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On Behalf of the 1%, the Best Bargain Since Manhattan

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Congress passes legislation including what may prove to be the largest corporate welfare program in humankind's history -- one that involves an "invisible" resource, the public airwaves

This week President Obama is expected to sign into law the Middle Class Tax Relief and Job Creation Act of 2012, publically promoted as a bill to extend payroll-tax cuts, thereby providing about $100 billion in tax relief to the bottom 99% of Americans by income.

Unmentioned is that the bill, by bipartisan agreement, sets in motion a much larger transfer of public assets to the top 1%. For bundled into the bill's fine print and camouflaged in the Orwellian doublespeak of "Incentive auctions" is a giveaway of public spectrum assets (popularly known as "public airwaves") worth over $200 billion, which would make it the largest corporate welfare program in history.

The goal was laudable: transition spectrum licensed for TV broadcasting sevice into spectrum licensed for highly demanded mobile broadband service. In today's communications market, this is like transitioning a hotdog vendor's license in New York's Central Park into a license to build condos throughout the Park. Since every successful politician agrees that media conglomerates with TV licenses are far too politically powerful to let their licenses expire (unlike hotdog licensees, media conglomerates control politicians' gateway to constituents) the next best alternative was, metaphorically speaking, to give them the right to either build the condos themselves or sell the condo rights to others.

Usually, when it comes to "minor" modifications of spectrum licenses that enhance the value of incumbents' licenses by a mere millions of dollars, Congress lets the FCC discreetly do the dirty work. But in this case the giveaway was orders of magnitude larger and thus blatantly conflicted with the Communications Act, which specifies that the FCC cannot allocate spectrum in such a way as to cause "unjust enrichment."

Congress and the Administration thus came up with the idea of calling the giveaway an "incentive auction," promising it would bring the U.S. Treasury billions of dollars to offset the cost of extending the payroll-tax cuts. This promise provided a rationale for adding the special interest spectrum provisions to a bill supposedly about middle class tax relief.

But this is an auction of public assets unlike any other you've heard about. The terms of the auction are cleverly designed so that the bulk of the proceeds will go to broadcast licensees. Moreover, the licensees still get their windfall even if they don't participate in the auction.

The basic strategy was to give each licensee two options: keep its license and transform it into a flexible use license (with some negligible restrictions), or sell it in an "incentive auction" as a flexible use license where the licensee chooses the U.S. Treasury's receipts. In the name of "holding broadcasters harmless," Congress designed "incentive auctions" so that the FCC would have negligible negotiating power on behalf of taxpayers.

Many clever techniques were used to hide the giveaway from the public. One involved bundling into the bill an auction of spectrum assigned to government agencies such as the Department of Defense. When members of Congress say that the spectrum auctions will bring in $16 billion to the Treasury, they're using Congressional Budget Office numbers that aggregate the government agency and broadcast spectrum proceeds. That is, they are mixing the receipts from real auctions for government spectrum with pseudo auctions for broadcast spectrum.

Members of Congress don't mention that broadcast licensed spectrum can be transitioned to flexible use regardless of licensee participation in an incentive auction. They don't mention that during this transition the FCC is given incentives to allow broadcast licensees at taxpayer expense to shift to more valuable spectrum and expand their geographic service areas. And they don't mention the recent transition from analog to digital TV, heavily subsidized by the public, including the purchase of hundreds of millions of new DTV sets containing Congressionaly mandated over-the-air broadcast TV receivers that are now to become obsolete in the same way that the pre-transition analog TV sets became obsolete.

Amazingly, Congress grants the FCC authority to authorize incentive auctions even if the net receipts to the Treasury are negative (the bill appears to say otherwise, so analyze the fine print). As one senior Congressional staffer told me, "Once this bill is enacted, nothing says it has to raise money; no one will go to jail if the proceeds from the broadcasters are zero."

No one disputes that repurposing spectrum to more flexible uses doesn't benefit America's consumers and economy. The question is over the deal's terms. For example, the government can sell oil extraction rights on Federal lands to the highest bidder or give them away to the licensed cattle growers on those lands. In both cases the public gets the benefit of more oil and lower prices. But only one is bad for taxpayers.

Admittedly, many of the politicians touting incentive auctions as a way to raise money for the U.S. Treasury (probably without actually reading the bill) undoubtedly believe their own talking points. Since the bill was publicly released less than 24 hours before Congress voted on it, they may even have a good excuse.

Admittedly, too, the bill promises quid pro quos for the public. But these lack credibility, just as did the Federal government's treaties with American Indians in the early 19th century. The politicians promised the Indians far more than the government ultimately honored, and when they or their successors subsequently broke their promises, no politician paid a political price. That's the way I expect it will be here, too -- a common pattern for spectrum legislation.

Consider the career of Rep. John Dingell (D-MI), the longest serving member of Congress and a senior member of the committee that allocates spectrum. Over his more than five decades in Congress he has worked to give broadcast licensees tens of billions of dollars of corporate welfare in return for future obligations that were invariably conveniently forgotten. Not only hasn't he paid a political price for these awful deals struck on behalf of the public, his local TV licensees adore him and have used the powerful resources at their disposal to help him stay in office and keep his opponents out of office. His fingers are all over this awful deal as well.

But Dingell is hardly alone. Congressmen from both parties bend over backwards to appease the spectrum holding media conglomerates that control their local media outlets. In addition to Dingell, Representative Walden (R-OR; a former broadcaster) and Senators Rockefeller (D-WV) and Hutchison (R-TX; a former broadcaster) have shamelessly pursued corporate welfare for broadcast licensees. If Dingell's career is any guide, they too will pay no price and perhaps even be richly rewarded with favorable visibility in their local media.

The windfall here isn't going to the middle class, let alone the 99%; it's going to some of the most profitable companies in the world (e.g., Comcast/NBC, Viacom/CBS, Disney/ABC, and News Corp./Fox) and Forbes 400 billionaires (those in the top 1% of 1% of 1%), including Rupert Murdoch (News Corp.), Sumner Redstone (Viacom), Anne Cox Chambers (Cox Enterpriese), Haim Saban (Univision), A Jerrold Perenchio (Univision), William, Phoebe, Austin, David, and George Hearst (Hearst; the Hearst family has five members in the Forbes 400), Edmund Austin (Sunbeam Television), Frank Batten Sr (Landmark Media), Stanley Hubbard (Hubbard Broadcasting), and Samuel Zell (Tribune).

To be fair, the media industry wasn't the only one to win spectrum goodies in this bill. Congress gave the FCC discretion to waive the unjust enrichment clause of the Communications Act for all spectrum licensees. It also gave all wireless licensees the right to place cell towers on all federal buildings and land at cost -- a small fraction of market rates.

No one had an incentive to complain lest their own goodies be put at risk. Even the high-tech industry was tickled pink. Its legislative priority is simply to free up more spectrum so it can sell more innovative wireless devices and services. If the price is a windfall for the broadcasters and other spectrum licensees, it's one the public, not they, have to pay.

High-tech, including its so-called public interest allies, also got an infinitesimal sliver of unlicensed spectrum in the former broadcast guardbands and the credible promise of substantially more elsewhere.

In fairnesss, too, it's hard to blame the politicians for their shameless hypocrisy. From their perspective, they were merely responding to political reality. On spectrum public policy, the public is hopelessly clueless and apathetic. If the Indians were willing to sell Manhattan for $24 and think they got a good deal, then why should politicians bend over backwards to tell them otherwise?

On Feb. 2, 2012, India's Supreme Court invalidated spectrum licenses worth $38 billion that its government sold to insiders for $2 billion. Fortunately, bribes were involved so the sale was illegal and the public officials involved could be jailed. Unfortunately for America, however, our spectrum giveaway appears to be no more illegal than America's other special interest driven legislation. This vividly illustrates that America's system of legal corruption is sometimes more corrupt than other countries' illegal corruption. No study of American spectrum policy should ever again be written without homage to India's more democratically accountable spectrum policymakers.

One silver lining about America's fantastical spectrum giveaway is that it might help bring an end to the current era of media crony capitalism. In countries like Russia, the media are terrified by the politicians; in the U.S., it's the opposite. Now that the media conglomerates have gotten the spectrum rights they quietly lobbied so ruthlessly for, maybe they will show more respect for the journalistic ethic of political objectivity that is important for a functioning democracy. In a democracy, politicians should be rewarded for pursuing the public interest, not the media's spectrum interests.