septiembre 17, 2004

More on NextWave

A few weeks ago, I linked to an article about how NextWave had "arbitraged government policies for billions."

If you read the article, essentially NextWave found a loophole in an FCC auction that allowed them to bid $4.8 billion with just a $500 million down payment for the rights to certain wireless airwaves. NextWave won the auction and then went into bankruptcy. Because of the US Bankruptcy code, NextWave could keep the rights without paying for them. (There was a court battle in there, and at one point the FCC re-auctioned off NextWave's licenses for $15.8 billion. However, the Supreme Court ruled that bankruptcy law took precedence over communications law, and the re-auction was invalidated.) Just recently, the FCC gave up and settled with Nextwave by giving them $3 billion worth of licenses.

Well when I read the story, I thought it was interesting. Legal, but on a technicality and a bit shady. However, a few days ago I picked up a book called "The Money Men: the real story of fundraising's influence on political power in America" written in 2000 by Jeff Birnbaum. Here's a passage about NextWave: provision pushed by the FCC in a gigantic budget bill a few years ago. The provision would have stripped NextWave Telecom of New York City, then in bankruptcy proceedings, of one billion dollars' worth of federally auctioned digital wireless-telephone licenses. [Fred] Graefe [a bigshot Democratic lobbyist], who represented NextWave Telecom, was alerted to this potential catastrophe while he was on a golf course. He left the links to contact some of the friends he had made over the years via fundraising.

He telephoned Tom Daschle and Bob Kerrey. He also reached White House Chief of Staff Erskine Bowles; Graefe had been a loyal Democratic solicitor for years and was well known to top Democrats such as these. All three men intervened at the eleventh hour on Graefe's behalf, and, with the additional intervention of other lobbyists from the GOP side, the offending provision was crossed out by hand mere moments before the bill went to the printer.
Anyway, I thought this was an interesting followup to my earlier posts.

Tom Daschle claims to be a "prairie populist," but to me this is special interest politics at its worst. Basically Tom Daschle trusted this lobbyist because Graefe had raised alot of money for him (when an article suggests that a lobbyist is close to a Senator, that means the lobbyist raises money for him). Graefe also gave $2000 to Daschle in each of the last two election cycles and has donated regularly to Daschle over the last decade.

So because of a lobbyist request, Daschle stripped the budget bill of a provision relating to NextWave. This cost the federal government somewhere between $3 billion and $15 billion, depending on how you look at it. Either figure is probably more than South Dakota pays in income tax each year.

Could Daschle have believed that he was doing the right thing? Well, he could have, but I think an honest assessment of NextWave's situation makes clear that NextWave was exploiting an FCC loophole for billions.

UPDATE: In 2002, South Dakota paid $1.67 billion in personal income taxes, and an additional $0.37 billion in corporate income taxes.