You are here
Google unabashed about gaming the FCC auction process to fleece the taxpayer of ~$7billion
Submitted by Scott Cleland on Fri, 2008-04-04 14:48
Many have broadly swallowed Google's "spin" that Google really "won" by losing the 700Mhz auction -- without digesting the serious implications of Google's public admission.
- So needy to convince everyone that Googlers, yet again, proved themselves to be the smartest people alive, Google hasn't realized that they have unabashedly admitted to de facto gaming and manipulating an official Government auction statutorily-created to fully reward taxpayers for commercial use of public airwaves.
- Miguel Helft of The New York Times has the best coverage of Google's actions in the auction in his article: "An Auction That Google Was Content to Lose."
- “Our primary goal was to trigger the openness conditions,” said Richard Whitt, Google’s Washington telecommunications and media counsel."
- The article goes on to explain its nonsensical bidding strategy of bidding against itself: "For much of the first week, Google gradually topped its own bids. With no competitors emerging, anxiety grew."
So what's wrong with what Google did?
First and foremost, Google's flagrant manipulation of the auction rules and process fleeced the American taxpayer out of at least $7 billion, by my estimate.
- The purpose of the 1993 Budget Act that "authorized the...FCC... to award licenses for the rights to use the radio spectrum through competitive bidding" was to ensure the American taxpayer was fully rewarded for use of the public airwaves.
- Google openly and agressively lobbied the FCC to apply very strict open access obligations on this spectrum auction and even pledged to "commit a minimum of $4.6 billion to bidding in the upcoming auction" "...should the Commission expressly adopt the four license conditions requested in our July 9th letter -- with specific, enforceable and enduring rules."
- Google's committment to bid was to try and allay fears that the Google conditions would devalue the spectrum and shortchange the taxpayer.
- Many, including me, were critical of Google's manipulation of the policy process to shortchange the American taxpayer.
- Well now that the spectrum auction is officially complete, we can estimate the cost to the American taxpayer of Google's open access conditions on the "C" block.
- The average price per MHz paid for the "A" block was ~$1.14 or ~50% more than the $.76 per MHz paid for the open-access-regulation-encumbered "C" block spectrum.
- The average price per MHz paid for the "B" block was ~$2.66 or ~250% more than the $.76 per MHz paid for the open-access-regulation-encumbered "C" block spectrum.
- To be conservative and fair, lets take the average price of both the "A" and "B" blocks which would be ~150% more than the "C" block. That would mean that the "C" block would have generated ~$7b more without Google's open access requirements than the ~$4.7b that was committed with open access requirements.
- If one assumed that the "C" block would have generated prices similar to the "B" block, the American taxpayer would have earned ~$12b more than they got from the current auction.
- These auction revenues due to the U.S. Treasury were not Google's to spend!
- Conservatively, the Google manipulation of the auction process (lobbying for and then triggering the open access requirements) denied the American taxpayer ~$7b in revenues to the U.S. Treasury, denied the Congress its constitutional authority to authorize and appropriate that ~$7b in governmental receipts for what it deemed was the best use.
- (FYI: My expertise in U.S. fiscal policy comes from starting my career as a Federal Budget Examiner at OMB; I also served as Director of Legislative Affairs for the U.S. Treasury Department.)
- Practically, Google cleverly "gamed" this FCC spectrum auction and manipulated our Nation's fiscal process so that it could "spend" this ~$7b in "taxpayer-due-money" to subsidize Google's open handset initiative "Android" by forcing the "C" block auction winner to be open to using Google's mobile operating system -- Android.
- Let's be clear of my charge here.
- Google devised a clever off-budget scheme to divert billions of dollar of Federal auction revenues to de facto subsidize Google's entry into the wireless market via the Android operating system.
- Now you can see why Googlers' think they are so smart.
- Unfortunately, they were not smart enough to not brag publicly about their policy larceny.
Second, Google's hubris and comments have made itself vulnerable to charges of bid rigging.
Google, in its "we won by losing" theme, appears to be strongly suggesting, (with a thin veil of "if I did it" deniability) that they were participating in a Federal auction not with the primary goal of winning the spectrum to become a wireless operator -- but to manipulate the process with the ancillary goal of regulating the spectrum to their financial advantage and not the taxpayers advantage.
- There doesn't seem to much question that Google was gaming the auction process for its own purposes, the "open' question is whether their actions crossed the line into legal manipulation or bid rigging.
- Remember bid rigging is a concern of the U.S. Justice Department:
- Per the Washington Times concerning bid rigging by a defense contractor: "The antitrust division is committed to protecting the competitive market for Americans," said Assistant Attorney General Thomas O. Barnett, who heads the department's antitrust division. "We will continue to bring to justice those who rig bids and thereby deprive the public of the benefits afforded by a competitive bidding process."
Third, at a minimum, Google's ethics are in question for they appear to have participated in a Federal auction under false pretenses. Their stated primary goal was not to secure the spectrum to build out a new wireless broadband network. Their primary goal was to "trigger the openness conditions."
- The FCC has very strict rules against anti-collusion among bidders in order to maximize the return for the American taxpayer.
- At a minimum, Google's actions appear to be at cross purposes with the spirit of the FCC's goal of having a fair and honest auction to fully reward the taxpayer.
- It could not have been comforting for the FCC to see Google so flagrantly flaunting their manipulation of the auction process in the New York Times article.
- Google continues to show us that they don't think rules or laws that apply to others apply to them.
- Google also continues to seek to impose Internet regulation on competitors that it is unwilling to be subject to itself.
One last piece of advice to Google on how to better play "the game" next time:
- From Kenny Rogers song the Gambler:
- "You never count your money when youre sittin at the table.
Therell be time enough for countin when the dealins done."