Beyond the Rhetoric: The Games in Federal Procurement

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By Harry C. Alford
NNPA Columnist

 

 

Our federal government is the biggest consumer of supplies and services in the world. Its procurement laws are immense and require a lot of policing and updating. Within that system, Congress has the responsibility of ensuring that these laws are just and enforced. However, our courts are filled with cases of abuse, collusion and bribery. Right now, in the telecom industry our Congress is investigating the possibility of such a case.

Spectrum is the electro-magnetic system of sending airwaves through the air and into televisions and computer screens. This is the lifeblood of the industry. It is vital that each company in this industry has ample stock of Spectrum. As the outdated analog televisions are closing down, Spectrum becomes available for broadband use and the Federal Communications Commission (FCC) holds auctions to sell it to the highest bidders.

As a means to make way for small businesses, including minority and women-owned firms, the federal government will sometimes provide set-asides or preferences to such firms so that they can compete against much larger corporations. If properly administered, this can be successful and provide new jobs and revenue in communities that are underserved and disadvantaged. But sometimes things go wrong via greedy “robber barons” activity and collusion.

Right now, the U.S. Senate Committee on Commerce, Science and Transportation is looking at activity that occurred during Spectrum Auction 97. There were two competing “Very Small Businesses” in the competition. Northstar Wireless and SNR were these two entities. It turns out that the majority of their ownership actually belongs to the DISH Network, a $32 billion giant in the telecom business. Thus, in reality these two aforementioned firms did not belong in this competition as very small businesses. By being in that category they would receive a discounted cost of 25 percent on any bids they would win.

So here goes the alleged scheme. DISH would fiercely enter into each bid, all the while Northstar and SNR were also in it. As the bidding whittled down the competitors, there would be only three left – DISH, Northstar and SNR. At that time, DISH would suddenly withdraw and either of the other two would win the bid. In essence, DISH was steering who would win and there would also be a 25 percent discount. Besides getting the bids, DISH was getting a whopping $3.3 billion discount and 702 new licenses. Small African American firms can’t win in games like this.

The following comes via a formal notice of investigation from the Senate Commerce Sub-Committee to the three subject companies: “In the end, DISH did not win a single spectrum license. Very small businesses Northstar and SNR, however, won 702 spectrum licenses, representing over 40% of the total licenses on auction, at a cost of $13.3 billion. As DISH owns an 85% ownership stake in both companies, it is no surprise that news reports on Auction 97 often cite DISH as a big winner. In addition, the 25% discount on the licenses to which Northstar and SNR may be entitled would amount to $3.3 billion.”

The practical effect of the bidding activity of DISH, Northstar, and SNR may have been to suppress rival bidders. Many of these rival bidders were small rural wireless companies, and some of them were not even eligible for a discount under the FCC’s small business discount program. In fact, several small rural telcos indicated in a recent FCC filing that DISH, Northstar and SNR bidding against each other in the same market during Auction 97 had a “devastating impact” on the vast majority of small rural telcos. The small telcos contend that multiple identical bids by DISH, Northstar, and SNR gave a distorted impression of heavier competition than actually existed and effectively pushed small companies out of the auction.”

Yes, this time it looks like a real investigation is going down and those who attempted to be slick are going to pay the price. DISH and its subsidiaries may have to pay hefty fines and some of their executives may have to do some time. But yet, small firms, including minority owned firms are still out of the opportunities that may have existed. Perhaps a class action lawsuit should be considered if it is determined that crimes were committed. That would send word out to others who might want to game the system at the expense of the pure-at-heart.

While the investigation proceeds, Congress should move the small business programs at the FCC to the responsibility of the Small Business Administration. The SBA is more equipped to police this and also deliver the full intent of Congress which is to invigorate small business with revenue and jobs. We must learn to stop playing these games!!!

 

 

Harry C. Alford is the co-founder, President/CEO of the National Black Chamber of Commerce®. Website: www.nationalbcc.org Email: halford@nationalbcc.org.

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