Charlie Ergen, CEO of DISH Network, is reportedly in the "formative stages" of merger talks with wireless services provider T-Mobile. If a deal gets done, it might be one of the largest examples of trickle-up corporate welfare in recent memory.
Ergen's company is currently under investigation by the Senate Committee on Commerce, Science, and Transportation for allegations that it colluded with other bidders in a recent FCC spectrum auction to win $13.3 billion worth of spectrum at a discounted price. DISH won the spectrum licenses through winning bids submitted by subsidiaries SNR Wireless and Northstar Wireless. Since the smaller subsidiary groups submitted the winning bids, they qualified for a 25 percent "designated entities" discount (a discount meant for "very small businesses") even though these groups are 85 percent owned by DISH.
With spectrum quickly becoming one of the most valuable natural resources on the planet (yes, it is a natural resource), Congress created the "designated entity" program to give small companies a chance to compete with larger companies when bidding for newly-available spectrum. Of course all this comes at the expense of taxpayers and, as often is the case when government tries to control markets, it is failing miserably. Multi-billion dollar companies like DISH are the ones clearly benefiting from this designated entity program.
Now T-Mobile is looking to get in on DISH's discounted spectrum pie.
The reasoning behind T-Mobile's interest in merging with DISH is obvious — DISH has more spectrum now than it knows what to do with, and T-Mobile wants to expand its wireless services. In a world in which the government controls spectrum markets, the only way to expand is through winning infrequent government auctions or merging with a company that has available spectrum. In May of 2013, T-Mobile merged with wireless provider MetroPCS and within a few months T-Mobile was already repurposing MetroPCS spectrum for its new 4G LTE network. Last year the company tried and failed to merge with Sprint in another spectrum driven deal.
If T-Mobile were to merge with DISH, the government subsidized spectrum that was won by SNR and Northstar will go from small subsidiaries, to a larger company in T-Mobile, to a merged DISH-T-Mobile corporate behemoth. (T-Mobile generated $29.5 billion in revenues in 2014, and $14.6 billion for DISH.) Wasn't this discounted spectrum meant for very small businesses?
The DISH Network CEO's ethics have been called into question before. Charlie Ergen has been accused of both using his position to leverage campaign donations for the Democratic Party from other executives, and to drop Fox News from DISH Network. Ergen also has been involved in several failed mergers and has a reputation for being finicky and bad at closing deals. In 2014, Ergen was involved in a controversial bankruptcy battle over troubled company LightSquared. Judge Shelly Chapman found that Ergen's dealings with LightSquared "violated the covenant of good faith and fair dealing" and the judge stated that parts of Ergen's testimony were "not credible," finding "a striking lack of candor between Mr. Ergen and members of DISH's board of directors and senior management."
If the Senate committee finds that DISH's behavior during the spectrum auction violated any kind of anti-collusion laws, DISH should be compelled to return the spectrum back the federal government and auctions should be redone, fairly. But even if no rules were violated, the mere fact that DISH and now potentially T-Mobile are receiving highly prized spectrum at a very discounted price is troubling and a damning indictment of the current spectrum auction system and the FCC. The "designated entity" rule is just another form of corporate welfare for multi-billion-dollar companies.
Erik Telford is president of the Franklin Center for Government & Public Integrity. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.