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FCC cronyism stiffs taxpayers & destroys jobs

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By Phil Kerpen
Monday, May 5, 2014, 9:00 p.m.

While the national media are mostly focused on the Federal Communications Commission's latest net neutrality follies, the far bigger policy challenge the commission faces is executing the most complex spectrum auction in the agency's history. Unfortunately, the FCC seems more concerned with picking winners and losers than managing the auction effectively.

In this auction, the FCC will attempt to convince broadcasters to relinquish their valuable spectrum in exchange for a portion of the auction proceeds paid by mobile wireless providers. Congress also expects the auction to raise enough revenue to pay for a new national public-safety network and to provide cash for deficit reduction.

But it is headed for disaster because special interests have badly compromised the process. It looks likely the largest domestic players, AT&T and Verizon, will be effectively excluded from the auctions to the benefit of their deep-pocketed foreign-owned competitors, Sprint and T-Mobile. If the FCC doesn't reverse course, the results will be disastrous for consumers, taxpayers, broadcasters and public safety.

Unfortunately, the Department of Justice and the White House have urged the FCC to impose restrictions hamstringing AT&T and Verizon. And the FCC's proposed auction structure does precisely that. Such restrictive rules could reduce auction revenues by up to 50 percent, jeopardizing the public safety and deficit reduction objectives of the auction, as well as broadcaster participation, which is needed for the auction to succeed. So why?

It's certainly not because Sprint and T-Mobile deserve the help. Their lack of low-band spectrum (below 1 GHz) is the result of a deliberate business decision not to step up in the last major spectrum auction or seek spectrum deals in the secondary market, not a lack of deep pockets.

T-Mobile is owned by German telecom heavyweight Deutsche Telekom. Sprint is owned by Japanese heavyweight SoftBank. Why should they outbid their competitors when they can rig the rules instead? As Larry Spiwak of the Phoenix Center observed, William J. Baer, assistant attorney general for antitrust at the Department of Justice, has admitted under oath before the Senate Judiciary Committee to “working very cooperatively — quietly — with the Federal Communications Commission” to develop these de facto bidder exclusion rules.

Even more remarkably, the FCC hired Howard Symons to be vice chair of the Incentive Auction Task Force — even though Symons was fresh off representing Sprint at the commission in a filing on a related issue. And then-Chairman Julius Genachowski commended former FCC economist and current T-Mobile consultant Greg Rosston for his “incredible work” on past auctions and said it was fortunate Rosston was “engaged in this proceeding as well.”

An economic analysis conducted by former top adviser to President Clinton, Robert J. Shapiro, for the Georgetown Center for Business and Public Policy found that, denied needed spectrum, AT&T and Verizon would be forced to manage capacity in less-effective, more expensive ways that would destroy more than 118,000 jobs by 2017.

All the major telecom players have the financial wherewithal to compete on a level playing field. The FCC should scrap the special deals and hold an honest auction.

Phil Kerpen is the president of American Commitment and the author of “Democracy Denied.”

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