NTCH Tells Court Dish Win in 2013 Auction Was Result of Backroom Deal
Judges peppered both sides with questions as the U.S. Court of Appeals for the D.C. Circuit heard oral argument Tuesday on an FCC decision in 2013 to set a $1.56 billion nationwide aggregate reserve price in the 2014 auction of H-block spectrum. NTCH, which is challenging the order, urged the court to vacate Auction 96. Judges could also remand the case to the FCC for further work.
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In December 2013, the FCC granted Dish Network the relief it sought to decide on the operations of its AWS-4 spectrum. The waiver was conditioned on Dish’s bid of nearly $1.6 billion in the H-block auction the next month. Some said then it was unprecedented to tie of the waiver to Dish’s willingness to bid the minimum price in the H-block auction (see 1312230029). NTCH told the court (see 1812130070) the agreement between Dish and the regulator was "unheard of in the annals of administrative law.” The FCC argued NTCH lacked standing to even bring the challenge.
“The basis for our standing is … we realized that the auction process had basically been rigged in favor of Dish” and that’s why “we decided not to participate in the auction,” said Donald Evans of Fletcher Heald, who represented NTCH. Sprint owns the spectrum adjacent to the H block and also decided not to bid, he said. “Everybody that was aware of what was going on realized that the auction was skewed.”
Evans said there was “an unholy agreement” between Dish and the FCC, which gave Dish special treatment and assured it would bid in the auction and the H block wouldn’t go unsold.
Judges Merrick Garland, David Tatel and Thomas Griffith heard challenges by NTCH in dockets 18-1241 and 18-1243.
“For you to prevail on this issue, you have to make your case in the context of [a] very deferential standard of review,” Tatel told Evans. “You say adopting a reserve price based on a deal with a potential auctioneer is ‘unprecedented.’ … How do you know and what’s your authority?” Similarly, NTCH says the reserve price is unprecedented, Tatel said: “What precedent?”
“We stated, it is not the way the commission usually sets the reserve price,” Evans responded. The FCC used secondary market prices, in part, to set the price, he said: “Secondary market spectrum is obviously always going to be higher priced than the price paid in the auction,” he said: “People sell their spectrum in order to make a profit.” That was “a completely improper basis for comparison,” he said.
The argument is a waiver should be based only on the merits, without reference to an agreement to bid, Garland said. “Is that right?” he said: “That’s your whole argument?”
“I’m saying it was a cash-for-waiver deal,” Evans said.
“NTCH has failed to demonstrate standing,” said Maureen Flood, an FCC trial attorney. NTCH argues the reserve price was set too high “because it was somehow contaminated by Dish’s commitment to bid the reserve amount,” she said: “NTCH lacks standing to challenge the reserve price because it can’t demonstrate an injury flowing from the reserve price.”
Flood said the small carrier “fundamentally misunderstands” the function of a reserve price, to establish a minimum price in an auction: “Nothing prevented NTCH from placing the winning bid for any license.” Any interested party could have bid for the frequencies, she said. All Dish said was “'if you grant our waiver request, we will commit to bid that amount'; they didn’t say, 'We would bid that amount,'” Flood said.
FCC analysis would have permitted a reserve price higher than the amount set for the auction, Flood said. Analysts had predicted Sprint, not Dish, would be the auction winner, she said. “NTCH cannot demonstrate standing and it can’t demonstrate that the reserve price was unreasonable because the record before the agency justified the reserve price.”
“It sure seems like there was a deal here,” Griffith said. “There’s this flurry of activity all within a couple days that’s related to the waiver, that’s related to the bid. Looks like there’s a deal, right? Are we supposed to shut our eyes to that.” “Everything was transparent,” Flood responded. “If there’s a deal, it was a front-room deal. Everything is out there.”
“I’m bothered by the deal,” Griffith continued. “Should I be bothered by the deal?”
Flood said the amount Dish bid “was still reasonable” and NTCH could have bid. “We could have set a much lower reserve amount and NTCH could have gotten outbid by Dish.” That was likely because Dish had all the AWS-4 licenses adjacent to the H block, she said: “Dish had a much greater interest in winning those licenses and deeper pockets.”
Evans told us afterwards that it sounded like jurists "were understanding the concerns that we raised,” Evans is "hopeful about the outcome.” The FCC didn’t comment.