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Abusing a Congressional Small Business Program: Paving the Road to Hell | Commentary

By Ev Ehrlich If Federal Communications Commission Commissioner Ajit Pai, Sen. Kelly Ayotte, R-N.H., the Communications Workers Association and the NAACP agree on something, take note. For instance, all — plus a growing choir in Congress — agree the DISH network conned the federal government out of $3.3 billion by posing as a “small business” to take advantage of a preference for small businesses in government auctions of electromagnetic spectrum.  

Spectrum, of course, is the real estate on which wireless broadband is built. Companies bid with hopes of winning blocks of spectrum to build out their networks and provide faster, more reliable services for consumers increasingly reliant on wireless Internet. It’s an incredibly valuable thing; in the most recent auction, following 341 rounds of bidding, the FCC auctioned off a record breaking $45 billion worth of this finite resource.  

In the early 1990s, Congress gave small businesses a leg up in spectrum auctions by granting them up to a 25 percent subsidy. But in this most recent auction, DISH gamed the system by taking a majority ownership in two shell companies that qualified as “small businesses” mere months ahead of the auction. They used these companies to purchase billions of dollars of spectrum at the federal discount.  

In fact, through its puppets (in which it owns 85 percent), DISH purchased more spectrum at a greater cost than any other bidder except AT&T. They outspent T-Mobile by more than sevenfold.  

DISH’s actions are a flagrant abuse that costs all of us. The $3.3 billion subsidy it received could have funded an additional year’s worth of money for schools and libraries under the FCC’s E-Rate program, which seeks to link them to the high-speed Internet. Or it could have supplemented the FCC’s Universal Service Fund by 38 percent of 2013’s disbursements.  

Instead, that money will go to DISH, setting in place a remarkably dangerous precedent for future auctions. And the even more remarkable part of the story is that the FCC is yet to deny DISH the incentive and bring the spectrum back to market. That needs to happen immediately, full stop.  

But the entire sad episode leads to some other important points. Everybody loves small business, to be sure, but it’s questionable whether small businesses add to competition if they have to be subsidized to enter an industry in which it takes massive resources to build a national system. The consumer won’t get that subsidy – the company will keep it. And there is already, by international standards, a very high level of competition in the U.S. – we invest a higher share of gross domestic product in our networks each year than Japan or continental Europe and we’re the only country to maintain four, separate, competitive national wireless carriers. Despite having only 5 percent of global wireless users, the U.S. is home to more than half of the world’s 4G users.  

If we really want to add to competition, then let’s flood the market for spectrum. Let’s shake it out of the federal government, where agencies often have dedicated spectrum frequencies that are unnecessary in the modern telecommunications world. And let’s squeeze more of it out of over-the-air broadcasters, who were given it as a gift generations ago but now reach more people by cable and satellite. That would add to competition and make the federal government revenue, not cost it.  

And finally, in this and so many other areas, we face a fundamental choice — should the interaction of consumers and producers, or the preferences of politicians and regulators guide the development of the Internet? In other areas — environment, financial markets, worker health and safety — there’s a needed regulatory presence. But we seem to feel that the Internet won’t function unless the FCC decides how it’s going to look. Yes, the Internet is incredibly important. But that doesn’t mean we can’t “let it happen” and then respond to problems, like the digital divide, when we see them. I’m sure the advocates for a government-led Internet have good intentions. But, as in this DISH episode, remember where those lead.  

Ev Ehrlich served as undersecretary of commerce under President Bill Clinton. He is now a fellow at the Progressive Policy Institute and president of ESC Company, a business consulting firm.

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