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FCC needs to close auction loopholes

Small businesses are undoubtedly the backbone of our economy. We would all agree that more must be done to foster their growth. However, when misguided government efforts to do so lack the appropriate oversight and rules, a few bad acting corporate entities will exploit flawed policies and line their pockets with taxpayer-funded dollars.

Cell tower telecommunications
Tim Robberts | Getty Images

Satellite provider Dish Network exemplified this when it took advantage of a program designed to help small business win coveted spectrum in a recent auction held by the Federal Communications Commission (FCC). Dish has an 85-percent financial interest in Northstar Wireless and SNR Wireless, two companies that didn't exist until a few months before the auction. Because they have little to no revenue, they qualified as small businesses under the FCC's Designated Entity (DE) program and got a 25-percent bidding credit. They outbid major competitors on countless occasions, and Dish ultimately won about half of the licenses up for grabs – more than $13 billion worth, with a more than $3 billion discount, courtesy of taxpayers. Only AT&T spent more.

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The end result raises serious concerns about the structure and continued efficacy of the DE program and the FCC's ability to conduct future auctions. As New York Times columnist Steven Davidoff Solomon said, "In an era when banks and oil companies are at times publicly vilified as not being good corporate citizens, Dish's strategy for the spectrum auction comes across as among the most brazen, least civic-minded act by a corporation in years."

To eliminate such brazen abuse and instill confidence that future auctions will avoid such controversy, the FCC must – at a minimum – make three changes to its DE program:

It must strengthen leasing guidelines by putting real limits on how DEs can lease and sell the spectrum they got with a taxpayer-funded discount. The FCC wants to repeal the Attributable Material Relationship (AMR) rule, but that would do little to discourage a DE from flipping its spectrum at full market value.

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It must implement real limits on bidding by DEs. There are currently no guidelines on what an actual small business can bid during an auction. This invites partnerships with deep-pocketed corporations. One possible remedy is to cap a DE's bidding at 10 times its annual revenues.

It must eliminate joint bidding agreements between DE's and non-DEs. Closing this loophole will end harmful collusion and will greatly help restore the integrity of the program.

Next up for the FCC is the long-awaited incentive auction, a process whereby wireless carriers will bid on sought-after spectrum from America's broadcasting companies. In addition to the problems with the DE program, that must be addressed before the next auction, some of the biggest players in the industry are also petitioning the FCC to set aside a larger amount of spectrum for smaller carriers. They claim this will ensure competition. In reality, that's just a ploy to marginalize AT&T and Verizon while getting spectrum below market value. Plain and simple: That's not competition.

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If the FCC is serious about enhancing diversity in the wireless marketplace and creating truly competitive auctions, then it must undertake a holistic review of its DE rules and make wholesale changes. It must also resist calls that will compromise the success of the incentive auction. The FCC should act swiftly and decisively to bolster public confidence that the nation's airwaves – and the revenues they generate – are not being squandered.

Selling wireless spectrum is a necessary job that the FCC needs to pursue. Undermining the sale and the value of the spectrum should be stopped immediately.

Commentary by David Williams, the president of the Taxpayers Protection Alliance.