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Dish Set Up A Bunch Of Small Companies To Earn Billions In ‘Small Business’ Credits

A program to help small wireless companies compete against larger rivals could be in jeopardy after a loophole allowed DISH Network to collect more than $3 billion in tax credits.

“Perhaps it is now time to re-evaluate what really happened and change the way the [Federal Communications Commission] treats ‘small businesses,'” Taxpayers Protection Alliance senior fellow Drew Johnson suggested Monday in an article for The Washington Times.

At the FCC’s most recent spectrum auction, DISH not only won more licenses than any other bidder, but was the largest beneficiary of tax credits under the so-called “designated entity” program, which provides qualifying small companies a taxpayer-funded credit for 25 percent of the purchase price to help them compete against their larger rivals when bidding for spectrum. (RELATED: NAACP, Steve Forbes Accuse DISH of Bilking Taxpayers Out of $3 Billion)

The FCC has since acknowledged that DISH took advantage of the program by creating two shell companies that would be eligible for the subsidies, using its vast financial resources to keep competitors at bay before dropping out to allow one of the spinoffs to win the license (and the credits).

“For a huge company to set up small companies to scam the system is outrageous— and it’s a case of corporate cronyism at its most despicable,” Johnson argues, pointing out that Dish’s actions are not only costly for taxpayers, but are also harmful to “consumers hungry for better wireless services.”

“The FCC should act now and deny Dish its ill-gotten discount,” he concludes, citing Taxpayer Protection Alliance President David Williams’ recent statement that if no action is taken, “the end result raises serious concerns about the structure and continued efficacy of the [program] and the FCC’s ability to conduct future auctions.” (RELATED: Sprint’s Crony Socialist Hypocrisy)

FCC Chairman Tom Wheeler has vowed that the commission will revise its rules to “fix” the loophole before its next scheduled auction, and is seeking input on possible rule-changes from fellow commissioners. He has not yet indicated whether the FCC will heed calls to reject the tax credits claimed by DISH’s partners, but the agency is currently accepting petitions from interested parties, and is expected to render an official decision in April.

Still, “the entire sad episode leads to some other important points,” says Ev Ehrlich, a fellow at the Progressive Policy Institute and former undersecretary of commerce under President Bill Clinton, in a blog post for Roll Call.

While competition and small business are both popular concepts, Ehrlich argues, “it’s questionable whether small businesses add to competition if they have to be subsidized to enter an industry.”

Moreover, he asserts that the U.S. already has a highly competitive broadband market by international standards, leading the world in both broadband investment and high-speed Internet access, potentially making government supports unnecessary. (RELATED: FCC Chairman Tom Wheeler Finally Reveals His Net Neutrality Plan)

“If we really want to add to competition,” Ehrlich suggests, “then let’s flood the market for spectrum” by lifting unnecessary regulatory restrictions and finding ways to reallocate spectrum that was given to over-the-air broadcasters for free decades ago, and is no longer needed due to advances in technology.

Follow Peter Fricke on Twitter

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