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Love the Players, Improve the Game

On Aug. 10, my colleague and former Federal Communications Commission official Adonis Hoffman wrote for Multichannel News a commentary with a catchy title: “Don’t Hate the Players, Hate the Game.” Respectfully, Hoffman really missed the mark.

Hoffman maintains that the outcome of the recent AWS-3 auction, in which two minority-controlled partnerships with Dish Network secured $3 billion in bidding credits, was the result of poor FCC auction design. We don’t know yet if that’s true, because the FCC’s ruling is almost certain to be reviewed by the U.S. Court of Appeals for the D.C. Circuit.  So the fair thing for all of us to do is hold our fire, and in the meantime do our best to preserve and strengthen the program.

Bidding credits were part of Congress’ plan in 1993 when it gave the FCC spectrum auction authority. To ensure meaningful small business participation, the FCC created the Designated Entity (“DE”) program, which lets firms owned by people of color compete in the highly competitive, capital-intensive commercial wireless marketplace. Famously, T-Mobile began as a DE and, through innovation and investment, grew into one of the nation’s top four wireless carriers.

This July, through the efforts of FCC chairman Tom Wheeler and commissioners Mignon Clyburn and Jessica Rosenworcel, the DE rules were revised with the elimination of repugnant restrictions on leasing, a cap on bidding credits and a host of measures to discourage those who might use the program in ways not intended by Congress. The cap was a step in the wrong direction, but the program survived and is still integral to achieving diverse ownership of our nation’s spectrum resources.

Hoffman’s piece attempts to liken the Dish auction strategy to an earlier secondary-market transaction between a “wealthy, well-connected African-American investor” and major carriers. But why was that transaction a bad thing?  What’s wrong with “black capitalism?”

The nation faces a persistent and growing 20-to-1 racial wealth gap that’s responsible for so much of the digital divide, so much social injustice and misery. In light of that, we should applaud corporations and entrepreneurs that use non-governmental market mechanisms to rationalize their respective assets and facilitate the growth of minority-owned ventures.

Contrary to Hoffman’s suggestions, secondary-market transactions have nothing to do with the DE rules or with auctions. Further, no one has ever received any discounts or credits for doing secondary-market transactions. The prices paid are negotiated at arm’s length, at market rates. Both parties benefit, and there is no government involvement.

While most buyers in secondary-market transactions want to build out the spectrum they buy, sometimes the seller wants to lease it back. There’s nothing wrong with leasing. For experienced, well-capitalized entrepreneurs, a leasing model can lead to buildout by growing an asset base with financial and geographic scale. Further, a company with spectrum leases is often better positioned financially to compete as a DE in spectrum auctions.

We need to encourage, not criticize, entrepreneurs willing to put their companies on the line to grow spectrum-based platforms. As civil-rights advocates, we should fight hard for opportunities for small minority firms to amass capital and thus become larger.

In today’s climate, the No. 1 step the FCC ought to take is incentivizing more secondary market spectrum sales to firms owned by people of color. MMTC has asked the FCC to do that and more. We want the FCC to “Love the Players, Improve the Game.”

David Honig is president emeritus and senior adviser to the Minority Media Telecommunications Council.