Dish rethinks wireless plans after FCC denies $3.3B spectrum auction discount

Satellite TV provider Dish Network said regulators have sent it mixed messages about its prospects for competing in the wireless market.

Dish Chairman Charlie Ergen said during the company's second-quarter conference call that the Federal Communications Commission's decision to deny a $3.3 billion credit it gave to two of Dish's affiliates in the last spectrum auction, which ended in January, has likely killed its plans to pursue a reported merger with wireless provider T-Mobile. And he suggested the company may sit out the next wireless auction of TV broadcast spectrum set for early next year.

For several years, Dish has been amassing a treasure trove of wireless spectrum or the airwaves that carry text messages, voice calls, streaming video and Internet content to mobile devices. The company emerged as the second-highest bidder in the FCC's so-called AWS-3 auction, which generated a record $45 billion in revenue for the federal government. Dish's participation in the auction not only helped drive up prices but also ensured that AT&T and Verizon, which together control more than 70 percent of the wireless market, did not walk away with all the spectrum licenses in the auction.

Dish's spectrum combined with its satellite video offerings and its new Internet streaming TV service made it one of the few companies capable of entering the wireless market to compete with AT&T and Verizon. But Ergen said the FCC's decision to deny it the bidding discounts sends a "strong signal" to the company that a new entrant like Dish won't be able to get into the marketplace even if it buys its way in. This is in spite of the fact that this FCC in particular has been very supportive of outside competition.

"I made a mistake in judgment," Ergen said. "We were fairly confident that the FCC was encouraging us to do exactly what we did. For whatever reason, they sided with big guys."

Last month, FCC Chairman Tom Wheeler began circulating a proposal to deny Dish's partners in the auction a 25 percent discount in the so-called AWS-3 spectrum auction. The discount was meant for small businesses, but because the FCC said Dish controls more than 85 percent of each of the two companies, it disqualified Dish from getting the credit. The full commission is expected to adopt the proposal, with a final decision being announced at any time.

Ergen said that Dish will review the official order once the FCC votes on it. He added that the company will also examine the rules for the upcoming broadcast wireless spectrum auction, some of which will be voted on by the FCC on Thursday, before deciding whether to participate.

But Ergen said that it could be difficult to convince his board of directors to participate in the auction, given the FCC's actions following the most recent auction. He said there was a "trust factor" to consider that he anticipates will complicate the matter.

Still, he clarified that the company may still participate in the auction, but he said he was being "realistic" about the prospects.

Even though Dish has been amassing large amounts of spectrum through auctions and private deals, the company has been tight lipped about its plans for the valuable asset. Spectrum is considered the lifeblood of the wireless industry. Former FCC Chairman Reed Hundt recently characterized the acquisition of wireless licenses as essentially acquiring licenses to compete. Ergen has previously indicated it's too expensive for Dish to build a network on its own. And he has made no bones about expressing his desire to form a partnership or merge with an existing wireless carrier.

The company tried to buy Sprint in 2013 but was outmaneuvered by Japan's Softbank. More recently, it has reportedly been in talks with wireless provider T-Mobile. Ergen confirmed the FCC's decision to deny the bidding discount has has cooled talks.

"The government tells you where they want you to go," he said. "You don't have to be a genius to read between the lines. They are telling us that leasing or selling our spectrum is OK."

He added that even though selling Dish's spectrum may give his shareholders short-term gains, as an entrepreneur he'd like to compete toe-to-toe with the large phone companies.

"In my heart, the best long-term thing is to compete with the big guys," he said. "But we won't get there without government support. If the big guys can get Congress to write letters and the FCC to make decisions, we can't compete."