Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
Billions of new dollars may become available for broadband in national stimulus spending, with wireless companies and their consumers among winning beneficiaries.
In the face of Republican claims of waste, President Obama stepped forward last week to make the case anew for spending as the best hope for an overall economic recovery. He warned that unemployment and bankruptcies could jump much higher without government spending now that last fall’s federal reserve rate cuts and financial institution bailouts have proven inadequate – a view endorsed by Nobel winners who predicted the collapse Dr. Joseph Stiglitz (“Cash for Trash“) and Dr. Paul Krugman (“Bailouts for Bunglers“).
Even so, stimulus spending could become a huge embarrassment for the Obama administration and Democratic Congress unless their planning includes strict performance measures, and strong precautions against waste, fraud and other abuse. Clever insiders in broadband as elsewhere will surely try to profiteer. History abounds with such schemes.
A voting public that has seen so many jobs and so much savings destroyed will react with scorn if not fury towards boodlers and their government enablers – even if the underlying programs prove beneficial overall. As one sign, riots have erupted among the newly jobless in China and elsewhere around the globe. Tempers are hot even in Iceland.
Closer to home, the first post-Inaugural comments of senior FCC commissioners called for reform after a year-long Congressional investigation alleged abuse of the Commission’s power. In a Jan. 27 letter from Commissioner Robert McDowell congratulating Acting Chairman Michael Copps, for example, the FCC’s only Republican suggested a “thorough operational, financial and ethics audit of the Commission.” See here and the Feb. 2 FCBA Speech here.
My concerns are similar regarding the pending stimulus American Recovery and Reinvestment Act of 2009 as I write this column from a Washington office just over a stone’s throw from lobbyist Jack Abramoff’s restaurant where he hosted government officials for years in brazen deal-making next door to FBI headquarters. USA Today reports that a gold rush is underway by lobbying firms eager to hop aboard “the big train” of new spending. Most who participate in such circles know that the Washington influence-peddling that reaches public attention constitutes a tip of the iceberg of the self-dealing that hurts both the economy and public confidence.
Regarding the stimulus proposals, basic background and recommendations are outlined below. These include basic questions about the legislation’s broadband provisions:
–Who gets what under the most likely rules?
–What’s the probable public reaction?
As overall background, the House of Representatives voted 244 to 188 largely along party lines to pass its version of the stimulus H.R. 1, which included some $6 billion in broadband spending, not counting that for IT spread amongst various departments. See here. This compares with $9.2 billion in draft bill S. 1 pending in the Senate if it overcomes a filibuster threatened by some Republicans. See here.
Both bills largely defer major implementation decisions to the FCC and the Department of Commerce’s National Telecommunications and Infrastructure Administration (NTIA). One major difference is that the House included $2.85 billion in grants, loans and loan guarantees through the Department of Agriculture’s Rural Utilities Service (RUS) program.
This kind of major new broadband spending would heavily emphasize rural development, which inevitably benefits the wireless sector to at least some degree. But massive spending involves detailed formulas and other choices. To take one long-running policy debate: Should funding for rural deployments through RUS be structured to foster competition – or for the alternative model of supporting one provider per region (typically the telco incumbent)?
“We believe the impact for telecom and cable service providers will be fairly minimal under existing stimulus proposals,” according to a report last week by Stifel Nicholaus & Co. “It is difficult to move the needle for AT&T and Verizon, and while the RLECs – such as CenturyTel, Frontier, Windstream, and others – may receive a boost, they will remain hampered by high operating expenses related to transport costs in ‘unserved areas,’ which will make the business case difficult even with grants, in our view.”
Regarding FCC decision-making, the buzzwords “rural broadband” and “public safety” are frequently invoked by entrepreneurs seeking special regulatory consideration, as indicated by an insightful recent blog focusing on spectrum rules, whose politics are much like those for stimulus subsidies. See here. More generally, Congress is studying guidelines to ensure that stimulus spending prompts additional deployments. That’s difficult to do under the best of circumstances, much less under tight time-frames needed for a stimulus that will have prompt impact on the overall economy.
To be sure, many dedicated public officials and expert private organizations are fine-tuning years of study to create effective spending proposals. The central forum for the plan initiated by Obama’s transition team is Congress, but a larger debate draws from interest groups, economists and others. For example, a free conference scheduled Feb. 19 by Georgetown and Columbia Universities at the National Press Club will feature, among other things, an impressively detailed analysis showing a breakdown of projected spending between wired and wireless technologies, plus estimates of job-creation under various options.
As an advance look at those findings, Columbia Institute for Tele-Information Business Strategy Research Director Prof. Raul Katz estimates that, under the House version of the stimulus program, a network roll-out could create 110,000 jobs and employment after the infrastructure is in place could reach 235,000 (if the broadband is coordinated with employment-creation programs). Another key theme by economic experts is that the public should avoid being suckered into providing “free money” for what carriers were planning to spend anyway, and should spend only for carefully benchmarked projects.
President Obama underscored his reform themes with calls for limits on CEO executive pay at bailed-out financial institutions, and his far-reaching Executive Order on Jan. 21 to curtail revolving door jobs for lobbyists, and to limit their gifts. Even with this scrutiny one of his closest and most influential advisors, former Senate Majority Leader Tom Daschle had to withdraw his nomination to be Secretary of Health and Human Services because of his failure to pay income taxes in a timely
way. Among problems with other nominees, New Mexico Gov. Bill Richardson earlier withdrew as Commerce
Department Secretary because of allegation of “pay-for-play” with a campaign donor, and Treasury Secretary Tim Geithner was confirmed after failing to pay required federal taxes that Treasury’s IRS itself collects.
Communications is hardly immune from allegations, as indicated by a report in December by the House Energy & Commerce Committee majority attacking the administration of then-FCC Chairman Kevin Martin claiming he abused his power and manipulated data to fool Congress and the public. See here. Martin denied the allegations and issued a comprehensive report about his accomplishments before resigning last month. See here.
In sum, warning signs abound about Washington, and anything so specific and hurried as this stimulus bill. What to do?
The best bet for the incoming administration is to assume that the kind of “waste, fraud and abuse” envisioned by the U.S. Inspector General Act of 1978 will indeed occur under stimulus spending, and to be totally committed to preventing, exposing and punishing it, wherever it occurs and whoever is suspected in either party. This necessarily means tough love, including that directed against erstwhile allies who might be tempted to think it’s now their time cash in. Self-dealing can occur either in a crass sense or, more commonly, by such means as advocating stimulus funding for a pet high-risk project that has a low likelihood of job-creation or other success.
Whatever occurs, the public is soon going to see the new President as “owner” of many of the country’s problems and their hope-for solutions. He needs to be ready for potential critics who are already sharpening their knives by calling it “The Obama Recession” – with worse recriminations to come.
Andrew Kreig, former president of the Wireless Communications Association (WCAI) from 1997 to last summer, returns to writing as the first Washington-based Senior Fellow with the Brandeis University Schuster Institute for Investigative Journalism. Also, he is managing director at Eagle View Capital Strategies, a Washington, DC-based consultancy, and is an affiliated Research Fellow at the Information Economy Project at George Mason University’s School of Law. Author of the 1987 book “Spiked” about unethical practices in the newspaper business, he was a volunteer in communications and ethics planning for President Clinton’s Transition in 1992, and was a volunteer and donor for President Obama’s campaign.
Comments or questions? You may contact Andrew at AKreig@Brandeis.edu. You may contact RCR Wireless News at rcrwebhelp@crain.com.
