DISH: Can they sell their licenses without the FCC claiming the government has a right to the proceeds?

This week we were often asked whether DISH would be able to sell their spectrum licenses, like broadcasters and mobile carriers do all the time, with little FCC objection or process and no sharing of proceeds with the government,[fnote]Other than, of course, taxes.[/fnote] or would such a sales effort to sell trigger the FCC to claim that the proceeds should largely go to the government.  In this note, we detail why we think it is clearly the first.

Can DISH sell it rights under its FCC licenses without the government claiming that it is entitled to the proceeds?  As discussed below, we think the answer is clearly yes, but we understand the confusion in light of the ongoing discussion, sudden reversal of fortunes, and ongoing debate over a related question involving C-Band.  The two situations, however, are not the same.

The distinction between owning a license and owning the spectrum.  As a starting point, one needs to understand the distinction between the licenses and the spectrum itself.[fnote]This somewhat philosophical subject was discussed in some detail at Senator Kennedy’s hearing yesterday.  For those seeking a deeper dive, we recommend reviewing the transcript.[/fnote]  Sections 301, 304 and 310(d) of the Communications Act prohibit a licensee from "owning" the spectrum it uses.  Nor does a licensee “own” the FCC license granted, which grants to the licensee certain "spectrum usage rights," as defined within the terms, conditions, and period of the FCC license at the time of issuance. But the usage rights conveyed do not constitute an ownership interest in the license.  Indeed, the FCC prohibits private (non-government) lenders from taking a security interest in an FCC license.  Nonetheless, the specifics of the license do grant usage rights and the FCC cannot reduce the value of those usage rights without raising statutory and constitutional issues.

The irrelevance of whether the license was obtained in an auction.  Further, as both a political and legal matter, it does not matter if the licenses were or were not obtained in a government auction.  Many of AT&T’s and Verizon’s original wireless licenses were acquired by their RBOC predecessors at the breakup of the Bell System in 1984 and were never “auctioned.”  AT&T and Verizon purchased many others in private transactions in which the original owner obtained them outside of a government auction and in that way are similar to how DISH obtained its license.

What matters: the license. What matters is the nature of the license.  In the case of C-band, the license is a shared use of spectrum.  In the case of the DISH license, it is an exclusive use license that, pursuant to the FCC modification, can be used for terrestrial mobile broadband.  If one looks at the actual terms of the DISH licenses, the language is largely the same as the licenses owned by the mobile services companies.

Review of the Licenses. In reviewing the relevant FCC’s orders we have found nothing to support the view that DISH’s licenses are subject to restrictions or limitations on DISH’s ability to sell those licenses or that the FCC is entitled to some share of the profits if DISH were to sell those licenses. Below is an overview of the proceedings.

2012 AWS-4 Report and Order and Order of Proposed Modification

• This Order modified DISH’s MSS licenses to include AWS-4 authorizations with full flexible use terrestrial authority.
• The only conditions imposed on AWS-4 licensees in this proceeding were performance-related. (¶ 187).
• The Order expressly states that there are no transfer restrictions: “We also decline to adopt the interim build-out benchmarks and their associated penalties as proposed in the AWS-4 NPRM. Further, we decline to impose restrictions on transferring or assigning AWS-4 spectrum beyond the general requirements applicable to Wireless Radio Service spectrum generally.” (¶ 24).
• The Order also concludes that “a licensee of AWS-4 authority should have the same ability to partition its service territories and disaggregate its spectrum as other wireless licensees and, therefore will allow any such licensee to partition its service areas or to disaggregate its spectrum to the extent permitted by section 27.15 of the Commission's rules.”  (¶ 249).

2012 Order Approving Acquisition of TerreStar and DBSD

• This order approving DISH’s acquisition of DBSB and TerreStar did not contain any prospective license transfer restrictions.

2013 AWS-4 Waiver Memorandum Opinion and Order

• This waiver granted by the Commission contained waiver conditions pertaining to election of either uplink or downlink operations in the AWS-4 band and a commitment to bid in the H Block Auction (¶¶ 44-46). However, there were no conditions related to license transfers.
• The Petition that led to the memorandum opinion and order also contained no reference to any license transfers.

2013 Letter Reflecting Terms of Operation Between Federal Licensees and DISH Subsidiaries

• The operator agreement between Gamma and DBSD and Federal licensees sets forth technical conditions, but these are unrelated to transfer limitations.

While the FCC does have authority to reallocate spectrum bands and modify licenses accordingly, there are statutory and constitutional problems with taking actions that reduce the value of a license holder’s property right.  In the case of the C-Band license holders, we think the FCC can successfully argue that it is not required to pay more than relocation expenses because the reallocation of 300MHz of the C-Band still allows all the stakeholders effectively to operate as they did on the 500MHz.  The FCC may choose to provide incentive payments for an accelerated spectrum clearing, as discussed in our note on C-Band, also published today, but we think—though it is a controversial point that we will no doubt discuss further as the issue becomes more hotly contested--that is legally optional.

In the case of DISH, however, we think the FCC could not take any percentage.  In short, the fact that DISH did not acquire the AWS-4 licenses at auction is irrelevant.  As the authorized licensee of the AWS-4 and other spectrum, DISH would be entitled to keep the proceeds if DISH were to sell the licenses.