A Spectrum of Abuse at FCC?

The FCC's decision to give Nextel at least $5 billion worth of prime spectrum has resulted in a heated debate over the legal and ethical decisions surrounding current methods of spectrum allocation for wireless devices. In this article, Jay Lefkowitz discusses the factors leading to the FCC decision and urge Congress to override the FCC and restore the market-driven auction system stipulated by the Communications Act.

The Federal Communications Commission - the agency charged with allocating wireless, radio and television spectrum frequencies - has issued a decision in which it has threatened to break the law, and in the process cost taxpayers millions, if not billions, of dollars. How? It's all about spectrum allocation.

Cell phones, pagers, PDAs, wireless internet services and the like, all share one thing in common - they depend on spectrum to operate, the same spectrum used for radio and television. Since the early 1990s, the FCC has been tasked with reallocating spectrum for use in wireless devices. Chairman Michael Powell has properly made spectrum allocation for wireless broadband services a commission high priority. Unfortunately, the FCC's last major spectrum reallocation - predating Mr. Powell's FCC tenure - was an unmitigated disaster. In 1995, the commission sold nearly $5 billion of radio spectrum to a company called NextWave in an action reserved for "small businesses and other designated entities." In short, the small business bought off more than it could chew and went bankrupt before paying the FCC.

During the years of litigation in which the FCC sought (and failed) to reclaim its licenses, that portion of the spectrum lay fallow even as its value soared well above $10 billion.

Now the FCC is at it again. This time, it has given away at least $5 billion worth of prime spectrum to Nextel. In exchange, Nextel is supposed to set aside only $2.5 billion to help reduce its own interference with frequencies used by public safety and emergency agencies. Talk about a sweetheart deal.

While Nextel has dressed up its deal as a public safety initiative, this is little more than a modern-day land grab, with the FCC giving away valuable spectrum in exchange for Nextel doing what it was already supposed to do - not interfere with emergency frequencies. Nextel's ironically named "Consensus Plan" is a deal that could only be dreamed up in Washington.

This is not to detract from Nextel's success story - building up a national wireless telephone network based on what were, in essence, taxicab dispatch licenses, at a time when the FCC was still following arcane procedures for awarding spectrum licenses based on specific, limited uses. But in successfully petitioning the FCC to allow use of that spectrum for a wireless network, Nextel was obligated to avoid interference with the neighboring emergency frequencies. Having failed to prevent interference, Nextel cannot now play the part of the victim in taking new, lucrative spectrum resources from the FCC.

To pull off this scheme, the FCC has violated the Communications Act by refusing to auction off the portion of the spectrum it is instead giving to Nextel. Spectrum is, of course, critical to the future of the wireless Web, to mobile phone networks, and to technologies we can only now imagine.

In a market economy, the highest and best use for spectrum is measured by dollars. So, unsurprisingly, an auction would fetch the public coffers a handsome return. In fact, Verizon announced that it was ready to start the bidding at $5 billion. A competitive, transparent, economically driven, free-market approach to spectrum allocation is exactly what Congress intended when it amended the Communications Act to require auctions. But instead, rather than recover "for the public a portion of the value of the public spectrum resource made available for public use," as Congress required, the FCC shortcircuited the process in hopes of funding pet projects not yet approved by Congress.

Worse yet, by going forward with this deal the FCC will not only cost taxpayers several billions in revenue; it may violate criminal laws as well. By approving the deal, the FCC is redirecting money that should go into the public treasury to certain projects it has designated - in essence spending money Congress has never approved.

On its face, the Nextel deal makes no economic sense. So to understand it, one has to appreciate that, in our system of government, Congress controls the purse strings. Because the FCC lacks authority to spend federal dollars to pay for improvements to public safety and emergency radio services, it has come up with this Rube Goldbergesque scheme to have Nextel pay for it in exchange for spectrum.

To be sure, such improvements would be laudable, and Congress should authorize them. But in the absence of such congressional action, the Nextel deal smacks of the kind of channeling of money forbidden by the Anti-Deficiency Act, the Miscellaneous Receipts Act, and Section 641 of the criminal code. Make no mistake, the FCC will direct expenditure of the money Nextel is setting aside for public safety projects. As the deal makes explicit, the "disbursement of funds" by Nextel for these projects "will be subject to de novo commission review." (July 8 FCC Press Release)

To be clear, Nextel is not setting up this fund out of the goodness of its heart. As Nextel has said, "We are not doing this for charity." ("Noguchi, Nextel, FCC in standoff over prime cellular spectrum," The Washington Post, May 7, Page E1) Rather, Nextel's "commit[ment] to funding public safety" is in exchange for receiving spectrum. (Nextel Press Release)

Thus, at bottom, the Nextel deal is nothing more than an end-run around limits on FCC authority and Congress' spending prerogatives. With the FCC approving this deal, one wonders what's next? There is no limit to schemes motivated regulators and special interests could cook up in dimly lit, smoke-filled rooms. Those days are supposed to be over.

It is fortunate the FCC has indicated that before its decision is final, the commission will consider the GAO's assessment of the legality of its actions. But regardless of the GAO determination, because the FCC could not resist the temptation of the Nextel deal, Congress needs to step in now, restore the market-driven auction system and save the commission from itself before billions in revenue are lost and more laws are broken.

Jay Lefkowitz is former head of the White House Domestic Policy Counsel. John O'Quinn is a former law clerk to Justice Antonin Scalia.

Copyright c 2004 News World Communications, Inc. Reprinted with permission of The Washington Times. This reprint does not constitute or imply any endorsement or sponsorship of any product, service, company or organization.

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