Court Opinion

ID: 4199650
Source: CourtListenerOpinion
Date Created: 2017-08-29 15:01:26.77187+00
Date Added: 2024-06-11T07:47:32.594549
License: Public Domain

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
                                   5
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.
                                6
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
                               7
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.
                               8
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.
                               9
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
                                10
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.
                               11
     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
                               14
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
                              15
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.