SNR Wireless LicenseCo, LLC v. Federal Communications Commission

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 26, 2016 Decided August 29, 2017

No. 15-1330

SNR WIRELESS LICENSECO, LLC,

APPELLANT

v.

FEDERAL COMMUNICATIONS COMMISSION,

APPELLEE

Consolidated with 15-1331, 15-1332, 15-1333

On Petitions for Review of an Order of

the Federal Communications Commission

Catherine E. Stetson argued the cause for appellants. With

her on the briefs were Christopher J. Wright, Timothy J.

Simeone, Elizabeth Austin Bonner, Paul J. Caritj, Ari Q.

Fitzgerald, and R. Craig Kitchen. Mark F. Dever, Dorothy A.

Hickok, Alfred W. Putnam Jr., and Mark H. Sosnowsky entered

appearances.

Harold J. Feld was on the brief for amicus curiae Public

Knowledge in support of petitioner-appellants.

2

Lawrence Spiwak was on the brief for amicus curiae

Phoenix Center for Advanced Legal and Economic Public

Policy Studies in support of petitioners-appellants.

Maureen K. Flood, Counsel, Federal Communications

Commission, argued the cause for appellee. With her on the

brief were William J. Baer, Assistant Attorney General, U.S.

Department of Justice, Robert B. Nicholson and Robert J.

Wiggers, Attorneys, Jonathan B. Sallet, General Counsel,

Federal Communications Commission, and Jacob M. Lewis,

Associate General Counsel. David M. Gossett, Deputy General

Counsel, and Richard K. Welch, Deputy Associate General

Counsel, entered appearances.

Before: BROWN and PILLARD, Circuit Judges, and

WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge PILLARD.

PILLARD, Circuit Judge: Petitioners SNR Wireless

LicenseCo, LLC (SNR) and Northstar Wireless, LLC

(Northstar) are two nascent companies that took action to

acquire the wireless spectrum needed to sell wireless internet

or phone services to customers around the country. Because of

the high cost of providing wireless services, petitioners

borrowed billions of dollars from DISH Network Corporation

and its subsidiaries (collectively, DISH) to acquire the

spectrum. DISH also agreed to provide management services

to petitioners to help them navigate the challenges of building

a national wireless network.

In 2014, the Federal Communications Commission (FCC

or the Commission) held an auction to sell the kind of wireless

spectrum licenses that petitioners would need to build national

businesses. Pursuant to FCC regulations designed to

3

encourage small businesses to participate in such auctions, the

FCC announced that businesses with less than $40 million in

annual revenues could use “bidding credits” to purchase at a

discounted price any licenses they won. Petitioners submitted

initial short-form applications disclosing their revenues, on the

basis of which they were permitted to bid. Believing that they

would be entitled to use bidding credits, petitioners bid on and

won hundreds of spectrum licenses in the action. While the

petitioners’ winning bids totaled $13.3 billion, petitioners

asked the FCC for $3.3 billion in bidding credits, which would

bring the total cost of the licenses down to $10 billion.

The FCC denied the request to use bidding credits because

SNR and Northstar were not simply partners with DISH, but

were under DISH’s control. As a result, DISH’s $13 billion in

annual revenues were attributable to petitioners, making them

ineligible for bidding credits.

After the FCC denied their application to use bidding

credits, petitioners informed the FCC that they could not afford

to pay for all of the licenses they won. They bought some of

the licenses at full price and relinquished the rest to the FCC.

The FCC fined the petitioners hundreds of millions of dollars

for failing to comply with the auction terms that required all

bidders to purchase the licenses they won. This appeal

followed.

The FCC reasonably determined that DISH exercised de

facto control (a broad concept about which we have more to

say later) over SNR and Northstar’s businesses: DISH had

contractual rights to manage almost all of the essential

elements of the petitioners’ businesses, and petitioners faced

enormous financial pressure to sell their companies to DISH

after five years. In addition, petitioners’ auction bids suggested

they were both functioning as arms of DISH, rather than as

4

independent small companies each pursuing their own,

independent interests. As the FCC has also recognized,

however, for companies like DISH that seek to form

partnerships with small businesses, there is a fine line between

providing the sort of oversight necessary to keep the

partnership on track and providing so much oversight that the

small business is subject to disqualifying de facto control.

Petitioners point to past action of the FCC’s Wireless Bureau

that they assert led them to conclude that their agreements with

DISH were not so controlling as to disqualify them from

obtaining the credits due to “very small” businesses.

We hold that: (1) The FCC reasonably applied its

longstanding precedent to determine that DISH exercised a

disqualifying degree of de facto control over SNR and

Northstar; but (2) the Commission did not give SNR and

Northstar adequate notice that, if their relationships with DISH

cost them their bidding credits, the FCC would also deny them

an opportunity to cure. As a result, we remand this matter to

the FCC to give petitioners an opportunity to seek to negotiate

a cure for the de facto control the FCC found that DISH

exercises over them.

I. Background

A. The FCC’s Auction 97

The electromagnetic spectrum is “the range of

electromagnetic radio frequencies used to transmit sound, data,

and video across the country.” See FCC, About the Spectrum

Dashboard, http://reboot.fcc.gov/reform/systems/spectrum-

dashboard/about (About the Spectrum). Under the

Communications Act of 1934 (the Act), the FCC may grant

private companies licenses to use portions of the spectrum. See

47 U.S.C. §§ 307, 309. Once licensed, companies may transmit

sound, data, and video, which enables them to provide

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television, cell phone, and wireless internet service to

consumers. See About the Spectrum.

In 1993, Congress authorized the FCC to use auctions to

allocate spectrum licenses. See Omnibus Budget

Reconciliation Act of 1993, Pub. L. No. 103-66, 107 Stat. 312

(relevant section codified at 47 U.S.C. § 309(j)(1)). Congress

directed the FCC to design auction procedures that would serve

a number of policy objectives. Those objectives include

promoting efficient, intensive, and innovative use of the

electromagnetic spectrum without excessive concentration of

licenses, while advancing economic opportunity and

competition by disseminating licenses “among a wide variety

of applicants, including small businesses, rural telephone

companies, and businesses owned by members of minority

groups and women” without “unjust enrichment” of licensees

that are not bona fide small or underrepresented businesses.

See id. § 309(j)(3)-(4).

Consistent with those statutory instructions, FCC

regulations provide that the Commission may encourage

“designated entities,” including small businesses, to participate

in spectrum auctions by giving them bidding credits, i.e.

discounts that may be used to cover part of the cost of any

licenses those businesses win. 47 C.F.R. § 1.2110(a), (f)

(2012).1 FCC regulations specify that bidding credits can only

be used by genuine small businesses—not by small sham

companies that are managed by or affiliated with big

businesses. See, e.g., id. § 1.2110(b)-(c).

This case arose out of Auction 97, which the FCC

announced on May 19, 2014. On July 23, 2014, the FCC’s

1

Throughout this opinion, we will cite the version of the FCC’s

regulations in effect at the time of Auction 97, rather than the version

in effect today, unless otherwise noted.

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Wireless Telecommunications Bureau (the Wireless Bureau)

published the procedures for the auction (the Auction Notice,

or Notice). The Auction Notice explained that small businesses

would be eligible to receive bidding credits in Auction 97, and

the size of the bidding credits would depend on the amount of

the designated entities’ “attributable” revenues over the

preceding three years: Entities with less than $40 million in

attributable annual revenues could receive a fifteen percent

discount on their winning bids, and entities with less than $15

million in attributable annual revenues could receive a twenty-

five percent discount. See Auction of Advanced Wireless Servs.

(Aws-3) Licenses Scheduled for Nov. 13, 2014, 29 F.C.C. Rcd.

8386, 8411-12 (2014) (Auction Notice).

As relevant here, attributable revenues included the

revenues of the small business itself and the revenues of any

entity with “de facto control” over it. Id. at 8412-13 (citing 47

C.F.R. § 1.2110(b)-(c), among other sources). Whereas the

question whether one business exercises de jure control over

another is binary, the highly contextual question of de facto

control is a matter of degree.

FCC regulations that had been used in past auctions listed

various “indicia of control” relevant to the de facto control

inquiry. See 47 C.F.R. § 1.2110(c)(2). They pointed to control

over appointments to the entity’s board or management

committee, control over selection and employment of the

senior executives in charge, or general involvement in

management decisions. Id. The regulations also highlighted

as a factor relevant to de facto control the presence of a

management agreement conferring on someone other than the

entity itself authority to determine or significantly influence the

nature or types of service the entity offers, or the terms or price

on which they are offered. Id. § 1.2110(c)(2)(ii)(H). The

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regulations did not, however, delineate a clear line between

permissible influence and de facto control.

The Auction Notice generally explained that auction

participants should “review carefully the Commission’s

decisions regarding . . . designated entit[ies].” Auction Notice,

29 F.C.C. Rcd. at 8411. The Notice stated, by reference to FCC

regulations, that “[d]e facto control [would be] determined on

a case-by-case basis,” id. at 8412 (citing 47 C.F.R. §

1.2110(b)(5)). It cautioned participants that de facto control

might be present if, for example, one company “plays an

integral role in [the] management decisions” of another. Id. at

8413 (citing 47 C.F.R. § 1.2110(c)).

By way of additional guidance, the Notice directed auction

participants to consult the Commission’s longstanding but

context-dependent precedent on the circumstances that bear on

de facto control. The two opinions the Notice cited on that

point articulate a six-factor test for de facto control:

Intermountain Microwave, Public Notice, 12 F.C.C. 2d 559

(1963) (Intermountain Microwave) and Baker Creek

Communications, L.P., Memorandum Opinion and Order, 13

F.C.C. Rcd. 18709 (1998) (Baker Creek). Id. at 8412 n.151.

The Auction Notice specified that the FCC would use its

standard, two-step process to verify the attributable revenues

of a small business. Id. at 8407. First, before the auction, a

small business seeking to qualify for credits had to file a

“streamlined, short-form application.” Id. That form required

the business to state, under penalty of perjury, its attributable

revenues. See id. (citing 47 C.F.R. § 1.2105); see also id. at

8412. Second, after the auction concluded, any business that

successfully bid for a spectrum license and sought bidding

credits would have to “file a more comprehensive long-form

application (FCC Form 601)” to hold the license. Id. at 8407.

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The Commission would then review the long-form application

to verify the business’s eligibility for small-business bidding

credits.

Auction 97 began on November 13, 2014, and concluded

on January 29, 2015, after 341 rounds of bidding. Thirty-one

entities won spectrum licenses, with winning bids totaling

more than $40 billion.

B. Petitioners’ Conduct

The petitioners are small companies that were formed just

in time to file short-form applications for Auction 97: SNR

was formed fourteen days and Northstar was formed eight days

before the application deadline. As nascent companies, SNR

and Northstar lacked officers, directors, and revenues when

they each submitted a short-form application to participate in

Auction 97 as a “very small business” entitled to a twenty-five

percent discount. In re Northstar Wireless, LLC, 30 F.C.C.

Rcd. 8887, 8893 (2015) (FCC Op.).2

The petitioners’ short-form applications disclosed that

they had acquired the capital that they needed to participate in

the auction from DISH—a large, established corporation that

was itself ineligible for bidding credits. In exchange for its

investments in SNR and Northstar, DISH acquired an (indirect)

eighty-five percent ownership interest in each company. In

addition, DISH became the operations manager for SNR and

2

See SNR Wireless LicenseCo, LLC Short-Form Application, FCC

Form 175, Auction File No. 0006458318 (filed September 12, 2014,

amended October 13, 2014) (SNR Short-Form Application),

Attachments A, B; see Northstar Wireless, LLC Short-Form

Application, FCC Form 175, Auction File No. 0006458325 (filed

September 12, 2014, amended October 8, 2014, October 15, 2014)

(Northstar Short-Form Application), Attachments A, B.

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Northstar with great influence over their operations. DISH also

adopted joint bidding protocols and agreements with the

petitioners, which provided that DISH, SNR, and Northstar

could coordinate their bidding strategies for Auction 97.

The petitioners were remarkably successful in Auction 97,

collectively winning 43.5% of the licenses in play: SNR won

357 of the 1,614 auctioned licenses, and Northstar won 345.

While SNR and Northstar bid a total of $13,327,423,700 during

the auction, both companies claimed that they were very small

businesses entitled to use FCC bidding credits to cover twenty-

five percent of the cost of the licenses. With the use of those

bidding credits, SNR and Northstar would together save

roughly $3.3 billion.

After the auction, SNR and Northstar submitted long-form

applications for the licenses, reiterating their assertions that

they were very small businesses entitled to bidding credits.

Once the long-form applications became public, eight parties

petitioned the Wireless Bureau to deny credits to SNR and

Northstar. The challengers included a few of petitioners’ less

successful bidding competitors and several nonprofit

organizations supportive of the designated-entity credit

program as a means to aid small businesses, rural telephone

companies, and businesses owned by members of minority

groups and women, but opposed to what they view as an abuse

of the program to enrich large, established firms like DISH.

All eight challengers argued that SNR and Northstar could

not claim very-small-business credits because DISH, a large

business, effectively controlled them. Some entities also

suggested that SNR and Northstar should not be permitted to

claim the licenses they won even if they were willing to pay

full price on the ground that they withheld from the FCC

material information about their relationships with DISH. The

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Wireless Bureau referred the petitions to the full Commission

for “consideration of the questions posed by the petitions to

deny.” See 47 C.F.R. § 0.5(c) (“In non-hearing matters, the

[Wireless Bureau] is at liberty to refer any matter at any stage

to the Commission for action, upon concluding that it involves

matters warranting the Commission’s consideration . . . .”).

The FCC dismissed six of the petitions on the ground that

parties who had not themselves participated in the auction

lacked standing, but considered the merits of the other two.

FCC Op., 30 F.C.C. Rcd. at 8904-05. Ultimately, the FCC

decided that SNR and Northstar were not entitled to bidding

credits because they were de facto controlled by DISH, such

that DISH’s large annual revenues were attributable to them.

See id. at 8889.

While the FCC held SNR and Northstar ineligible for

bidding credits, it concluded that the companies could retain

the spectrum licenses they won in the auction if they were

willing to pay full price for them. See id. at 8940-48. “The fact

that the Commission, upon review of the Agreements,

conclude[d] that, as a legal matter, the facts disclosed show that

DISH controlled the applicants does not compel a finding that

the applicants lacked candor.” Id. at 8941. The Commission

explained that SNR and Northstar had disclosed their

relationships with DISH, and no participant in Auction 97 had

shown that it was harmed by SNR or Northstar’s conduct. See

id. at 8940-46. Nor had any auction participant shown that

SNR and Northstar colluded with one another in violation of

federal antitrust laws. Id. at 8946-48. The FCC consequently

gave SNR and Northstar the opportunity to purchase the

licenses at full price, but it did not give them the opportunity to

seek to cure the identified control problems.

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Following the FCC’s Decision, SNR and Northstar

notified the Commission that they would pay the full bid

amount for some of the licenses they won and would default on

their obligation to buy the rest.3 As a result of the default, the

FCC ordered SNR and Northstar to compensate it for the

difference between their own winning bids in Auction 97 and

the amount that the FCC receives when it re-auctions the

licenses. FCC Op., 30 F.C.C. Rcd. at 8950-51; see 47 C.F.R.

§ 1.2104(g)(2)(i) (requiring defaulters to compensate the FCC

in the manner the FCC described). The FCC also ordered

petitioners to make an additional payment equal to fifteen

percent of the petitioners’ own bids, or fifteen percent of the

winning bid when their licenses are re-auctioned, whichever is

less. See FCC Op., 30 F.C.C. Rcd. at 8950-51; 47 C.F.R.

§ 1.2104(g)(2)(ii) (requiring defaulters to pay a penalty set by

the FCC prior to each auction); Auction Notice, 29 F.C.C. Rcd.

at 8451 (announcing the fifteen-percent penalty for defaulters

in Auction 97). While the exact amount of the petitioners’

penalties depends on the winning price for the relevant licenses

at re-auction, 47 C.F.R. § 1.2109; see also id. § 1.2104(g)(2),

the parties anticipate that the penalties will amount to hundreds

of millions of dollars. Because of the size of the penalties for

default, SNR and Northstar each made partial, “interim”

payments to the Commission: SNR paid $181,635,840 and

Northstar paid $333,919,350.4

After making their interim payments, both SNR and

Northstar petitioned this court for review of the FCC’s

decision.

3

See Letter to Ari Q. Fitzgerald, Esq., Counsel for SNR Wireless

LicenseCo, LLC, from Roger C. Sherman, Chief, Wireless

Telecommunications Bureau, FCC, 30 F.C.C. Rcd. 10704 (Oct. 1,

2015); Letter to Mark F. Dever, Esq., Counsel for Northstar

Wireless, LLC, from Roger C. Sherman, Chief, Wireless

12

II. Analysis

The petitioners SNR and Northstar urge us to reverse the

FCC’s decision for two primary reasons. First, the petitioners

contend, the Commission departed from agency precedent

without explanation. Second, even if the Commission followed

its own precedents, petitioners insist those precedents did not

provide fair notice that their relationship with DISH could cost

them their bidding credits plus a penalty for defaulting without

an opportunity to cure. Petitioners’ first argument fails, but the

second has merit.

A. The FCC Reasonably Applied its Own Precedent

We must defer to the FCC’s decision in this case unless

the decision was “arbitrary, capricious, an abuse of discretion,

or otherwise not in accordance with law.” 5 U.S.C.

§ 706(2)(a). The scope of review under the arbitrary and

capricious standard is “narrow” and we cannot “substitute [our]

judgment for that of the agency.” Motor Vehicle Mfrs. Ass’n

of the U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29,

43 (1983). Our job is simply to ensure that the Commission

“articulate[d] a satisfactory explanation for its action.” Id. To

provide a satisfactory explanation, an agency must

acknowledge and explain any departure from its precedents.

Comcast Corp. v. FCC, 526 F.3d 763, 769 (D.C. Cir. 2008)

(citing Pontchartrain Broad. Co. v. FCC, 15 F.3d 183, 185

Telecommunications Bureau, FCC, 30 F.C.C. Rcd. 10700 (Oct. 1,

2015).

4

See Letter to Ari Q. Fitzgerald, Esq., Counsel for SNR Wireless

LicenseCo, LLC, from Roger C. Sherman, Chief, Wireless

Telecomm. Bureau, FCC, 30 F.C.C. Rcd. 10704, 10706 (Oct. 1,

2015); Letter to Mark F. Dever, Esq., Counsel for Northstar

Wireless, LLC, from Roger C. Sherman, Chief, Wireless Telecomm.

Bureau, FCC, 30 F.C.C. Rcd. 10700, 10702 (Oct. 1, 2015).

13

(D.C. Cir. 1994)); see also FCC v. Fox Television Stations,

Inc., 556 U.S. 502, 515 (2009) (Fox I).

Petitioners argue that the FCC departed without

explanation from its precedent regarding designated entities.

But that simply is not the case. Far from ignoring Commission

decisions, the FCC reasonably interpreted and applied them

when it determined that DISH had de facto control over SNR

and Northstar. We accordingly affirm the Commission’s

decision that the petitioners are required to pay full price for

the spectrum licenses they won in Auction 97.

The Commission began with its own settled regulations

and precedent. Established FCC precedent highlights that the

likelihood of a de facto control finding is “greatly increased”

in cases like this one, where a large company (DISH) is the

“single entity provid[ing] most of the capital and management

services” for smaller companies. FCC Op., 30 F.C.C. Rcd. at

8911 (quoting In re Implementation of Section 309(j) of the

Commc’ns Act - Competitive Bidding, 10 F.C.C. Rcd. 403, 456

(1994) (Fifth MO&O)). With that warning in mind, the

Commission looked to three different sources of law to

determine whether DISH had de facto control over SNR and

Northstar: (1) 47 C.F.R. § 1.2110(c)(2)(ii)(H), the regulation

specifying that one company has de facto control over another

if it manages the operations of the other and has the ability to

“determine, or significantly influence” the services offered by

the other; (2) the Wireless Bureau decisions, Intermountain

Microwave and Baker Creek, that articulated the six-factor test

that the FCC has used for decades in a range of circumstances

to determine whether one company controls another; and (3)

the Commission’s Fifth Memorandum Opinion & Order, an

opinion regarding the implementation of the competitive

bidding system under Section 309(j) of the Communications

Act, which describes situations where de facto control is

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present. Drawing on those sources, the Commission

reasonably determined that each counseled in favor of a finding

that DISH de facto controlled SNR and Northstar.

1. The FCC’s De Facto Control Regulations

The FCC looked to its regulations elaborating the concept

of de facto control, focusing in particular on their treatment of

management agreements granting another entity control over a

putative small business. One of those regulations states that

[a]ny person who manages the operations of [a small

business] pursuant to a management agreement shall

be considered to have a controlling interest in [the

small business] if [that] person, or its affiliate, has

authority to make decisions or otherwise engage in

practices or activities that determine, or significantly

influence . . . [t]he nature or types of services offered

by [the small business].

47 C.F.R. § 1.2110(c)(2)(ii)(H). Applying that regulation, the

FCC found that DISH had a controlling interest due to the way

in which it “manage[d]” the operations of SNR and Northstar.

See FCC Op., 30 F.C.C. Rcd. at 8938. In that role, DISH had

authority to limit the wireless technology that SNR and

Northstar used. Id. Additionally, DISH managed the “build-

out and day-to-day operations” of both companies. Id. As a

result, DISH could “significantly influence” the “type of

service[]” that SNR and Northstar provided for their customers.

Id. at 8938-40 & n.359. We find nothing unreasonable about

the Commission’s application of its regulations.

2. The Six-Factor De Facto Control Test

The meat of the FCC’s analysis of petitioners’

circumstances referred to the six factors that Intermountain

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Microwave identifies as particularly relevant to whether one

entity has de facto control over another. See FCC Op., 30

F.C.C. Rcd. at 8911-36 (relying on Intermountain Microwave

factors). See also, e.g., In re Amendments to Parts 1, 2, 87 &

101 of the Comm’n’s Rules to License Fixed Servs. at 24 GHz,

15 F.C.C. Rcd. 16934, 16970 n.251 (2000) (Amendments)

(endorsing the Intermountain Microwave test); In re

Application of Ellis Thompson Corp., 9 F.C.C. Rcd. 7138,

7138-39 (1994) (Ellis Thompson I).

The Intermountain Microwave test asks: (1) who controls

the daily operations of the small business; (2) who employs,

supervises, and dismisses the small business’s employees; (3)

whether the small business has “unfettered” use of all its

facilities and equipment; (4) who covers the small business’s

expenses, including its operating costs; (5) who receives the

small business’s revenues and profits; and (6) who makes and

carries out the policy decisions of the small business. See

Intermountain Microwave, 12 F.C.C. 2d at 560.

Addressing the first question, the FCC found that DISH

had control over the daily operations of SNR and Northstar.

The Commission acknowledged that DISH’s agreements with

SNR and Northstar contained some language “purporting to

give SNR and Northstar control over day-to-day operations,”

see FCC Op., 30 F.C.C. Rcd. at 8918, but that language had

almost no practical effect, see id. As noted above, DISH agreed

to be the Operations Manager for both SNR and Northstar. See

id. at 8897-98. Under the parties’ comprehensive Management

Services Agreement, DISH managed virtually all aspects of

SNR and Northstar’s businesses, including engineering and

construction of signal towers, marketing, record keeping, and

contract negotiations. See id. at 8897-98, 8919. Their

businesses operated under DISH’s trademark, for which they

paid royalties to DISH. Id. at 8899.

16

The parties’ agreement left SNR and Northstar no practical

means of ensuring that DISH would use those managerial

powers to further SNR and Northstar’s own goals rather than

DISH’s. See id. at 8898-8901. While SNR and Northstar were

ostensibly in charge of setting their business objectives, DISH

required them to consult it on every important aspect of their

business plans. Id. at 8920. And SNR and Northstar had

extremely strong incentives to follow any suggestions that

DISH made during the planning process: As explained further

below, DISH had almost complete control over SNR and

Northstar’s owners’ compensation; if DISH felt that it was

being ignored during the business planning process, it could

command compliance from SNR and Northstar by limiting that

compensation. See id. at 8920.

Moreover, the process SNR or Northstar would have to

navigate if they ever wished to replace DISH with a different

operations manager would be prohibitively time-consuming

and costly. See id. They could terminate their Management

Services Agreement (MSA) with DISH only after completing

a “complex, costly, and lengthy process, culminating in

arbitration,” in which they would have to establish that DISH

committed a material breach of the Management Services

Agreement. Id. Termination of the MSA without cause would

require them to give DISH 12 months’ notice and repay the

billions of dollars that they borrowed from DISH to purchase

the licenses at an interest rate several points higher than the rate

they would otherwise owe. Id. at 8921. Thus, the FCC

concluded that SNR and Northstar did not have meaningful

control over the day-to-day operation of their businesses.

Moving to the second Intermountain Microwave factor,

the FCC determined that SNR and Northstar had little control

over their employment decisions. See id. at 8921-23. DISH

had the power to appoint the “Systems Manager” for each

17

company, as the single point of contact with DISH as

Operations Manager, and such individual would not be selected

by SNR and Northstar but only need be “reasonably

acceptable” to them. Id. at 8923. The Management Services

Agreement for each company purported to give it the

“authority and ultimate control over . . . the employment,

supervision and dismissal of all personnel providing services.”

Id. at 8923. But the Commission found that authority was

illusory because SNR and Northstar each received only a very

modest budget each year. Id. at 8922. Those sums did not

enable SNR and Northstar to hire sufficient personnel to

“effectively oversee operations.” Id. Instead, SNR and

Northstar hired scant staff, relying primarily on DISH—as the

Operations Manager—to staff SNR and Northstar’s operation.

Id. Neither SNR nor Northstar could offer any employee

compensation in excess of $200,000 per year without DISH’s

permission, giving DISH a veto over hiring decisions for any

top executive. DISH meanwhile retained unilateral authority

to set its own compensation as the small companies’

Operations Manager, subject only to “consultation and

direction” from SNR and Northstar. Id. The Commission

found the compensation arrangement “not compatible with the

Applicants’ actually having the ability to manage and operate

their businesses.” Id. at 8923.

With respect to the third Intermountain Microwave factor,

the FCC found that SNR and Northstar did not have “unfettered

access to their facilities and equipment.” Id. at 8934. When

the auction took place, SNR and Northstar did not yet have

facilities, but the text of the agreements between SNR,

Northstar, and DISH recited that SNR and Northstar would

have “unfettered use of, and unimpaired access to, all facilities

and equipment associated with [their] [s]ystems.” Id. The

Commission found that language belied by other contractual

provisions that gave DISH the right to choose the type of

18

wireless service that SNR and Northstar would offer. Id. at

8935.

Because the agreements barred SNR and Northstar from

using their facilities to provide any service that was

incompatible with DISH’s service, and DISH had neither

specified the service it planned to develop nor had any current

plans to build out its own spectrum, the FCC believed that SNR

and Northstar did not have “unfettered use” of their facilities.

Id. (citing Ellis Thompson I, 9 F.C.C. Rcd. 7138, 7140).

Petitioners tellingly point out that small providers typically

must gear their facilities to their investor’s favored technology

in order to provide a competitive scope of service. Pet’r Br. 44.

The Commission itself has acknowledged the benefits to small

providers of “an assurance of basic interoperability,” with

which small providers “will face less uncertainty over the

development of a healthy device ecosystem,” and has

encouraged voluntary measures to facilitate interoperability.

Amendment of the Commission’s Rules with Regard to

Commercial Operations in the 1695-1710 MHz, 1755-1780

MHz, and 2155-2180 MHz Bands, 29 F.C.C. Rcd. 4610, 4698-

99 (2014). The FCC’s distinction between other designated

entities’ command of their facilities and petitioners’ lack of

choice thus strikes us as relatively thin, resting principally on

the risk that petitioners’ agreement to interoperate with DISH’s

yet-to-be-chosen network could prevent them from prompt

development of their own spectrum. But our review is

deferential, and we conclude that the Commission permissibly

found this factor to further demonstrate DISH’s control over

SNR and Northstar.

Turning to the fourth Intermountain Microwave factor, the

FCC found that DISH also “dominate[d] the financial aspects

of SNR’s and Northstar’s businesses.” Id. at 8924. DISH

“provided equity contributions and loans to the [petitioners]

19

that account[ed] for approximately 98 percent of the

[petitioners’] winning bid amounts and . . . further agreed to

provide all future funds for build-out and working capital.” Id.

In addition, SNR and Northstar could not acquire more than

$25 million in debt from sources other than DISH. Id. The

FCC believed any such sum was necessarily “trivial” in

comparison to what it would cost to build and use a nationwide

wireless network. Id.

The FCC also found that the fifth Intermountain

Microwave factor, regarding the allocation of profits from SNR

and Northstar’s business, “firmly raise[d] the specter of

control.” Id. at 8925. The FCC explained:

A preliminary review of the Agreements reflects that

the profits generated by SNR’s and Northstar’s

operations are to be distributed pro-rata in accordance

with the ownership interests of the parties. When

examined alone, these provisions appear to be

conventional cash collection and profit distribution

arrangements. However, when considered in

conjunction with other provisions in the Agreements

that dictate the distribution of revenues received, we

find that the business arrangements between the parties

are structured in such a way that the profits are likely

only to benefit DISH.

Id. Notably, before realizing any profits from their business

operations, SNR and Northstar would first have to repay the

billions of dollars in loans they owed to DISH. Id. And, given

that SNR and Northstar would need to undertake extensive

construction before they could begin providing wireless

service, it was very unlikely for the foreseeable future that they

would be able to repay those loans and begin earning profits.

Id.

20

With respect to the sixth and final Intermountain

Microwave factor, the FCC concluded that DISH made every

essential policy decision for SNR and Northstar’s businesses,

including decisions about: (a) the type of wireless technology

that SNR and Northstar would use; (b) the number of spectrum

licenses that SNR and Northstar would hold; (c) the timetable

for SNR and Northstar to build networks and begin offering

services to customers; (d) when SNR and Northstar might sell

their businesses; (e) whether SNR and Northstar could own real

property; and (f) SNR and Northstar’s bidding strategy. See id.

at 8927-34. Despite petitioners’ claims that DISH “is a purely

passive investor,” id. at 8894, the FCC reasonably concluded

that DISH effectively controlled SNR and Northstar’s

businesses. See id. at 8927-34.

The thrust of the Commission’s Intermountain Microwave

analysis was that the petitioners wrote into their contracts

general terms that formally spoke to the six factors in ways that

seemed to promise SNR and Northstar’s independence, but at

the same time functionally belied those promises with specific

contract terms empowering DISH to control and benefit from

virtually all critical aspects of SNR and Northstar’s businesses.

What mattered, in the Commission’s analysis, was the

substance of the terms of DISH’s control, not the formal

recitations of compliance with Intermountain Microwave’s six

control factors. Such pragmatic application of Intermountain

Microwave comports with other FCC cases, in which the

Commission has emphasized that “[t]he de facto control issue

‘transcends formulas, for it involves an issue of fact which

must be resolved by the special circumstances presented.’” In

re Stratos Glob. Corp., 22 F.C.C. Rcd. 21328, 21343 (2007)

(quoting In re Application of Fox Television Stations, Inc., 10

F.C.C. Rcd. 8452, 8514 (1995)). We therefore conclude that

the FCC’s application of the Intermountain Microwave test was

reasonable and consistent with existing law.

21

3. Fifth Memorandum Opinion & Order

Together with its Intermountain Microwave analysis, the

FCC considered whether DISH had de facto control of SNR

and Northstar under the FCC’s Fifth Memorandum Opinion &

Order, the Commission’s 1994 opinion resolving petitions for

reconsideration and clarification of competitive bidding rules

for broadband and personal communication service (PCS). See

FCC Op., 30 F.C.C. Rcd. at 8929-31 (citing Fifth MO&O, 10

F.C.C. Rcd. 403 (1994)).

The Fifth MO&O gave additional guidance on the

statutory and regulatory provisions that aimed “to ensure that

designated entities,” such as small, rural, or minority- or

women-owned businesses, “have the opportunity to obtain

licenses at auction as well as the opportunity to have

meaningful involvement in the management and building of

our nation’s broadband PCS infrastructure.” 10 F.C.C. Rcd.

403, 404. Its provisions seek to benefit only those small

businesses that plan to participate in the wireless industry

themselves, not those that are either proxies for larger investors

or plan to become their subsidiaries.

The Fifth MO&O specifies that, when an investor

“financially . . . force[s]” a small company “into a sale (or

major refinancing),” the investor’s conduct effects “a transfer

of control.” Id. at 456. As noted above, SNR and Northstar

contractually agreed to use the same type of wireless

technology as DISH. Nevertheless, at the time of the auction,

DISH had no plans to choose a technology or begin building a

network. See FCC Op., 30 F.C.C. Rcd. at 8930 & n.312. Thus,

SNR and Northstar would have to wait for DISH to make a

technology choice before they could start building wireless

towers. Even if DISH made that choice very quickly, SNR and

Northstar would be unlikely to be able to build a wireless

22

network and generate enough revenue to repay their multi-

billion dollar loans to DISH before the seven-year deadline

passed.

DISH also imposed financing obligations and transfer

restrictions on SNR and Northstar: Neither small company

could borrow more than $25 million dollars from other sources

to help repay DISH, id. at 8924, nor could it sell its business

(e.g. to a wealthier entity that might be able to shoulder a large

debt) without DISH’s consent, see id. at 8928-29 (explaining

that DISH had authority for ten years to freely block the sale of

SNR or Northstar, after which the companies could be sold, but

only subject to DISH’s right of first refusal). Consequently, if

SNR or Northstar sought to act independently of DISH to

actually build its own wireless business, as opposed to merely

collecting its assured payment from DISH, it was doomed to

default on its loans. See id. at 8929. Moreover, the loans were

so large that defaulting could “reduce the value of the

membership interests in [SNR and Northstar] to zero.” Id. at

8930.

The Agreements left SNR and Northstar only one path to

avoiding certain financial failure: Five years after acquiring

their spectrum licenses, they each had a “put,” i.e., a right to

require DISH to buy their business for the price of “their

investment . . . together with an annual rate of return” that was

specified under seal in the contract. Id. at 8929. The contract

limited SNR and Northstar to a 30-day window at the end of

the fifth year to exercise that option. See FCC Op., 30 F.C.C.

Rcd. at 8929. Such a relatively generous but fleeting, one-

time-only opportunity was virtually certain to entice SNR and

Northstar to sell their companies to DISH. Id. at 8930. And

that financial carrot would appear at a convenient time for

DISH: FCC rules provide that, five years after a designated

entity acquires a spectrum license—but no sooner—it can sell

23

its business to a large company without paying a penalty to the

Commission. See id. at 8897 n.82 (citing 47 C.F.R. §

1.2111(d)(2)(E)). Thus, the FCC determined that SNR and

Northstar would have every interest in selling their businesses

to DISH at the first possible moment. See id. at 8931 (citing

Fifth MO&O, 10 F.C.C. Rcd. 403, 456). Such terms may be

mutually beneficial to the parties to the agreements, but they

are hardly what one would expect if SNR and Northstar wished

to build their own independent wireless businesses.

The FCC’s conclusion is strongly supported by the Fifth

MO&O, which provided the following example of an

arrangement that could constitute a transfer of control:

[If] an agreement between a strategic investor and a

designated entity provides that (1) the investor makes

debt financing available to the applicant on very

favorable terms (e.g., 15 year-term, no payments of

principal or interest for six years) and (2) [] the

designated entity has a one-time put right that is

exercisable at a time and under conditions that are

designed to maximize the incentive of the licensee to

sell (e.g., six years after issue, option to put partnership

interest in lieu of payment of principal and accrued

interest on loan), we may conclude that de facto control

has been relinquished.

Fifth MO&O, 10 F.C.C. Rcd. 403, 455-56. The facts in that

example are materially identical to the facts here. Here, as in

the example, a strategic investor has provided financing to

small companies on very favorable terms (no payments of

principal or interest for five years) and the small companies

have a “one-time put right that is exercisable at a time and

under conditions that are designed to maximize the incentive

of the licensee to sell” (including by providing that the right

24

can be exercised “in lieu of payment of principal and accrued

interest on loan”). We therefore conclude that the Fifth MO&O

clearly presaged the FCC’s de facto control finding, and that

the FCC applied the Fifth MO&O in a reasonable manner to

support its conclusion.

4. The Wireless Bureau’s Allowance of Bidding Credits

to Denali Spectrum and Salmon PCS is Not Controlling

The petitioners do not dispute the authoritative guidance

provided by the controlling-interests rule, 47 C.F.R.

§ 1.2110(c)(2)(ii)(H), Intermountain Microwave, and the Fifth

MO&O. Their petition rests largely on the assertion that the

FCC’s analysis, however consistent with those authorities,

cannot be squared with what they view as the more specific

guidance provided by two Wireless Bureau actions approving

applications Denali Spectrum and Salmon PCS filed for

designated-entity bidding credits. Petitioners characterize the

Bureau’s approval of those applications as inconsistent with the

Commission’s denial of theirs.

Each of the two applications for small-business credits that

petitioners highlight was approved by the Bureau with a one-

word action communicating that the application was “granted,”

without any opinion or explanation. Petitioners nonetheless

insist that those actions have precedential force, requiring the

Commission to approve similar applications. They contend

their applications are materially identical, so the FCC’s denials

were contrary to its own precedent and constituted an

unexplained change of course.

While the absence of a written opinion regarding either

Denali Spectrum or Salmon PCS’s successful application for

bidding credits makes it somewhat difficult to discern the

relevant terms, we disagree with SNR and Northstar that those

25

actions require us to grant their petitions. Under our

established precedent, the unexplained approvals of small-

business credits to Denali and Salmon are non-precedential

and, even examining their substance, do not detract from the

FCC’s decision here.

i. The Denali and Salmon Approvals

Are Non-Precedential

Publicly available documents contain some of the

background information that likely informed the Bureau’s

Denali and Salmon approvals. More than a decade ago, Cricket

Communications, Inc. and its affiliates (collectively, Cricket)

acquired an eighty-five percent interest in a small business

called Denali Spectrum and provided the capital that Denali

Spectrum needed to participate in a wireless spectrum auction.5

Cricket also agreed to serve as Denali Spectrum’s manager.6

The Wireless Bureau granted Denali Spectrum’s request for

small business credits without opinion.7

5

See FCC Universal Licensing System, Application File No.

0002774595,

http://wireless2.fcc.gov/UlsApp/ApplicationSearch/applAdminAtta

chments.jsp?applID=3937783 (click on “Organization Chart”

hyperlink, created March 23, 2007); see also id. (click on “Exhibit

D: Agreements and Other Instruments” hyperlink, created April 18,

2007).

6

See id. (click on “Exhibit D: Agreements and Other Instruments”

hyperlink, created April 18, 2007).

7

See FCC Universal Licensing System, Application File

No. 0002774595,

http://wireless2.fcc.gov/UlsApp/ApplicationSearch/applAdminAtta

chments.jsp?applID=3937783; see also id. (click on “Exhibit C:

Designated Entities” hyperlink, created March 23, 2007).

26

Cingular Wireless similarly obtained an eighty-five

percent stake in a small business called Salmon PCS.8 Cingular

served as Salmon’s manager and had a right to weigh in on

many aspects of Salmon’s business.9 Yet the Wireless Bureau

treated Salmon as an independent small business, allowing it to

use bidding credits to offset the cost of a spectrum license.10

As with Denali, the Wireless Bureau did not explain why it

believed Salmon qualified as a designated entity.

The core of petitioners’ case rests on their decisions to

model many of the provisions in their agreements with DISH

on contractual provisions between small businesses and their

larger investors that the Wireless Bureau had previously

accepted as not evidencing disqualifying de facto control. In

particular, petitioners contend that material terms of the

agreements between DISH and petitioners track terms of

Cricket’s agreements with Denali Spectrum or Cingular

Wireless’s agreements with Salmon PCS. See Pet. Br.,

App’x A (comparing the contractual agreements in Denali with

the contractual agreements in this case). Thus, the petitioners

contend, the FCC necessarily departed from precedent when it

held that DISH—unlike the investors in Denali Spectrum and

Salmon PCS—exercised de facto control over the small

companies it was managing. We are not persuaded.

8

See FCC Universal Licensing System, Application File

No. 0000365189,

http://wireless2.fcc.gov/UlsApp/ApplicationSearch/applAdminAtta

chments.jsp?applID=1575639# (click on “Exhibit A: Ownership”

hyperlink, created February 11, 2001).

9

See id. (click on “Management Agreement” hyperlink, created

September 18, 2001).

10

See id.; see also id. (click “Exhibit D: Designated Entities”

hyperlink, created February 12, 2001).

27

As an initial matter, there is no evidence that the FCC has

changed its position. The FCC is not bound to treat the

provisions of agreements filed with a pair of long-form

applications, which the Wireless Bureau administratively

granted without opinion or any public statement of reasons, as

if those provisions established a Commission position from

which it could not deviate without reasoned explanation. See

Fox I, 556 U.S. at 515; State Farm, 463 U.S. at 41-42. We have

no assurance that the Commission ever accepted those

decisions as correct even on their own terms, nor even that the

Commission scrutinized the details of the filings on which

petitioners now claim to rely.

The FCC did not unreasonably “disavow” its staff-level

actions. This court has repeatedly held that a “lower

component of a government agency” does not bind the agency

as a whole. Comcast, 526 F.3d at 769 (collecting cases). In

Comcast, we “reaffirmed our well-established view” that the

reasoning behind unchallenged Media Bureau actions cannot

be attributed to the agency unless and until “the agency has . .

. endorsed those actions.” Id. (quoting Vernal Enters., Inc. v.

FCC, 355 F.3d 650, 660 (D.C. Cir. 2004)). The Wireless

Bureau’s acceptance of Denali’s and Salmon’s applications for

designated-entity bidding credits did not require the

Commission to follow the same approach or explain why it did

not do so for SNR and Northstar.

The petitioners make a range of arguments that the FCC

was bound to grant bidding credits to them because the

Wireless Bureau approved credits in cases they assert are

materially indistinguishable. First, the petitioners argue that

the Wireless Bureau has the delegated authority to act for the

Commission on matters within the Bureau’s purview,

including implementing the Commission’s auction rules. 47

C.F.R. § 0.131; In re Amendment of Part 1 of the Commission’s

28

Rules—Competitive Bidding Proceedings, 12 F.C.C. Rcd.

5686, 5697-98 (1997). Because the Wireless Bureau’s

exercises of delegated power have “the same force and effect .

. . as orders, decisions, reports, or other actions of the

Commission” as a whole, 47 U.S.C. § 155(c)(3), the petitioners

assert that Bureau decisions regarding designated entities

should be considered full Commission decisions. That is true

enough as far as it goes. But it “simply means that [Bureau]

rulings are binding on the parties to the proceeding.” Comcast,

526 F.3d at 770. It most assuredly does not mean that

principles one might glean from unexplained, case-specific

Bureau actions—whether granting individual waivers as in

Comcast, or applications for designated-entity status to

particular applicants such as Denali Spectrum or Salmon

PCS—are somehow to be treated as establishing the position

of the Commission.

Second, the petitioners contend that Wireless Bureau

actions must be considered Commission precedent under 47

C.F.R. § 0.445. That regulation provides that, when

“[a]djudicatory opinions and orders of the Commission, or its

staff acting on delegated authority” are “published in the

Federal Register, the FCC Record, FCC Reports, or Pike and

Fischer Communications Regulation,” then they may be

“relied upon, used or cited as precedent by the Commission or

private parties in any manner.” 47 C.F.R. § 0.445(a), (f). By

contrast, where the “[a]djudicatory opinions and orders of the

Commission, or its staff acting on delegated authority” are not

so published, they only may “be relied upon, used or cited as

precedent . . . against persons who have actual notice of the

document in question or . . . against the Commission.” Id. §

0.445(a), (f). The petitioners contend the unpublished Wireless

Bureau staff orders are precedential under Section 0.445 when

cited “against the Commission.”

29

Even assuming that the Wireless Bureau’s actions

approving Denali Spectrum and Salmon’s applications for

bidding credits may properly be considered “[a]djudicatory

opinions and orders”—a proposition not established—

petitioners’ argument is unpersuasive: The point of Section

0.445 is to prevent use of any documents against a party,

including the Commission, that lacks actual notice of it.

Section 0.445 does not speak to the weight any particular

document has when “used or cited.”

Third, Comcast dealt with “sporadic action” by the Media

Bureau, which was “neither reviewed nor endorsed” by the

Commission as a whole; petitioners would have us differentiate

this case on the ground that the full FCC itself has referred to

Wireless Bureau actions “to establish the position of ‘the

Commission.’” Pet’r Br. 34, 40. But the Denali and Salmon

decisions, as only two among many dozens of actions on

applications for designated-entity credits, were also “sporadic”

actions that the Commission neither reviewed nor endorsed.

Petitioners grasp at the straw of the Commission’s citation to

Bureau opinions in support of its standing analysis in the

challenged order as if that tacitly endorsed every Bureau action.

See FCC Op., 30 F.C.C. Rcd. at 8905 nn.153-54. Just as this

court would not, by citing one of its own unpublished

judgments in a published opinion, somehow thereby convert all

of our unpublished judgments into binding circuit precedent, so

the FCC’s citation to a Wireless Bureau opinion does not mean

the Commission has tacitly embraced all Wireless Bureau

actions.

Fourth, the petitioners suggest that the FCC has an

obligation to follow Wireless Bureau precedents, at least in this

case, because the Auction Notice “directed auction participants

to Bureau precedent for ‘further guidance’ on the specific

question of control.” Pet. Br. 11. But the Auction Notice

30

identified three specific sources for guidance on the issue of de

facto control. Auction Notice, 29 F.C.C. Rcd. at 8412 & n.151.

One of those sources, the Baker Creek Memorandum Opinion

and Order, was a Wireless Bureau decision—albeit one that the

full Commission had already endorsed on multiple occasions.

See, e.g., In re Stratos Glob. Corp., 22 F.C.C. Rcd. at 21343

n.107; In re Application of Bollinger, 16 F.C.C. Rcd. 18107,

18110 n.9 (2001); Amendments, 15 F.C.C. Rcd. at 16970 n.251.

No reasonable auction participant could read the Notice’s

reference to Baker Creek as the Commission’s general

announcement of a commitment to embrace every principle

any party might glean from a past Wireless Bureau action.

Fifth, the petitioners note that the FCC took care in this

case to “disavow” Wireless Bureau staff actions, which they

contend implies those actions otherwise would count as full

Commission actions. The “disavow[al]” appeared in a

footnote, where the FCC stated:

To the extent any prior actions of Commission staff

could be read to be inconsistent with our interpretation

of the Commission’s rules in this order, those actions

are not binding on the Commission—and we hereby

expressly disavow them as inconsistent with the goals

of Section 309(j)(3), the text and purpose of Section

1.2110 of the Commission’s rules, and Commission

policy as embodied in the Fifth MO&O, this decision,

and other decisions of the Commission described

above. See Comcast Corp. v. FCC, 526 F.3d 763, 769

(D.C. Cir. 2008); accord, Comcast Cable

Communications, LLC[] v. FCC, 717 F.3d 982, 1002

(D.C. Cir. 2013) [Edwards, J., concurring].

See FCC Op., 30 F.C.C. Rcd. at 8937 n.354. The statement

itself is quite explicit that staff actions “are not binding on the

31

Commission.” Only then, to foreclose any inconsistency

that—reasonably or not—“could be read” into past staff

actions, did the Commission “disavow” any contrary

understanding and specify the particular statutory provision,

rules, and FCC orders to which potential designated entities

should look for guidance. That simple reiteration does not

carry the powerful negative implication petitioners would have

us draw from it.

The sixth reason that petitioners say the Commission

unreasonably found de facto control where petitioners had

tracked Wireless Bureau-approved applications is that the

petitioners had no other choice: If copying terms of

agreements of designated entities the Wireless Bureau had

approved did not require Commission approval, petitioners

contend, what would? The petitioners disparage the

regulations as providing “zero guidance about what does and

does not constitute de facto control in the auction context.”

Pet’r Reply Br. 10. They complain that Intermountain

Microwave’s factors also “fail[] to provide clear guidance,”

and the Fifth MO&O’s discussion of when a large company has

de facto control over an affiliate amounts to only “general

admonitions.” Id. at 11. Thus, the petitioners conclude, the

FCC must have intended them to look to the specific

application forms and underlying agreements of businesses—

such as Denali Spectrum and Salmon PCS—that the Wireless

Bureau treated as designated entities entitled to bidding credits.

The petitioners have not cited any case suggesting that,

when application of an agency’s standard—here, de facto

control—takes into account a wide range of different types of

evidence, the agency cannot act reasonably unless it follows its

staff action. To be sure, where a standard itself does not give

notice of the conduct it prohibits, a regulated entity cannot be

punished for violating those standards. See, e.g., Abhe &

32

Svoboda, Inc. v. Chao, 508 F.3d 1052, 1060 (D.C. Cir. 2007);

Gen. Elec. Co. v. EPA, 53 F.3d 1324, 1328-29 (D.C. Cir. 1995).

We have more to say below about the question of fair notice.

But the Commission remained free to determine on the facts

that petitioners do not in fact qualify for bidding credits, even

though its governing criteria were context-dependent.

Finally, petitioners contend that the Commission’s denial

of bidding credits was contrary to law because “agencies

cannot pretend that informal agency guidance does not exist in

considering whether regulated parties conformed their conduct

to the law.” Pet’r Reply Br. at 17. They invoke the Supreme

Court’s reference in FCC v. Fox Television Stations, Inc., 567

U.S. 239, 247 (2012) (Fox II), to “unpublished Bureau-level

decisions,” as if that recognition invalidates the FCC’s decision

here for failure to conform to the Wireless Bureau’s past

actions. Pet’r Reply Br. at 17. But that miscasts the role of the

Bureau rulings in Fox II. The Court held that Bureau rulings,

together with the Commission’s rulings and letters on fleeting

expletives and nudity, were not consistent and specific enough

to provide advance notice of the challenged penalty. See Fox

II, 567 U.S. at 256-57. Fox II does not support treating FCC

Bureau decisions as themselves a body of precedent from

which the Commission may not deviate without explanation.

The FCC need not follow—or explain its departures

from—Wireless Bureau decisions. The Commission is not

required to approve applications for bidding credits just

because the applicants modeled terms of their investor

contracts on terms used by designated-entity applicants the

Wireless Bureau approved. When we consider whether the

FCC’s de facto control rules were clear enough that petitioners

should have expected that, were they to fall short they would

be penalized for default and denied an opportunity to cure, see

33

infra, Section II.B, we will take note of the way that Wireless

Bureau staff seemed to interpret those rules.

ii. The Denali and Salmon Applications Were Materially

Different from Petitioners’

Even were we to accept the petitioners’ assertions that they

reasonably relied on Wireless Bureau grants of certain past

applications as if they were authoritative precedents, the FCC

permissibly determined that the applications in Denali and

Salmon were not on all fours with SNR and Northstar’s. Those

agreements were different enough that petitioners were on

notice that they might be disqualified even where the prior

designated-entity applicants on which they had sought to model

themselves had been approved. At the same time, it does not

appear that the agreements were so different that petitioners

could have been expected to anticipate that they would be

denied an opportunity to negotiate a cure.

SNR and Northstar place great emphasis on their

compliance strategy whereby DISH pulled various contractual

provisions out of the Denali and Salmon agreements and

stitched them together to form its contracts with petitioners

here. Whatever the extent of overlap between terms of

petitioners’ contracts and terms in one or another of those prior

applicants’ contracts, the FCC reasonably found that the

resulting relationship between the petitioners and DISH

manifests impermissible control more plainly than did the

relationships between Cricket and Denali, or between Cingular

Wireless and Salmon.

Notably, in this case, it is clearer that SNR and Northstar

will be “financially . . . force[d]” to sell their businesses to their

largest investor, DISH. See Fifth MO&O, 10 F.C.C. Rcd. 403,

456. As explained above, instead of scrambling to build a

national network in the space of less than five to seven years in

34

the quixotic mission of generating enough revenue to pay back

their multibillion dollar loans, the petitioners have every

incentive simply to sell their interests at year five to DISH in

exchange for complete forgiveness of those loans plus a

guaranteed cash payment.

Denali Spectrum’s situation was markedly different. It was

not clearly foreordained that Denali would sell its business to

Cricket. Denali only needed to use one license to provide

service in the Chicago area—rather than hundreds of licenses

to provide an integrated national network.11 Denali also had

ten years—rather than five—to build its comparatively small-

scale service before it had to make its first loan payment, and

it had fourteen years—rather than seven—to finish paying off

its loans.12 Denali’s chances of establishing a network and

turning a profit before it had to start paying back its loans were

thus substantially greater than SNR or Northstar’s.

At the same time, under their agreement with DISH, SNR

and Northstar faced more powerful temptation to sell their

businesses to DISH at the earliest permissible time. The

agreements enabled SNR and Northstar “to require DISH to

11

See FCC Universal Licensing System, Application File

No. 0002774595,

http://wireless2.fcc.gov/UlsApp/ApplicationSearch/applMarketSum

.jsp?applID=3937783.

12

See Credit Agreement By and Among Cricket Communications,

Inc. (as Lender) and Denali Spectrum License, LLC (as Borrower)

(July 13, 2006),

https://www.sec.gov/Archives/edgar/data/1065049/0000936392060

00773/a22231exv10w15.htm, as amended by Amendment No. 2 to

Credit Agreement By and Among Cricket Communications, Inc. (as

Lender) and Denali Spectrum License, LLC (as Borrower) (April 16,

2007),

https://www.sec.gov/Archives/edgar/data/1065049/0000936392070

00409/a30090exv10w5w2.htm.

35

purchase their interest,” subject to few conditions. FCC Op.,

30 F.C.C. Rcd. at 8929. By contrast, Cricket had not promised

to buy Denali Spectrum’s business; rather, Cricket “ha[d] the

right, but not the obligation,” to accept an offer from Denali

Spectrum to sell its spectrum.13 Thus, neither the carrots nor

the sticks in Denali were as large as those that collectively

pressure SNR and Northstar to sell their businesses to DISH.

The business arrangements in this case were also more

likely to induce a buyout—rather than network development by

the designated entities—than those between Salmon and

Cingular. Salmon’s Management Services Agreement with

Cingular contained a detailed and speedy timeline for building

the facilities that Salmon would need in order to provide

wireless service to customers.14 If Cingular did not adhere to

the timeline, Salmon had the right to “take any and all action

necessary[,] . . . including retaining third parties” to provide

services in lieu of Cingular; Cingular would then have an

obligation to reimburse Salmon for the reasonable cost of those

third-party services.15 Salmon, like Denali Spectrum, thus had

significantly more control and realistic opportunity than SNR

or Northstar to build a wireless network and begin collecting

revenues before its loans were due. Moreover, Salmon’s

controlling investor had three different opportunities to sell its

13

See FCC Universal Licensing System, Application File No.

0002774595, at 15,

http://wireless2.fcc.gov/UlsApp/ApplicationSearch/applAdminAtta

chments.jsp?applID=3937783 (click on “Exhibit D: Agreements and

Other Instruments” hyperlink, created April 18, 2007).

14

See FCC Universal Licensing System, Application File

No. 0000365189,

http://wireless2.fcc.gov/UlsApp/ApplicationSearch/applAdminAtta

chments.jsp?applID=1575639# (click on “Management Agreement”

hyperlink, created September 18, 2001).

15

See id. at 23.

36

interest in Salmon to Cingular.16 It therefore had more chances

to see how Salmon’s business was progressing before it made

a decision to keep or sell its shares; by contrast, SNR and

Northstar had just a single, 30-day window (during the fifth

year of the venture) to sell their businesses to DISH. Under

these circumstances, the petitioners cannot reasonably claim

that they were in the same position as Salmon.

In addition to the terms setting up a forced buyout more

clearly here than in Denali or Salmon’s circumstances, SNR

and Northstar’s bidding behavior was suspicious in ways that

Denali’s and Salmon’s were not. As the FCC noted in its

decision, SNR and Northstar’s bidding conduct suggested that

the two entities—although ostensibly separate and

independent—were not in fact competing with one another.

See FCC Op., 30 F.C.C. Rcd. at 8932-33. To the contrary, they

seemed to be working toward the same goal, and indifferent as

to which entity paid to achieve it. See id. The Commission

emphasized, for example, that,

[C]ontrary to its own independent economic interest,

SNR withdrew a bid in round 238 that had been a

provisionally winning bid since round 77, an action

that resulted in its being liable for an $11 million

withdrawal payment ($8 million if adjusted for bidding

credits). In the next round, Northstar was able to

benefit by SNR’s withdrawal to become the

provisionally winning bidder for that license at a price

$11 million less than SNR’s prior bid ($8 million less

if adjusted for claimed bidding credits). . . .

Accordingly, while the switch added $11 million to

SNR’s balance sheet to the detriment of its non-DISH

16

See id. at 26 (click on “LLC Agreement” hyperlink, created

September 18, 2001).

37

owners, it was an economic “wash” to the combined

[petitioners] . . . .

Id. at 8933. SNR and Northstar have not established that they

had any joint venture or shared business with each other that

could explain their a-symmetric cooperation during bidding as

reflecting anything other than their control by DISH. At oral

argument, their counsel asserted that they did have some shared

ventures, but we find no evidence in the record to support that

assertion. The only contractual agreement in the record that

was signed by SNR and Northstar was the joint bidding

agreement. That agreement suggests that SNR and Northstar

wanted to coordinate their bids with DISH so that the three

companies could combine their products and services to the

extent contemplated by their governing agreements. But the

governing agreements refer to SNR and Northstar as if they are

separate companies who just happen to have the same business

manager and financial backer (DISH). Without any other

explanation for their non-mutually-beneficial bidding, the FCC

reasonably concluded that SNR and Northstar were acting as

two arms of DISH, working together to advance DISH’s goals.

Id. at 8932-33.

SNR and Northstar respond that the bidding agreement

between SNR, Northstar, and DISH was not materially

different from the bidding agreement between Denali and

Cricket. But no case that petitioners have identified involved

two ostensibly distinct small businesses coordinating their

bidding with one another to favor one and disadvantage the

other, even while jointly achieving a net benefit. That is the

situation we confront here. SNR and Northstar also argue that

they should not be penalized because their bidding behavior did

not violate any FCC bidding rules. But behavior not itself

barred by FCC rules may nonetheless be probative of

impermissible control. Cf. Baker Creek, 13 F.C.C. Rcd. 18709,

38

18724 (explaining that a particular type of partnership

agreement was “permissible” under FCC rules, but “also

relevant” to the FCC’s control analysis). In the absence of any

contractual provisions that would, for example, share the net

benefits of coordinated bidding where losses to one firm are

offset by gains to the other, the joint bidding strongly suggests

that each petitioner was an arm of DISH. Unless both

companies were controlled by DISH, SNR and Northstar’s

unusually cross-subsidizing bidding behavior is inexplicable

from a business perspective.

Thus, under the totality of the circumstances, we believe

that the FCC acted reasonably and consistently with its

Wireless Bureau’s decisions when it held that DISH had de

facto control over SNR and Northstar.

The petitioners argue lastly that, even if the FCC’s

decision could be harmonized with FCC and Wireless Bureau

precedents, the Chairman of the FCC told Congress that it was

not in fact applying those precedents to resolve this case, but

applied new auction rules that it developed in the wake of

Auction 97. Petitioners claim that it is arbitrary to penalize

them for failing to predict and comply with rules that were not

yet on the books. But the Chairman’s testimony is sufficiently

ambiguous where the order itself is clear that it does not carry

the weight petitioners assign it.

The Chairman made the following statement about the de

facto control standard that the FCC would use to determine

whether DISH controlled SNR and Northstar:

[W]e [are] us[ing] a totality of [the] circumstances test

that ha[s] never been applied before to say, we don’t

think that that is a good idea, at a staff level. [SNR and

Northstar’s case] is coming to the Commission, so,

39

again, I have to rule on that, so I won’t go any further.

But the fact of the matter is that we [have taken] that

totality of the circumstances [test] and put it into the

[designated entity] rules in this re-write that we just

did.17

While that testimony is not entirely clear, it affirms the FCC’s

commitment to the “totality of the circumstances” test as a

useful way to determine whether a designated entity is

independent or under another’s control, so the agency

incorporated the test into the most recent “re-write” of its rules.

The testimony is hardly crystalline. The “re-write” to which

Chairman Wheeler apparently refers added helpful specificity

to the applicable rules, including a cap on bidding credits, that

was lacking at the time of SNR and Northstar’s applications.

Whatever the statement was supposed to mean, “agency

opinions, like judicial opinions, speak for themselves.” PLMRS

Narrowband Corp. v. FCC, 182 F.3d 995, 1001 (D.C. Cir.

1999) (internal quotation marks and brackets omitted). So, too,

the Commission’s rules. Contrary to petitioners’ contention,

the Chairman’s somewhat opaque statement—viewed in

context with the rules, the “re-write,” and the FCC opinion in

this case—is not an admission that the Commission planned to

depart from its precedents and apply wholly new rules to

petitioners. The FCC opinion refers to and reasonably applies

rules and precedents, all of which pre-date the conduct at issue.

17

Continued Oversight of the Federal Communications

Commission: Hearing before the Subcomm. on Commc’n of the H.

Comm. on Energy and Commerce and Tech., 114th Cong., prelim.

transcript at 54-55 (July 28, 2015) (testimony of Tom Wheeler,

Chairman, Federal Communications Commission),

http://docs.house.gov/meetings/IF/IF16/20150728/103819/HHRG-

114-IF16-20150728-SD009.pdf.

40

Nothing in that opinion suggests that the Commission applied

novel rules to determine whether DISH had control over SNR

and Northstar.

B. Inadequacy of Notice to SNR and Northstar that the

FCC Would Deny an Opportunity to Cure

It is a basic principle of administrative law that an agency

cannot sanction an individual for violating the agency’s rules

unless the individual had “fair notice” of those rules. Gen.

Elec., 53 F.3d at 1328; see also, e.g., Howmet Corp. v. EPA,

614 F.3d 544, 553 (D.C. Cir. 2010); Trinity Broad. of Fla., Inc.

v. FCC, 211 F.3d 618, 628 (D.C. Cir. 2000). Notice is fair if it

allows regulated parties to “identify, with ascertainable

certainty, the standards with which the agency expects [them]

to conform.” Trinity, 211 F.3d at 628; accord Otis Elevator Co.

v. Sec’y of Labor, 762 F.3d 116, 125 (D.C. Cir. 2014).

The petitioners argue that, even if the FCC reasonably

applied its precedents regarding de facto control, those

precedents did not give them fair notice that their arrangements

with DISH might be found to (a) manifest de facto control

disentitling them to the designated-entity status that qualifies

very small businesses for bidding credits, or (b) show such a

degree of de facto control that the FCC would deny them an

opportunity to seek to negotiate any cure. We hold that notice

was sufficiently clear as to the first proposition but not the

second. Petitioners’ arguments and the legal sources upon

which they rest are both more readily distinguished and less

authoritative on the control question than on the opportunity

for cure. The foreseeable adequacy of the legal and factual

grounds for the Commission’s determination that these

arrangements manifest DISH’s de facto control over petitioners

did not also make clear that such a control determination and

its consequent penalties would be non-negotiable. Indeed, the

41

very point of an opportunity to cure is to give some cushion to

firms that must plan under uncertainty. Although it could well

elect to do so, the FCC did not make clear that it would

withdraw an opportunity to seek a cure in every instance in

which the uncertainty applicants face is not so serious as to

itself invalidate the Commission’s control holding for lack of

notice.

The FCC reasonably applied its rules regarding de facto

control, but the petitioners are right that there was considerable

uncertainty at the time of Auction 97 about the degree of

control those rules would tolerate. The Commission has

emphasized the flexibility of the de facto control test, which

must account for “economic realities.” See FCC Op., 30 F.C.C.

Rcd. at 8889-90. One of those economic realities is that

wireless spectrum licenses are expensive, and small companies

often need to obtain hundreds of millions of dollars in loans to

enable them to participate in spectrum auctions. When an

investor like DISH stakes such a large investment on new,

small businesses, it often demands extensive protections—

including the right to supervise the small businesses closely.

The FCC’s Wireless Bureau has in the past tolerated extensive

supervision without either the Bureau or the Commission

finding the de jure or de facto control that makes an investor’s

revenues attributable to the would-be designated entity. On

these facts, for all the reasons set forth above, petitioners

should reasonably have anticipated that the FCC might find

them to be under DISH’s de facto control. But they lacked

reasonable notice that, in the event it found de facto control, the

Commission would deny them an opportunity to cure.

The waters are muddied here in part because the FCC’s

original control rules predate cellular technology, and “[a]

cellular system is far more complex and sophisticated than the

simple microwave systems which the Commission had in mind

42

when it adopted Intermountain [Microwave]. Switches and

cell sites are intricate, multi-million dollar facilities[.]” In re

Application of Ellis Thompson Corp., 10 F.C.C. Rcd. 12554,

12556 (1995) (Ellis Thompson II). As a practical matter,

virtually any small business needs at least the substantial

involvement of a larger business to develop successful cellular

service. The Intermountain Microwave test accounts for those

realities through “sufficiently elastic” applications to allow

technical experts to advise and support new participants in the

market for wireless services. Id. (citing Ellis Thompson I, 9

F.C.C. Rcd. 7140 n.4). The Commission has sought to leave

room for large companies with “broad expertise” to help small

providers with a wide variety of “operational functions.” Fifth

MO&O, 10 F.C.C. Rcd. 403, 451.

Perhaps recognizing the economic and technological

hurdles facing small companies seeking to break into the

wireless services industry, Wireless Bureau staff have in earlier

decisions repeatedly read the FCC’s de facto control rules to

permit large investors to exert significant influence over their

small business partners. For example, the Wireless Bureau

determined that Cingular did not control Denali Spectrum (its

small business partner), even though Cingular provided

extensive management services to Denali Spectrum, and had

the rights to veto Denali Spectrum’s expenditures in excess of

$10 million; veto deviations of more than ten percent from

Denali Spectrum’s annual budget; veto Denali Spectrum’s

decision to pay an employee more than $200,000 per year;

provide engineering, construction, advertising, and clerical

services for Denali Spectrum; choose a systems manager for

Denali Spectrum; and prevent Denali Spectrum from obtaining

more than $5 million in loans from other sources. Thus, as in

General Electric, “confusion” at the ground level “is yet more

evidence that the agency’s interpretation of its own regulation”

failed to provide fair notice. 53 F.3d at 1332. Under the

43

circumstances, petitioners had little basis on which to

anticipate that a Commission that read the de facto control

standard to prohibit DISH’s powerful influence over

petitioners would not only deny petitioners bidding credits, but

charge them penalties without at least offering them a chance

to seek to cure.

The FCC answers that, even though the Intermountain

Microwave test is flexible, DISH’s influence over the

petitioners was so complete that they should have known that

their arrangements ran so far afoul of the FCC’s control rules

that there was no reasonable prospect of coming into

compliance after the auction. As discussed in detail above, the

FCC reasonably concluded that DISH’s conduct plainly

evidenced a greater degree of control over petitioners than the

conduct of entities previously found not to have exercised de

facto control. But that alone is not sufficient to show that the

petitioners had fair notice that they would be denied any

opportunity to cure. Cf. Fox II, 567 U.S. at 257 (finding that a

regulated entity did not have fair notice that its broadcast was

indecent simply because the broadcast was more provocative

than broadcasts that had previously been approved).

The FCC further argues that, even if the relatively flexible

Intermountain Microwave test was unclear, the Fifth MO&O

unequivocally states that forced sales “will constitute a transfer

of control under our rules,” 10 F.C.C. Rcd. 403, 456 (emphasis

added), and that petitioners’ put rights made it unreasonable for

them to expect to avoid a control finding or retain a chance to

cure. But the line is not so bright demarcating when the

opportunity for a sale mutually desirable to an investor and a

designated entity is so alluring that the FCC will deem it

“forced.” The determination depends on whether the context

as a whole reveals the small business to lack any real plan or

potential to build wireless service, so merely exists as a sham

44

for its investor to obtain bidding credits. See id. (explaining

that the Commission will examine the “totality of [the]

circumstances” in each case to determine whether a small

company has been forced to sell its business). Petitioners’

violation of the “forced sale” rule was not so obvious as to

make up for the lack of notice in the regulations, precedent, and

Bureau practice that the FCC would deny petitioners a chance

to attempt a cure.

ClearComm in particular reasonably supports petitioners’

assumption that, in the circumstances of this case, if the

Commission found them in violation of the control rules they

would have a chance to cure. In re Application of ClearComm,

L.P., 16 F.C.C. Rcd. 18627 (2001). ClearComm, a designated

entity, sought to transfer its licenses to its subsidiary,

NewComm Wireless Services, Inc., whose designated-entity

status was challenged because NewComm had a powerful

principal investor with put rights and an overbearing

management agreement. Id. at 18627-18631. The Wireless

Bureau granted ClearComm’s petition for reconsideration and

allowed the transfer, subject to modifications negotiated to

eliminate the investor’s de facto control. Id. at 18643-44.

Importantly, the Commission endorsed ClearComm in an

appendix to a final rule as “an adjudicatory investigation to

prevent companies from circumventing the objectives of the

designated entity eligibility rules.” In re Implementation of the

Commercial Spectrum Enhancement Act and Modernization of

the Commission’s Competitive Bidding Rules and Procedures,

21 F.C.C. Rcd. 4753, 4800 & n. 206 (2006). ClearComm thus

communicates a Commission-level position regarding the

opportunity to seek a negotiated cure in a way that the Bureau’s

actions regarding Denali and Salmon did not with respect to the

merits of the de facto control issue.

45

The FCC’s effort to distinguish ClearComm is

unconvincing. The FCC held that SNR and Northstar were in

a position analogous to ClearComm’s, and would deserve an

opportunity to cure only if they, like ClearComm, had “at all

times” been considered valid designated entities. FCC Op., 30

F.C.C. Rcd. at 8489 n.431. But it was NewComm’s

qualification, not ClearComm’s, that was under review;

ClearComm itself needed no cure opportunity precisely

because it had always been qualified as a designated entity.

The relevant parallel is between SNR/Northstar and

NewComm, each of which sought eligibility as a designated

entity, and each of which fell short.

The FCC objects that granting an opportunity to cure here

could create an incentives problem, or “moral hazard”: There

would be little reason for bidders to comply with designated-

entity rules in the first place if, when ultimately denied bidding

credits post-auction, they are entitled to haggle with the

Commission. Nothing in our decision requires the FCC to

permit a cure. That choice lies with the FCC. But if the very

opportunity to seek one is to be foreclosed, applicants must

have clear, advance notice to that effect.

Where, as here, hundreds of millions of dollars are at stake,

regulated parties need fair notice of the circumstances in which

a finding of de facto control will and will not be subject to an

opportunity to attempt to negotiate a cure. The FCC’s rules

and decisions were not clear enough to provide that notice to

the petitioners. In sum, we cannot say that the circumstances

in which a violation of FCC’s control rules would be deemed

irreparable were “ascertainab[ly] certain[]” at the time of

Auction 97. Trinity, 211 F.3d at 628. Petitioners contend that,

in the past, the FCC has “compensate[d] for [a] lack of clarity

in its control rules” by giving small companies a chance to

modify their contractual agreements with large investors, in an

46

effort to give the small companies enough independence to

satisfy the FCC. Pet’r Br. 56-57. Petitioners seek precisely

that kind of opportunity to modify their agreements with DISH.

See id. at 57-58. Because the FCC did not give clear notice that

such an opportunity would be denied, we conclude that an

opportunity for petitioner to renegotiate their agreements with

DISH provides the appropriate remedy here. See Gen. Elec.,

53 F.3d at 1329 (explaining that, “in many cases,” an agency

can alert regulated entities to its interpretation of its own rules

by making “efforts to bring about compliance” with the rules

before imposing sanctions). We therefore remand this matter

to the FCC for further proceedings consistent with our opinion.

So ordered.