UPDATE 1-FCC says two firms still ineligible for bidding credits

(Adds DISH comment, more from FCC)

WASHINGTON, Nov 23 (Reuters) - The U.S. Federal Communications Commission said two companies are still ineligible for $3.3 billion in small business bidding credits for a wireless spectrum auction, after they failed to demonstrate they are independent entities from DISH Network Corp .

Northstar Wireless LLC and SNR Wireless LicenseCo LLC won 43.5% of the wireless spectrum licenses up for bid in a 2015 government auction and had expected to use credits covering 25% of the $13.3 billion in bids.

After a new review, the FCC said on Monday that “DISH Network continues to possess de facto control over SNR and Northstar.”

DISH chairman Charlie Ergen said in a statement “the decision is a setback for an emerging competitor and we are disappointed.”

The FCC first decided in 2015 that the firms, which were 85% owned by Dish, were ineligible for the small business credits. The discounts, up to 25% of the bidding costs, are aimed at helping new entrants compete.

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 spectrum purchases.

“We are discouraged that the agency declined multiple meeting requests over the past two-and-half years so that Northstar and SNR’s applications could be further amended if for any reason they were found to imply de facto control,” Ergen added.

The FCC noted Monday that despite changes “the fact remains that DISH provided Northstar and SNR with approximately $13 billion in loans to participate” in the spectrum auction.

A U.S. appeals court in 2017 said the FCC reasonably found DISH exercised “de facto” control over the companies, but had to offer an “opportunity” for the firms to renegotiate agreements with DISH that could give them enough independence to satisfy the FCC.

The FCC said Northstar and SNR are subject to additional potential default payments when those licenses are auctioned in the future. (Reporting by David Shepardson Editing by Chris Reese and Richard Pullin)