WASHINGTON-The Bush administration last week proposed abolishing the Telecommunications Development Fund, a congressionally chartered venture-capital firm with a dismal track record in wireless and high-tech startup investments underwritten with auction-related monies.
“As a result of TDF’s disappointing performance, lack of impact and high administrative costs, the budget proposes terminating the fund and returning remaining assets to the treasury,” stated President Bush’s 2006 spending plan.
The Bush budget cited several of the problems with TDF-including high overhead and failed investments-which were chronicled in a Feb. 7 story on the fund in RCR Wireless News.
TDF, created by the 1996 telecom act, received nearly $50 million from interest on upfront payments by bidders in wireless license auctions between 1996 and 2002. The expenses of the small fund totaled nearly $10 million during that period, with six-figure salaries the norm. The results have been less than spectacular. Many of TDF’s 13investments have gone belly-up over the past six years.
Until now, despite criticism from Rep. J.D. Hayworth (R-Ariz.) and a government watchdog group, TDF has largely managed to stay out of the political line of fire. Now, its very survival is on the line.
“I look forward to telling our story and working with Congress,” said James Pastoriza, chief executive officer of TDF.
Pastoriza, a telecom industry veteran with Silicon Valley experience, was hired in early 2004 to succeed Ginger Lew as TDF chief. Lew, a former Clinton administration official, was kept on staff and given outreach duties under the new title of general partner at a salary near her historic $200,000-plus range.
Pastoriza said he was surprised by the Bush proposal, though it is unclear whether everyone at TDF was caught off guard. Pastoriza refused to comment on the future of Lew, who has become a controversial and polarizing figure at TDF. There had been speculation Pastoriza might fire Lew at TDF’s board meeting last Tuesday, but that did not happen.
“I am disappointed by the president’s budget recommendation to eliminate the TDF program,” said Rep. Ed Towns (D-N.Y.), who wrote the TDF legislation a year after the Supreme Court curbed government affirmative action programs and effectively killed a Federal Communications Commission rule granting bidding credits to qualified women and minorities in wireless license auctions.
“Given the program’s recent implementation I do not believe it has operated long enough for a fair evaluation, and moreover, any performance review of TDF must be made in the context of the recent collapse of the telecommunications sector,” stated Towns. “I think it is important to note that through disciplined decision-making TDF has conserved its capital and has significant funds available to invest in firms that fulfill the program’s mission.”
But that’s the point. The White House wants that money. The administration faces a record $427 billion budget deficit that it has pledged to halve by 2009.
Indeed, the Bush budget pointed to the $29 million in cash reserves TDF had through 2003. (TDF told Congress in a 2004 report it had $35.2 million in the bank at the end of that year.) The White House said private markets provided billions of dollars in early-stage venture capital to telecom firms between 1998 and 2003, adding the Universal Service Fund provides more than $6 million annually to promote telecom access.
TDF’s board members are selected by the FCC chairman. The three government members come from the FCC, Small Business Administration and Treasury Department. The other members come from the private sector.
“We haven’t taken a position on it [the White House proposal to eliminate TDF],” an aide to FCC Chairman Michael Powell said.
An assistant to Don Cornwell, TDF chairman of board and head of Granite Broadcasting Corp., said Cornwell was not available for comment.
