Opinion

The Great Debate

Saving millions from spectrum sales

January 15, 2009

Diana Furchtgott-Roth-Debate– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. Any views expressed are her own. —

As President-elect Obama and his chief performance officer Nancy Killefer, formerly of McKinsey & Co., ponder how to make government more efficient, they could cast an eye on almost any federal agency and find savings for the American taxpayer.

One example is the Federal Communications Commission, which is failing to earn hundreds of millions of dollars annually for the taxpayers by undercharging for the private use of parts of the radio spectrum, notably the frequencies used for the links between cell phone towers and the integrated telephone network.

Congress and the incoming president are thinking of spending billions of dollars on economic stimulus, so saving a few hundred million may not sound like much.  But, to paraphrase the late Illinois Republican Senator Everett Dirksen, a few hundred million here and a few hundred million there and pretty soon you’re talking about real money.

The FCC makes money by leasing without competitive bidding high-frequency bands of the electromagnetic spectrum. Had the FCC auctioned off this spectrum to the highest bidders beginning over a decade ago, it would have generated hundreds of millions of dollars a year for the Treasury.  Instead, the FCC chose to lease individual parts of these bands, known in the industry as “links.”

The FCC may have had a noble purpose in trying to develop the spectrum, but this is no longer necessary. Many large companies who paid millions of dollars when the FCC did hold auctions on other bands of spectrum then leased some of their spectrum to third parties profitably at market-rate prices.

Leasing high-frequency spectrum non competitively rather than auctioning it does not have to be costly to taxpayers, because the agency can charge market rates.  However, the FCC has always priced the leases far below market rates.

For a point-to-point fixed wireless link, such as between a cell phone tower and a central telephone switching office, the FCC charges a one-time fee of $1,290 for a term of ten years.  That is absurdly low. The market rate varies, but in some instances even in today’s recessionary climate it is $200 a month in a mid-size market (Las Vegas and Denver are examples), and $250 or $300 a month for major markets (New York and Chicago).  Hence, at a minimum the FCC should increase by 20-fold its one-time charge for a 10-year link.

Beneficiaries include Sprint, AT&T, and Verizon.  These and many other companies are building their networks with subsidies from the American taxpayer because they are paying pennies for valuable infrastructure.

Such pricing could be remedied immediately, without legislation. The best solution would be to auction off either all of the spectrum in the high-frequency bands or the links.  But if the FCC cannot organize an auction because some 10-year leases on parts of the spectrum have already been issued, at least it should raise its pricing to the range of $24,000 a link for a 10-year period, or $12,000 a link for a five- year term.

Since there are now over 60,000 active links and new links are growing by almost 18,000 a year, the increased annual revenue realized by the government would likely be in hundreds of millions of dollars.

Congress and the new administration are focusing on broadband deployment as part of its new infrastructure stimulus package, but broadband deployment should not be based on undervaluation of government spectrum.

The Obama team is looking for money to save as well as for money to spend.  Memo to Killefer, the new efficiency czar: Charging full price for spectrum is one place to start.

Diana Furchtgott-Roth can be reached at dfr@hudson.org. For previous columns, click here.

Comments
22 comments so far | RSS Comments RSS

Perfect way to save 100′s of millions; cancel Saturday mail delivery.This is one item people can do without. Now somebody has to stand up to unions and get it done.
I’m not holding my breath.

 

How about simplifying the tax code, which seems to confuse even the guy Obama nominated to run the IRS? How about a 15% flat tax?

What about mandating English as the official language of the U.S.A? Get rid of multiple language government forms and other resources spent dealing with an un-assimilated immigrant population (legal and illegal).

 

If the cell phone company had to pay more for the spectrum would make money for the FCC, but wouldn’t save the taxpayers anything. They’d just be charged more for phone service.

Posted by drewbie | Report as abusive
 

Another revenue generator: The federal government owns most of the oil and gas reserves in the United States. Rather than turning those resources over to Exxon and Shell at $0.03 / barrel, and having those companies mark it up to one hundred dollars per barrel, and then sending their money to a bank in Dubai, the government should retain ownership of the resource and hire bidding companies to extract it for them. This keeps the private sector jobs intact, but removes the middle man and stabilizes the price for consumers.

Posted by Olson | Report as abusive
 

How about doing away with the DEA? Those clowns ignore science and their own Administrative Law judge (continually) in a selfish and country-destroying ploy to save their own jobs.

Posted by mark godfrey | Report as abusive
 

I agree with drewbie. Cellular phone companies will pass to the consumer the cost for the radio band. I don’t see how giving more money to the government is good business for the people.

Posted by Fred | Report as abusive
 

Please eliminate the Saturday postal mail delivery nationwide.

Posted by sharon clarke | Report as abusive
 

Diana Furchtgott-Roth you need to follow the paper trail. FCC jacks rates, Cell phone companies jack rates to cover rate jack, Cell phone user gets jacked.
John McElwee here is a bit of info you may find useful in your theory, the USPO is not a government agency. The Post Office is a private company that sets it’s own rates to cover it’s own costs. Their payroll does not come out of tax dollars.

Posted by John | Report as abusive
 

The United Nation’s Millennium Development Goals aim to cut world hunger in half by 2015 and eliminating it completely by 2025. An estimated $19 billion would eliminate malnutrition and starvation around the world. Our current defense budget is $522 billion, in comparison.

The Borgen Project (borgenproject.org) provides lots of information about this issue.

 

What does the number of delivery days from the USPS have to
do with government cost savings? Or unions for that matter?

If you want to talk about raw efficiency, totally eliminate
ANY delivery of mail. Have ALL users of the Postal Service
actually go to the USPS local business location(YOUR POST
OFFICE) and pick up your mail YOURSELF…and if you want to
have them handle your items for delivery in a different
location, then go to THEM to drop off YOUR “MAIL”.
Simple isn’t it?

America needs to become more self reliant.
Too many things are given to them.

Posted by ronald | Report as abusive
 

how about goverment workers losing the golden parachute and go on social security like every one else? why do they recieve benifits till death? why take from social security and military, where most live just above poverty level, when they keep voting more in for thierselves?

Posted by jacque | Report as abusive
 

instead of giving money to big business to keep a dead horse afloat, why can they nothelp keep people in homes? they could offer refinace to the general homeowner and have defined payback which is something they are not getting with the big bank bailouts.

Posted by jacque | Report as abusive
 

after this sophisticated article, please madame, enlist yourself in the red cross and fly ina hurry to gaza to help the civilianins massacrated by isael.thanks

Posted by mark pompino | Report as abusive
 

Everyone likes to complain about the Postal Service. But it is one of the most efficient operations in the world, hands down. You try hauling an original signed letter across the country on your own for forty-two cents. Any volunteers? Try going to FedEx and asking them to do it for forty-two cents. See how far it gets. Anyone can complain about the Postal Service. But no one beats them on price or volume.

Posted by Carbonic | Report as abusive
 

Since we all know that the country is broke maybe we should start at the top by eliminating some excessive spending such as white house dinners and lunches where lobster is always on the menu. How about using the same limo that was good enough for the last president instead of buying a new one and at what cost. politicians should get used to taking the same advise that they recently gave the three auto executives recently when they each showed up in their own company jets. the american people are growing tired of paying these unnessesary expenses I Hope you can turn these things around Diana maybe start by not having Pres Elect Obama not spend any more money than he has to on remodeling the white house to suit his own needs.

Posted by sam Kenner | Report as abusive
 

Maybe another good Idea would be to charge Autos that cross our borders a fee of like 5 dollars since they dont have to smog their cars here and it would help pay for our border patrol ASK THE PEOPLE YOU MIGHT GET SOME GOOD IDEAS

Posted by Sam Kenner | Report as abusive
 

one way the government could save billions is by digitizing the courtrooms across the country.

Posted by Aaron | Report as abusive
 

Another way for the Obama administration to make savings would be to properly audit all US foreign and military aid for effectiveness against a new set of openly published humanitarian , economic , environmental , political and military aims and objectives to help ensure that all US aid or loans to other Governments and countries meet certain standards and promote material good rather than harm.

As conflict in the Middle East has already cast doubts on Barack Obama’s determination to deliver the Change agenda on the national and international stage military aid to Israel is one clear example of where huge savings could be made as the extent to which aid, $3 billion in 2007, flows one way and political influence and clout the other is scandalous .

The killing of hundreds of Palestinian civilians to buy off election defeat for Israel’s ruling political party is not value for money for ordinary working Americans and this disasterous ‘tail wagging the dog’ approach to aid leaves US taxpayers , including US troops serving in the Middle East , part-funding Israel’s brutal recklessness and wherever it happens to lead without any say.

If there is no mechanism to ensure that the major recipients of US aid , particularly military aid, use it properly then there is a compelling need for the incoming Obama administration to view foreign aid as a key area of outcomes and savings driven Change.

Who knows, when we stop bailing out failing corrupt regimes – not simply Israel – they might find a greater incentive to use politics and diplomacy to secure lasting stability, peace and prosperity for all.

 

Abolish the USPS. 99% of what I get is pure junk since all my bills and finances are handled electronically. FedEx and UPS cover anything I order. I don’t want junk mail, I didn’t ask for it, and no matter how often you “opt out” you can never eliminate it. The USPS is an anachronism. If somebody wants to fill my mailbox with junk they should have to pay me for the right. Sure postage rates will rise but it’s the Pony Express and needs to end anyway.

Posted by David | Report as abusive
 

WoW thats bright…..not.
if u make comunication more expensive, it has a multiplier effect in damage delt to the economy.more expensive service will reduce service contracts while increasing operating costs.

Posted by steve | Report as abusive
 

Think government efficiency should be about delivering the same service for less cost or delivering better service for the same cost. The example given appears to be a tax. This is greater cost.

Posted by Scott | Report as abusive
 

redefine what is a disability–something like needing another person/service to help with daily living–help for dressing/bathing/shopping–if you need another to help then you have a disability

place a top on how much a physician/hospital can be sued for medical malpractice–probable more than 80% of all medical encounters with patients is now a legal encounter at least doubling the number of tests etc that are done–an alternative would be that case must go to arbitration–that would help.

redefine child abuse so that extracting tax dollars from a family thereby impacting on children would be considered a form of child abuse

all states must have a state tax or no federal funds will be given to the state.

close the va hospitals and contract for private hospitals to provide support–no real need to have va hospitals one mile or less from a private hospital–

Posted by peter lener | Report as abusive
 

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