As an embattled small business curmudgeon and wireless industry activist, I find it necessary to respond to Federal Communications Commission spokesperson Michele Farquhar’s recent letter that appeared in the July 29 issue of RCR.
Ms. Farquhar excels in her newly appointed role as FCC chief propagandist on the alleged tremendous good that spectrum auctions perform for U.S. industry and economy. Such exhaultment, however, is largely hype with few, if any, facts to support the enthusiastic claims of its fanatic-like proponents with Congress and throughout the FCC’s own “politburo.” The strongest misdirection of Ms. Farquhar’s letter is its implication that spectrum auctions, having already raised in excess of $20 billion, are somehow beneficial to the wireless small business hopefuls of America-in fact they are most definitely not. Consider the following:
The sale of Interactive Video and Data Service frequencies in the summer of 1994 was the first and only airwave auction where “true” small businesses (i.e. those with less than $2 million in annual revenues/$6 million in assets) reigned. IVDS, however, was a nascent “stepchild” technology without a clear need or market application. As of this writing (and in the wake of $200 million in cash and commitments from small businesses), there are not commercially operating systems that we know of.
Narrowband personal communications services license sales are additional examples-the second and third historical auctions, held in 1994-of nationwide and regional license sales that were dominated by large, savvy and well-capitalized bidders. True small businesses had no victory in the regional or nationwide narrowband auctions. Further, bureaucratic delays, along with increased competition and payment schedules, threaten the viability of many current business plans held by true small businesses targeting major trading area and basic trading area narrowband licenses yet to be auctioned.
The broadband PCS A-, B- and C-block auctions were especially disastrous for true small business hopefuls. Small business applicants were denied discounts, preferences and payment plans in the A and B auctions. As a result, just five of the nation’s largest telecommunications conglomerates divided up 96 percent of the total national population coverage. The C block was the much-heralded “entrepreneurs” license sale-“it ended a blood-bath” for small businesses according to a May 6, story in The Wall Street Journal.
Last but not least on a holy auction grail is the recent multichannel, multipoint distribution service sale. Notwithstanding that a significantly large percentile of the available signal/pops were won by just five wireless cable operators, each with access to hundreds of millions of capital-four of those same winners were accorded “small business” advantages including discounts and liberal 10-year installment payments.
Of late, there is a tremendous backlash of growing resentment among the small business auction hopefuls of American wireless telecom. There is also a rising tide of court- and FCC-filed criticism (motions, petitions, comments and appeals)-so far to no avail, but the heat is turning up.
New economic studies now surfacing debunk the current myth of holy auction economies-one recently released by the National Telecommunications and Information Administration, enumerates many of the shortcomings in the current auction process. The report, prepared by Clinton Administration economists Mark Bykowsky and Robert Cull, was actually completed more than a year ago, but the agency delayed its release due to concerns of political fallout. One curious effect of airwave auctions is highly detrimental to small businesses. According to the Bykowsky-Cull study-smaller, less populated markets tend toward higher per-pop prices. The study also underscores, that, in the case of broadband PCS, two-thirds of the licenses were awarded to just five super conglomerates.
In the meantime, Capitol Hill is beginning to listen. Recently, various members of Congress have criticized the FCC for being too aggressive in implementing auctions and failing to minimize the instances where auctions appear necessary. Certain congressional representatives, of late, also have criticized the FCC for implementing unduly prolonged application filing freezes in paging, wireless cable and specialized mobile radio.
Noted national expert, Dr. Jerry Lucas, predicted more than two years ago that spectrum auctions would ultimately play to the largest telecoms, which, with assistance from esoteric game theorists, would engage in “legal collusion” while leaving the true small businesses with a virtually nonexistent change of making money in the newer wireless services. “Of [all] licenses set aside for designated small businesses,” states Dr. Lucas, “only [a small number] have any chance of yielding a return on investment within the first seven years. The bottom line is that the Clinton administration will have collected hundreds of millions of dollars in 1995 and 1996 with the commitment for billions more over a decade from unsuspecting small businesses.” Dr. Lucas predicts that in future years, many small business auction winners will realize that they’ve been taken, and in some cases driven into bankruptcy.
The truth be known, spectrum auctions stifle innovation and research and development. By sapping early precious capital, small businesses face even higher risks in an era of multiple giant competitors in every market. Auctions constitute an unnecessary tax on small businesses, stifling technological progress and business growth-billions of upfront dollars that could otherwise be used more productively for start-up, buildout and marketing. As regulators and the media chant the mantra of competition, the sun is setting on small business in wireless communications. At this late stage, a handful of telecommunication giants with virtually unlimited capital are “fit to compete,” and wireless as a small business/entrepreneurial opportunity has scant remaining existence.
Small business wireless groups, including National Paging & Personal Communications Association, United States Interactive & Microwave Television Association, Small Business in Telecommunications Association and others, have fought for years against the indiscriminate sale of precious radio bandwidth to the highest bidder-that war is not over. Nor is the current battle that small businesses are fighting for congressionally mandated advantages in future remaining auctions.
In view of Ms. Farquhar’s enumeration of FCC pro-small business accomplishments, one is reminded of Mark Twain on the three categories of falsity-“Lies.” “Damn Lies.” and “Statistics.”
Viewing the auctions as the solution to difficult communications policy problems and deficit reduction has become a dangerous habit, all are well advised to watch these developments closely. To quote a noted Washington telecom attorney in a recent national trade publication, “What government farm animal is black and white and very heavy and has representatives from Congress, the White House and the FCC following it around very closely? Why it’s the spectrum auction cash cow! If they’re not careful, the cow is going to get milked to death.”
Wake up, America! Market forces are not appropriate determinates for national telecommunications policy!
