Critics of US spectrum policy will have plenty of ammunition for their howitzers after reading the new working paper (PDF) from J.H. Snider of the New America Foundation. Snider heads up the Wireless Future Program at New America, and his paper offers an inside look at the sometimes-dirty world of spectrum lobbying, which Snider characterizes as responsible for a $480 billion giveaway from the public treasury.
The giveaway in question comes after Congress passed legislation in 1993 requiring the FCC to hold auctions for future spectrum licenses, a move that was itself prompted by a massive giveaway of prime spectrum in the late 1980s. Using the high end of his estimate (which ranges from $140 to $480 billion), Snider observes that the giveaway in question amounted to “more than 90 percent of the value of spectrum usage rights [the government] has assigned from 1993 through the present.”
The giveaway that Snider’s talking about isn’t a massive grant of free spectrum to corporate interests; instead, it’s something much more subtle and far more difficult for the public to understand. To understand why Snider considers this a “giveaway,” let’s first look at the difference between the amount of money the government has actually received for licenses since 1993 and the amount of money that such licenses are worth.
The FCC has taken in no more than $40 billion from auction licenses in the last 15 years, but Snider digs into SEC filings from the companies that own such licenses. These companies are required to estimate the value of these assets each year; in 2006, the major television and radio broadcasters, along with the major local phone companies, estimated that the value of their spectrum was $177 billion for the licenses in question (and this may be low, given Snider’s own calculations). Where did the $140 billion difference come from? Snider argues that it did not come from the “changing conditions of supply and demand.” Instead, it tended to come from the ways that licenses were modified after they were issued, almost always in favor of the license owner.
This is where spectrum lobbyists enter the picture. They generally follow a four-step program to secure lucrative rights to spectrum: 1) create a problem, 2) outline a solution complete with a “public interest” promise, 3) secure a license and increased negotiating power against the government, and 4) exploit that enhanced power to renegotiate the terms of the license. The “public interest” pitches are predictable, usually involving variations on the terms “public safety,” “free TV,” “universal broadband,” “educational programming,” etc.
Snider doesn’t say it, but this sounds a bit like the current pitch for reduced-price 700MHz spectrum by Frontline Wireless, which is itself backed by a former FCC Commissioner and wants to help serve “public safety.”
Once a company has a license in hand, it’s difficult for the federal government to get it back and easier for the company to convince the FCC to broaden the initial terms of the license without requiring any more money. Snider outlines a whole host of strategies that lobbyists use—the spilled milk strategy, the technobabble strategy, the go-slow strategy, the Louisiana Purchase strategy—and this part of the report actually makes the most interesting reading (it also contains the best titles).
Even if the giveaway numbers are less than Snider’s lowest estimate, he points out that they would still be huge. “If Representative Jefferson can be indicted for accepting bribes of less than $1 million,” he writes, “and an average citizen can be thrown in jail for attempting to walk out of a government building with a decrepit chair worth five dollars, then surely a giveaway of public assets of at least $10 billion deserves careful public scrutiny to ensure that the conditions that cause it do not persist.”
There are a host of things that can be done to clean up the situation. New rules to track changes to spectrum rights can help, as can rules that would limit the revolving door between the FCC and industry. Such reforms “will be very difficult and require leadership at the highest levels,” Snider says, and he ends the report by calling for leaders “with the vision and courage to make it happen.” Any takers up in Washington?
–by Nate Anderson