August 8, 2001
The Price of FCC
Integrity: $15 Billion
By Harold Furchtgott-Roth. Mr. Furchtgott-Roth, an FCC
commissioner from 1997 to 2001, is a visiting fellow at the American
Enterprise Institute.
Earlier this year, a federal circuit court ruled that the Federal
Communications Commission had unlawfully deprived NextWave Telecom
of wireless licenses it had won at auction. On Monday, the government
announced it was appealing to the Supreme Court.
Government officials claim the appeal is necessary to preserve the "integrity
of the auction process" by which the licenses were assigned. While there
are doubtlessly many reasons the government has appealed the decision,
integrity is not one of them. The primary reason for the appeal is money,
and lots of it.
If it stands, the lower-court decision means the sudden disappearance of
more than $15 billion in federal receipts -- money the FCC made by rashly
reauctioning NextWave's licenses before the court decisions. Federal
government circles are abuzz with the problem of how to make up the
shortfall. But the real scandal is why the government ever risked its own
integrity to trample property rights.
As required by a new law, the FCC began auctioning rights for licenses
among competing parties in the mid-1990s. A simple auction process as
required by law would be difficult to violate, but the FCC tarnished the
integrity of the process by allowing winning bidders to pay through
installments, a method not required by law.
NextWave, a once-and-future wireless company, sought bankruptcy
protection after having acquired many wireless licenses in auctions, but
having only partially paid for them. The government and NextWave went
to court. The government claimed that, by nonpayment of debt, NextWave
forfeited the licenses. NextWave claimed the rights to the licenses
remained its property in bankruptcy court. The federal government tried
different tacks in a series of court battles. But after the recent circuit court's
unusually stinging decision in favor of NextWave, the government is
looking at very long odds by appealing to the Supreme Court.
To complicate matters further, the FCC, in the middle of litigation,
recklessly reauctioned the disputed NextWave licenses -- over objections
from both inside and outside the agency. A champion of the integrity of the
auction process -- as the FCC now claims to be -- would not have held
the auction for at least three reasons.
First, the FCC did not have clear legal control of the licenses; pending
litigation might, and subsequently did, return them to NextWave. The FCC
even stipulated to the court that, should NextWave prevail, it would
receive the licenses.
Second, the litigation was expected to end in a matter of months, giving
little reason not to wait for legal resolution.
Third, the mere spectacle of auctioning property of dubious legal
ownership would frighten away legitimate bidders. And those who would
participate in such an auction would doubtless bid less than they would if
the commission had clear title. Even if the FCC were to have won in court,
American taxpayers would have been better off if it had waited to get clear
title.
Companies such as Verizon, VoiceStream, and new affiliates of AT&T
and Cingular bid in excess of $15 billion for the rights to the NextWave
licenses. The auction participants were betting that the FCC would
ultimately prevail in court, but they calibrated their bids downward to
account for the legal risk. Some tried to reduce the risk by making
substantial efforts to buttress the FCC's doomed position in court.
The prospect of money blurred legal and even moral decisions. Not only
did the FCC vigorously promote and support the reauction, but other parts
of the federal government did as well. The Department of Justice helped
with litigation. The budget agencies treated the winning bids, which were
little more than lottery tickets, as if they were money in the bank.
Unfortunately, a government that yielded to temptation rather than better
judgment has yet to grasp the errors of its ways. Governmental discussions
have not revolved around how to compensate NextWave or the parties
induced to participate in what courts have now ruled to be an unlawful
auction. No, the government's foremost concern seems to be how it will fill
the $15 billion shortfall. The FCC is reportedly considering offering
NextWave some money to go away. The implicit threat is that, if
NextWave declines a lowball offer, it will suffer a death by a thousand cuts
in the regulatory process.
It is not too late for the government to redeem itself. Salvation rests not in
finding some or all of the $15 billion it never owned. Rather, redemption
comes when it sobers up and answers a harder question: Why was it
recklessly gambling on its integrity and moral authority in the first instance? |
