A well-coordinated and reliable system of wireless networks is absolutely essential to the future of the next generation of telecommunications. If we want strong internet connections and cell service, we need to have these networks working with minimal disruptions from coast to coast, and that requires billions of dollars of capital investment.
Because spectrum is a scarce public resource, Congress granted the Federal Communications Commission the authority to conduct auctions and oversee license transfers on the secondary market.
EchoStar and its various associated entities, including Dish Wireless, have a long and dubious history of exploiting FCC rules to acquire spectrum at below market cost. Their latest ploy is even worse.
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Many years ago, Dish won an FCC auction and was awarded spectrum that carried specific build-out requirements. It was supposedly going to launch their Boost Mobile platform as a competitor to the existing national networks.
The FCC has found that Dish, which has since merged with EchoStar, failed to meet its build-out requirements with the spectrum it has purchased and was threatening to terminate its license. So EchoStar-Dish arranged a spectrum sale worth $42 billion as an exit. But it is trying to consummate the sale without paying the billions of dollars it owes to tower operators and other contractors for their failed attempt to run their own network.
This has caused a high-stakes fight that could disrupt the spectrum sale from EchoStar to AT&T and SpaceX. That transfer is necessary and desirable because it would enable major upgrades to the AT&T network and SpaceX operations, making American broadband more competitive and widely available. That $42 billion deal closing is clearly in the national interest: it will benefit shareholders of the companies purchasing the spectrum, consumers, and the overall efficiency of the U.S. economy.
The snag is that EchoStar-Dish doesn’t want to pay its bills. What isn’t fair or warranted is for Dish to avoid payment to the contractors that stand to take huge losses for the services it provided.
Dish is trying to stiff these creditors out of billions of dollars by establishing shell game entities. It’s a sham that is a violation of the basic rule of law and the bedrock of our financial system.
Dish bought Spectrum and ran up billions of dollars in construction bills, but failed to make its Boost Mobile network an effective commercial product. When the FCC started investigating whether it had actually met its buildout obligation as required by the terms of its license, Dish called the investigation itself a “force majeure” that lets it out of contractual obligations.
The contractors engaged in substantial work to build the promised 5G network, only to face defaults amid Dish’s corporate restructuring. EchoStar has asserted that the subsidiary that signed contracts is left with no assets to pay claims against it, while the new corporate entity gets to rake in sale proceeds while claiming no liability. That’s a blatant sham.
Dish blames regulatory scrutiny for its failures — but every player in the wireless space faces FCC oversight. Bad business management and execution explain the Dish failures. Their investors shouldn’t be rewarded for lousy performance.
Tower companies face $7-10 billion in exposure. One major player, Crown Castle, claims over $3.5 billion in damages and recently announced significant layoffs.
A study by the Brattle Group found that tower operators would have to increase their rents on other networks like AT&T, T-Mobile, and Verizon by 6% to 11% to make up for their losses.
These tower operators rely on long-term leases of 10 to 30 years to secure financing. If it risks not getting paid due to shenanigans like this, we can expect a substantial reduction in investment and a reduction in broadband capacity, just as we are on the cusp of another stepwise increase in demand as new artificial intelligence and machine learning technologies spread through the economy.
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It’s more than a little logical stretch for Dish to claim an inability to pay its estimated $7 to $10 billion of outstanding bills one day and then walk away with a $42 billion windfall the next. The courts should be the ones to determine whether this is a legal maneuver, but that will be impossible if the Dish-EchoStar shell game leaves them judgment-proof.
The FCC should therefore require EchoStar to escrow a hefty portion of the license sale proceeds to cover all plausible vendor claims. This doesn’t prejudge court battles or settlements, but it would ensure funds are available if contractors prevail and, even more importantly, that the business of building critical broadband infrastructure remains a good one to be in.
Stephen Moore is co-founder of Unleash Prosperity Now, an organization that promotes policies fostering economic growth and job creation. Phil Kerpen is president of American Commitment and a principal of Unleash Prosperity Now.