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J.H. Snider

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Secrecy and Corruption at the NTIA

Posted: 03/12/2012 11:58 am

Spectrum has become one of the most valuable natural resources of the 21st century. It is to the Information Age what energy was to the Industrial Age: the scarce natural resource driving innovation and growth. Popularly known as the "public airwaves," it facilitates the wireless communications that are increasingly becoming the primary means of accessing the Internet. In aggregate, this invisible but scarce resource has a market value over $1 trillion.

The FCC vs. NTIA

Management of spectrum is divided between two federal agencies, the Federal Communications Communications (FCC) and National Telecommunications and Information Administration (NTIA). The FCC manages spectrum primarily for commercial services such as mobile broadband, local radio, and satellite TV; the NTIA manages spectrum primarily for government services on behalf of Federal agencies such as the Department of Defense, Department of Homeland Security, and Department of Transportation (which includes the Federal Aviation Administration). Almost all Federal agencies have some spectrum, even if only for internal police functions.

The FCC and NTIA each manage about a half trillion dollars worth of spectrum assets. But whereas the FCC is a household name, the NTIA is an agency you've probably never heard of -- at least for its spectrum management.

NTIA's Regulatory Capture & Corruption

NTIA's official mission is to manage government spectrum on behalf of the public. In practice, however, it serves two core constituencies whose interests often sharply diverge from those of the public.

First are the government agencies, which were assigned their spectrum for free (usually decades ago before anybody knew it had much value), pay negligible ongoing fees to NTIA to keep it, face unlikely penalties for using it inefficiently, and oppose the introduction of market forces or democratic accountability.

The second constituency are a who's who of commercial entities who share spectrum bands with government agencies, usually got their spectrum rights for free via insider connections, pay no fees to keep them, cannot easily sell them, and are looking to both preserve and enhance their rights at below market rates and without democratic accountability.

The influence of the second constituency is the primary reason the NTIA is located within the U.S. Department of Commerce.

Imagine if the government held vast oil reserves on federal lands and struck the following deal: All federal agencies would be able to receive free oil rights to the lands, and politically well-connected companies would get free licenses to the byproducts of oil drilling, such as natural gas, but not be able to either freely transfer those licenses or sell their natural gas byproducts to the highest bidder.

Further imagine that the oil leases, including the amounts of oil extracted from the ground, were considered non-public information because trade secrets and national security were at stake.

This would be a recipe for institutional corruption, and it's a close approximation to the incentive structure faced by both the NTIA and its government and commercial clients. Arguably the main difference is that the U.S. Department of the Interior, although hardly a paragon of public resource stewardship, could never get away with such misuse of public resources, partly because oil and related energy resources are tangible, well defined, and possessing clear market prices.

In contrast, NTIA deals with an intangible resource lacking clear property boundaries and market prices, and generally shielded from the public based on national security and related anti-terrorism rationales. One unusual theory expanding the scope of secrecy is that since knowing which government spectrum isn't used for sensitive purposes would, by a process of elimination, help identify spectrum used for such purposes, public access to information about both types of spectrum must be restricted.

NTIA's Culture of Secrecy

During the mid-2000s, I was exposed to NTIA's culture of spectrum management secrecy when I tried to get its database of assignments to federal spectrum and, with the help of the non-profit National Security Archives, sent a series of Freedom of Information Act (FOIA) requests to it and more than a dozen of its government clients concerning their use of spectrum. The result was a textbook case for the failure of FOIA when used to investigate possible government corruption. Mostly, I was simply blown off. But I was also intimidated.

For example, a national security officer grilled me to ascertain that I wasn't a terrorist. Since she clearly had no interest in complying with my information request, the overall effect was one of intimidation. When I was done with the call, I was worried that if I didn't give up my quest I would be placed on the suspected terrorists watch list, with all the inconvenience that implies for future travel and access to public facilities.

More recently, I've been following the NTIA's spectrum advisory committee, known as CSMAC. According to its charter and public relations, CSMAC is supposed to consist of spectrum experts from the private sector who are collectively broadly representative of the public interest. No registered lobbyists are allowed to serve, although members can be former lobbyists, employ lobbyists, and work on behalf of their clients' lobbyists. Registered lobbyists may also be given privileged access to CSMAC's otherwise secret committee and online deliberations.

CSMAC is arguably the NTIA's best public face regarding spectrum management. Its members include some of the spectrum user community's most highly regarded consultants and statesmen. And when a quorum of them meet face-to-face (as opposed to online), the meetings are legally required to be "public."

Formally, CSMAC's powers are only advisory. But in practice it has a powerful influence on setting NTIA's agenda and via the NTIA the agendas of the World Radio Conference (which allocates spectrum internationally), Congress, the FCC, and the Federal agencies to whom it grants spectrum rights. A vivid example is the payroll tax cut legislation passed in Feb. 2012, which explicitly endorsed the recommendations in one of CSMAC's reports.

For NTIA administrators, CSMAC provides valuable technical and political information, which is used to provide both scientific and democratic legitimacy to their spectrum management decisions. For CSMAC members, CSMAC provides privileged access to spectrum information and policymakers, which may be used for commercial advantage.

An analogy is the type of parliament one sees in pseudo democracies such as Kuwait. While providing democratic legitimacy to the "king," the members are primarily interested in cultivating the king's goodwill so as to legally attain goodies from him.

One especially troublesome aspect of CSMAC is the hidden economic interests of its members, especially the academics and consultants who posture as disinterested experts acting on behalf of the public. Members of CSMAC are special government employees and thus must fill out government ethics forms revealing their financial interests. But only a few government officials are allowed to see those disclosures. Meanwhile, NTIA quietly signs a blanket form allowing it to waive all conflicts of interest that would otherwise require CSMAC members to recuse themselves. An analogy would be city counselors passing zoning legislation to increase the value of a campaign contributor's property by an order of magnitude while having a so-called ethics system in place designed to hide this information from the public combined with a loophole allowing them to secretly invalidate the stated public purpose of the ethics law.

A Case Study: Trading on Insider Knowledge

A vivid illustration of the type of person appointed to CSMAC is Janice Obuchowski. Ms. Obuchowski headed the NTIA during the first Bush presidency. While there, she helped reallocate government spectrum for auction. After leaving office, she helped co-found and initially served as president of a startup, Nextwave, which lobbied and bid for the spectrum with help from Wall Street hedge fund speculators. Nextwave would eventually bid $4.7 billion for spectrum at auctions in 1996 and 1997, then default in 1998 on its payments while protecting its spectrum licenses by entering bankruptcy court. (Since the government only required a 10 percent down payment on successful bids and provided an essentially interest-free loan for the remaining 90 percent to be paid in installments over ten years, Nextwave actually paid less than $500 million.) The FCC, disputing that Nextwave's licenses had been protected by bankruptcy, re-auctioned the licenses for $16 billion in 2001, only to have the U.S. Supreme Court invalidate the auction and return the licenses to Nextwave.

Thus, for approximately $500 million, Nextwave's initial investors got a return of approximately $11 billion ($16 billion less $4.7 billion). No public official would ever be punished for this loss of billions of dollars to American taxpayers. As a subsequent FCC Chair would summarize the outcome, "by welshing on its promise to pay the U.S. government, Nextwave could walk away with billions." In the end, Nextwave never built a genuine wireless network, thus justifying opponents' contentions that it was "a lobbying and litigation machine" run by "spectrum speculators."

Meanwhile, Ms. Obuchowski put together one of the premier spectrum consulting firms, Freedom Technologies, which would include among its insider hires the former manager of the classified NTIA database of federal government spectrum assignments. Today her investments include a who's who of corporations involved in spectrum markets, including AT&T, Comcast/NBC, Crown Castle, Direct TV, Immarsat, Leap Wireless, Orbital Sciences, Qualcomm, Sirius XM Radio, Skyworks Solutions, Time Warner, Verizon Communications, Vodaphone, and Walt Disney/ABC.

Recommendations

Reducing the corruption endemic to the management of government spectrum is no easy task. As long as huge amounts of money are at stake and the general public ignorant and apathetic, spectrum policy is likely to continue to be synonymous with special interest politics and America's brand of legalized government corruption. Nevertheless, here are four recommendations for reform:

First, pass U.S. House of Representatives bill, H.R. 3124, which has many excellent suggestions to make Federal Advisory Committees more transparent and thus less susceptible to special interest corruption.

Second, make the NTIA's Administrator, currently Lawrence Strickling, liable for violating FOIA when the violation involves hiding information about agency institutional corruption. Currently, it is rational for agency heads to blow off FOIA requests made by requesters without deep pockets and a monetary interest in the outcome substantial enough to justify litigation. A model for this type of lawbraking penalty is The Public Company Accounting Reform and Investor Protection Act of 2002 ("Sarbanes-Oxley"), which made corporate presidents and chief financial officers personally liable for fraudulent financial statements issued by their companies. Anything short of this type of personal liability is unlikely to provide agency heads with an adequate incentive to comply with FOIA under circumstances when they believe that compliance could damage their careers.

Third, take away management of federal agency spectrum from the Department of Commerce, which has an organizational structure that makes it prone to capture by corporate insiders, and give it to the General Services Administration (GSA), which manages federal land and office buildings on behalf of the rest of the federal government. The NTIA could continue to lobby on behalf of industry, but it wouldn't be lobbying with itself. The GSA's leasing models, clear financial accounting for public assets, and resistance to industry capture would also be a welcome change from not only the NTIA but FCC. The danger, of course, is that given the huge public assets involved, the GSA would become corrupted like the NTIA.

Fourth, give an independent agency, such as the Office of Management and Budget, the job of scoring the market value of all spectrum licenses, just as local governments score the value of real estate for taxation purposes. This would help expose both the opportunity cost of spectrum assigned to government agencies and the cost of the government's seemingly endless spectrum giveaways to the politically well connected.

 
 
 

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