In the late 1980s, the Federal Communications Commission (FCC) conducted a series of lotteries to allocate electromagnetic spectrum (popularly known as the “public airwaves”) for mobile telephone service. More than 320,000 lottery tickets were acquired by spectrum speculators, including dentists, lawyers, accountants, and anyone else willing to devote the time and hire the legal talent necessary to fill out the complicated form to acquire a lottery ticket. Many of the lottery tickets were purchased as part of partnerships, whose members would collectively enter lottery tickets for hundreds of different licenses. For example, in December 1989, the FCC selected the winning ticket for a lottery for one such license on Cape Cod, Massachusetts. The winning ticket holder then sold the ticket ten months later for $41.5 million. Former Governor Mark Warner, a U.S. Senate staffer before the lottery, was among the politically savvy who made millions by acquiring and flipping the licenses granted in the lottery.
The result was widespread outrage because the public could readily perceive that billions of dollars of public assets had been given away to private interests—well-connected, wealthy Americans—without public compensation. As the chairman of the FCC at the time characterized the lottery winners, “They receive a windfall and the public gets no payment.” This outrage led to legislation in 1993 to auction future FCC licenses. Congressional leaders publicly promised that, except for a few services—notably public safety and terrestrial broadcasting—the government would henceforth grant exclusive rights to use spectrum only in return for monetary compensation.
This has not come to pass. According to calculations presented in this paper, since 1993, the government has given to private interests as much as $480 billion in spectrum usage rights without public compensation. That comes to more than 90 percent of the value of spectrum usage rights it has assigned from 1993 through the present.
In addition, the government has warehoused as much as $155 billion of spectrum usage rights in guard bands. The warehousing in itself is not a giveaway to private interests. But, for reasons we shall see, it may position incumbent licensees to acquire the warehoused spectrum without public compensation. Thus, the act of guard band warehousing may be viewed as part of a multi step process that leads to giveaways just like winning a presidential primary election is necessary to winning the presidential general election. For example, since 1997 TV broadcasters have used the digital transition to acquire more than $6 billion worth of guard band spectrum by winning rights to transmit programming across a larger geographic area.
How did this happen? How could the government give away so much in public assets to private interests without public and congressional outrage? A large part of the answer is that the government no longer gives away spectrum usage rights in highly visible ways such as spectrum lotteries. Instead, incumbent licensees and spectrum speculators have perfected strategies that enable them to acquire free spectrum rights below the public radar. Until public policies are implemented to render those low visibility lobbying strategies ineffective—so that spectrum giveaways are once again as visible as they were in the days of spectrum lotteries—spectrum giveaways to private entities will persist. (Of course, when the FCC or Congress grants spectrum to public entities or for unlicensed use, no giveaway in this sense is involved because the public retains full rights to its airwaves.)
This paper deals with what might be considered the third rail of spectrum policy: the rotten, special interest politics that has driven lawmakers to give away the public’s airwaves to private interests without public compensation. In the vast stream of government reports seeking to reform spectrum policy since 1993, one looks in vain for more than a token acknowledgement, let alone a serious and sustained discussion, of this giveaway. Like other politically embarrassing issues, it is an issue that congressional leaders and their proxies—the FCC, GAO, CBO, NTIA, and others—would prefer not to talk about. This, of course, suits the beneficiaries of the giveaway and their army of lobbyists and analysts just fine. For that very reason alone, however, it is an issue that desperately needs a public airing.
This paper is divided into three sections: Part I provides an estimate of the value of the government’s spectrum rights giveaway since 1993, Part II provides a description of the strategies spectrum lobbyists have used to acquire such rights, and Part III provides policy recommendations to ensure that spectrum rights giveaways (which are closely linked to warehousing guard band spectrum) come to an end.
To view the full paper, open the PDF file linked below. The working paper version, which was published in July, is also attached.