By Malathi Nayak
(Reuters) - Dish Network Corp's affiliates on Thursday surrendered 197 spectrum licenses to the U.S. government after they were held ineligible for $3.3 billion in small-business discounts earlier this year, according to a senior U.S Federal Communications Commission official.
Dish's affiliates, Northstar Wireless LLC and SNR Wireless LicenseCo LLC, on Thursday paid a penalty of $413 million for defaulting on the licenses worth $3.3 billion that they decided not to pay for, the official said.
The deadline for the two companies to pay up the $3.3 billion was on Thursday, the official said. The FCC notified both affiliates about their obligation to pay a penalty for defaulting on the payment by two separate letters on Thursday.
The action dispels uncertainty around whether Dish and its affiliates would make a full payment of $3.3 billion to the government. Dish's chief executive, Charlie Ergen, said in an earnings call in August that paying up the entire amount would hurt the company's financial flexibility and resources to pursue acquisitions.
Dish has said it is interested in offering wireless services in addition to its pay-TV business.
The 197 licenses will be re-auctioned after the FCC's auctions of broadcast airwaves scheduled for early 2016, the FCC official said. Dish and its affiliates will be on the hook to pay the difference if the total bids in the re-auction are below $3.3 billion, the official added.
The two affiliates will acquire the remaining 505 licenses worth $10 billion, which they have already fully paid for, of the $13.3 billion in licenses they won in an auction, the official said.
Dish confirmed in a statement that it had surrendered licenses worth $3.3 billion and said it loaned its two affiliates $413 million for the penalty from its balance sheet.
Following this, the eligibility of Dish or that of its affiliates to participate in future spectrum auctions was not affected, the company said.
In August, the FCC concluded a months-long review of Dish's financial and operational ties to the two companies. The commission then denied them the $3.3 billion discount for their bids in the record-setting auction that ended in January.
In a relatively common process for auctions, Dish and partners invested in separate companies with little to no revenue. Such companies are considered "very small businesses" that can receive a 25 percent discount in auction bidding. The discounts are supposed to help new entrants to the industry compete with incumbents.
(Reporting by Malathi Nayak in New York; Additional reporting by Ramkumar Iyer in Bengaluru; Editing by Maju Samuel, David Gregorio and Leslie Adler)