Politics

How They Got $480 Billion in Spectrum Giveaways

We need more research like this, focused on the long term effects of Washington D.C.'s short term telecommunications policies, which are greased with graft.

by Alex Goldman ISP-Planet Managing Editor [October 1, 2007]

It's important. When you find out that the government's given away $480 billion to big business, you want the handout to stop. That's the goal of the New America Foundation's latest publication, America's $480 Billion Spectrum Giveaway How it Happened, and How to Prevent it from Recurring.

Rather than indict any specific individual, the 56 page publication focuses on remedies (but does name a few names).

But to make the charges stick, the report opens with a description of what happened and how it happened. The details take pages and pages, but the pattern has remained the same for decades.

J.H. Snider, MBA, Ph.D., the author (he is now Affiliated Researcher at Columbia University's Institute for Tele-Information, where he's writing a book), points out that although hundreds of billions of dollars of spectrum have been given away, there's no uniform data on the topic. Rights are allocated haphazardly, and data on each specific giveaway can reside in any of several government locations.

In a series of complex calculations, he values the total spectrum given away by the government at $520 billion, noting that the recipients paid $40 billion for their haul.

How to steal it
The modus operandi of big business as described by the author is a simple three part process:

1. Lobby the government for free or cheap spectrum, arguing that there's a public good to be achieved.
   
   
2. Lobby the government for more rights.
   
   
3. Lobby for "regulatory relief" and abandon the public service obligation that originally earned the company the grant of spectrum rights.

All of these grants are supposed to be leases, subject to conditions.

Snider notes that some companies have even avoided paying. NextWave managed to keep its rights to spectrum and avoid paying for it in bankruptcy proceedings, and then sold some of that spectrum it never paid for to Cingular for $1.4 billion.

Companies are now accustomed to the automatic renewal of leases, whether or not they even try to fulfill the promises they made. Companies have a perverse incentive to buy dumb radios that can use only the spectrum for which the company currently has a license. If the FCC threatens to revoke the license, the company can argue that its massive investment will be erased overnight, and customers instantly cutoff.

The solution
The most important answer to the problems raised, Snider believes, is adequate recordkeeping. Force the government to keep a list of all the giveaways and report regularly about giveaways granted to each company over the most recent periods of one year and ten years. When the company asks for more rights, force the regulator to explicitly define the price of those additional rights and to disclose at the end of the year how much the giveaway of new rights was worth to each company.

Rules should prevent regulators from going to work for companies after giving them billions of dollars in spectrum rights.

Companies should be forced to be able to use multiple spectrum, and no longer be assured of the renewal of licenses in a particular band.

Companies have to be held to the promises they make.

The regulators need to know what grants have been made and need to be able to investigate whether companies are doing what they said they would. Snider notes that new technology, such as Google Earth mashups, could make this easier but that the FCC persists in using the methods it's used for 50 years, sending out investigators with spectrum analyzers to determine what's being built when a satellite photo can show you where the towers are and what's on them.

The regulators need to be monitored. Snider writes (p.41), "The FCC's Inspector General, presumably picking up cues from Congress and the FCC, has long had a knack for ferreting out waste, fraud, and abuse among the weak while giving the powerful carte blanche to do what they want."

That's the government's job. Regulators and politicians get paid to ignore the crimes of the powerful.

To predict the future, read the past
Snider's recommendations are sensible. They would give a boost to the American economy, and enable small companies to compete. The system as it is rewards the monopolies for paying lawyers and lobbyists. Some people think that the job of the U.S. Government is to make life better for all Americans, but it's clear that its actual function is to hand out assets to the companies that pay for the system to remain as it is.

This report is a valuable indictment of Regulatory Capitalism as it works in the government's allocation spectrum. As the former FCC Chairman William Kennard described it so accurately, "regulatory capitalism is when companies invest in lawyers, lobbyists, and politicians, instead of plant, people, and customer service."

It makes fiscal sense for companies to do so. They block competition and innovation and get billions of dollars back for each million invested in lobbyists, lawyers, politicians, and regulators.

Individuals in the system profit too.

One person Snider indicts by name is Janice Obuchowski, a broadband bandit you've never heard of. He writes (p.39):

"In the 1980s, she went from being a senior aide to an FCC Chairman to being the head of the NTIA, where she helped write the rules of the PCS. . . auctions that took place in the mid-1990s."

Then she became president of and a major investor in NextWave. She is currently Chairman of Frontline.

—End