The unholy alliance of NAB, News Corporation, and the Wall Street Journal's Holman W. Jenkins, Jr.

Cited Article

Jenkins, Holman W., AT&T’s Big Bet on Spectrum Folly, Wall Street Journal, March 23 2011

Quote from Article

“… AT&T, whose network in New York is sagging from all its iPhone users, could walk over to any broadcaster in New York with the following proposition: You aren’t getting much value from your broadcast spectrum because most of your viewers are on cable or satellite. Why not lease some of that spectrum to us for mobile broadband?….

Unfortunately, this would require the FCC to show some willingness effectively to deregulate broadcast license holders to do new things with their spectrum….

The only substantive objection is that taxpayers, who own the public airwaves, wouldn’t get a fair shake if broadcast licensees were set free to redeploy their spectrum to mobile broadband. But this is misleading. Under existing law, taxpayers are already entitled to 5% of the revenues if broadcasters turn their spectrum to new uses. If that’s not enough, Congress could always raise it to 10% or 15%.”

My Comment

Let’s apply Jenkins’s economic logic to a licensed hot dog vendor in Central Park who pays a 5% sales tax on all sales.  Jenkins would grant the vendor ownership rights to the area covered by his vending license and call this “deregulation.”   By granting the vendor ownership rights the vendor could do whatever he wanted with the land covered by his license.

Jenkins describes this as a win-win deal.  Since selling hot dogs is hardly the most valuable use of the land, the vendor would earn a lot more revenue by building a high rise condominium complex where his hot dog stand once stood.  The public would win doubly: first, because there is a desperate shortage of housing in Manhattan, especially adjacent to Central Park, and second, because the government would get more revenue from the 5% sales tax on the much higher revenues generated from a condominum complex within Central Park.

Leaving aside the question whether Central Park should remain a park (read “unlicensed spectrum” here), the problem with this economic reasoning is that the public could still get both the condominium complex and the 5% fee on the increased condominium sales even if  the land was auctioned to the highest bidder.  In short, giving the land to the licensed hot dog vendor is an awful deal for the public.

Jenkins calls this “deregulation.”  But it’s nothing of the sort.  It’s a giveaway.  In this case, a giveaway of tens of billions of dollars worth of the public’s assets.

An additional irony is that a 5% (or even a 15%) fee on spectrum sales would be a steal, and a huge competitive advantage for the former TV broadcasters.  Mobile telephone companies (who in addition to paying such fees had to pay billions of dollars to the government to get their licenses) routinely pay a total of about 18% of revenues on federal, state, and local fees/taxes on their mobile services.  (Since taxes vary by local and state jurisdiction, the actual fee/tax in any jurisdiction tends to vary a lot.)  Governments got away with such high fees/taxes because  they were set when mobile telephone service had minimal penetration and was viewed by the public as a luxury tax only on the wealthy.

Where did Jenkins get such an economically flawed argument?  He got it right out of the broadcast lobby’s talking points with members of Congress and FCC.  Indeed, both his proposal and the verbiage with which he expresses it are so close to that of the National Association of Broadcasters (NAB) that his essay would probably be viewed as plagiarism if  submitted to a peer-reviewed academic publication rather than a newspaper.    But then again, the NAB is probably thrilled to have their talking points published in a respectable, widely read newspaper and written by a commentator with no obvious ties to the broadcast industry.  But then again, the Wall Street Journal is owned by the News Corporation (owner of the Fox broadcasting network), which stands to win a windfall of billions of dollars if Jenkins’s proposal were adopted by Congress and the FCC.  Not incidentally, the News Corporation is not only an NAB member but one of the most notoriously aggressive spectrum lobbyists in the U.S. (For examples, see Speak Softly and Carry a Big Stick: How Local TV Broadcasters Exert Political Power.)

Related Comment

Snider, J.H., Wall Street Journal Advocates for Broadcasters’ Wet Dream, SpectrumBS.info, February 22, 2011.

Related Articles

Rush for wireless airwaves may drive risky deals, Reuters, March 18, 2011.

Bachman, Katy, Debate Over Spectrum Gets Nasty: Wireless companies, broadcasters trade barbs, AdWeek, March 19, 2011

Downes, Larry, Snowe, Kerry introduce spectrum inventory bill, CNET, March 2, 2011.

Eggerton, John, Station Groups: FCC Spectrum Proposals Are Illegal, Broadcasting & Cable, March 21, 2011.

Gross, Grant, Groups: Spectrum Incentive Auctions Would Raise Big Bucks, PCWorld, February 15, 2011.

Jerome, Sara, Dingell: Spectrum auctions might be a ‘shot in the brains’ for broadcasters, The Hill, February 16, 2011.

Kang, Cecilia, Kerry, Snowe introduce spectrum inventory bill, Washington Post, March 2, 2011.

More Spectrum, Please: AT&T bids $39 billion to get around FCC bottlenecks, Wall Street Journal, March 23, 2011.

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