actually control their own destinies.”

The discounts, up to 25 percent of the bidding costs, are aimed at helping new entrants compete.

Reuters reported in 2015 Northstar Wireless LLC and SNR were also backed by financial firms Catalyst and BlackRock Inc.

BTIG Research analyst Walter Piecyk said in a research note the decision was “a positive development for Dish as it could ultimately result in $3.8 billion of incremental value to the company” if the credits are reinstated.

Piecyk said the FCC in 2015 “effectively changed the rules after the auction ended and denied bidding credits to the two bidders in which Dish had made an investment.”

Reporting by David Shepardson; Editing by David Gregorio