Charlie Ergen's Dish Network Corp. (DISH) - Get Report has another chance to convince the Federal Communications Commission that a pair wireless spectrum ventures that it backs should qualify as small businesses. And while Ergen's chances look slim, he may still come out ahead.

The U.S. Court of Appeals for the District of Columbia Circuit agreed with the FCC Tuesday that Dish effectively controlled the entities that bid for spectrum in a 2014 to 2015 auction using credits for "very small" businesses, though the court said the agency did not give the ventures a chance to resolve the violation. 

"While we love DISH, we don't see how Charlie has the upper hand here." Marci Ryvicker, an analyst at Wells Fargo Securities LLC, does not see how Ergen could resolve the issue of control. 

Seeing the long-term decline in satellite TV, Ergen has spent billions on wireless spectrum in government auctions and bankruptcy sales. Dish has said it plans to deploy a 5G wireless network on its own or with partners.

Ergen has acknowledged that he sometimes "plays in the mud" when he pursues business objectives. The judge in the bankruptcy of Philip Falcone-backed LightSquared Inc. scolded Ergen for his tactics in the reorganization of the spectrum holding company, noting that "playing in the mud" could damage the value of his claims in the case.

Dish joined with other investors to form partnerships with SNR Wireless LicenseCo LLC and Northstar Wireless LLC to buy wireless spectrum licenses in a government auction that ran from 2014 to 2015. The ventures applied for bidding credits allocated for smaller entities, even though Dish has a $26.6 billion market cap and $15 billion in 2016 sales.

The two groups bid $13.3 billion in total, applying for about $3.3 billion in bidding credits that would reduce the total payout to $10 billion. The bids from the Dish entities are arguably the reason that the auction raised a blockbuster $44.9 billion—counting the disputed bidding credits.

The FCC denied the bidding credits, but gave SNR and Northstar the opportunity to pay full price. The ventures paid up for some licenses, but opted to default on others.

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"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," the court found. The satellite TV company indirectly held 85% stakes in SNR and Northstar, which acted as "as arms of Dish, rather than as independent small companies," the court found.

While Dish is clearly not a small business, the Washington court noted the complex "economic realities" in the case. "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," the court wrote. "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."

SNR and Northstar paid $182 million and $334 million, respectively, in fines for the defaults.

The vehicles could be on the hook for the difference between their bids and the amount that the FCC recoups when it re-auctions the licenses upon which SNR and Northstar defaulted.

If the Washington court had sided with SNR and Northstar on the bidding credits, Barclays analyst Kannan Venkateshwar suggested, the Dish-backed entities could have gotten back their roughly $500 million in penalties and the spectrum.

The downside may not be so bad, however. In the worst case scenario, Wells Fargo's Ryvicker suggests, Dish could have to pay $860 million, or $1.85 per share, which she suggests the market has already discounted from the stock price.

Dish may not have to pay a cent, however. Ryvicker notes that the licenses to be reauctioned are in the "HIGH demand markets" of New York, Chicago and Boston. New offers for the spectrum could exceed the $3.3 billion that the Dish entities bid.

If Dish can somehow resolve the FCC's problems with its involvement with the small business credits, the company would gain spectrum with no additional cash payments.  Ryvicker calculates that the licenses are worth $7 per share to Dish. Not bad for playing in the mud.

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