Commissioner: FCC Waiver to Obama Donor ‘as Unlawful as It Is Absurd’

Grain Management granted favorable status for wireless auctions

David Grain
July 24, 2014

The Federal Communications Commission’s (FCC) decision to grant a waiver to provide favorable status in wireless auctions to an Obama donor is "as unlawful as it is absurd," FCC Commissioner Ajit Pai said Wednesday.

On a 3-2 party-line vote, Democratic commissioners at the FCC granted Grain Management, LLC., status as a "designated entity" (DE) on Tuesday, allowing the company to receive discounts designed for small businesses when bidding for wireless licenses. David Grain, a major bundler for Barack Obama’s 2008 presidential campaign, owns the firm.

DE status is intended to foster competition by allowing smaller and minority businesses to compete. In order to qualify, a company must pass what is known as the attributable material relationship (AMR) rule, which prohibits companies that lease more than 25 percent of their spectrum capacity to another company.

Grain Management leases 100 percent of its capacity to Verizon and AT&T.

The FCC waived that requirement for Grain and "any other similarly situated entity" on Tuesday. In a dissent to the rule, Republican Commissioner Pai said the purpose of the AMR rule is to ensure that companies benefiting as a DE are not "unduly controlled or influenced by a third party." The waiver "jettisons this entire framework," he said.

"The whole point of the AMR rule—indeed, the entire DE framework—is to promote competition, not arbitrage; competitors, not middlemen," Pai said.

"Against this backdrop, the Commission’s decision today—that a company can lease every last slice of its spectrum without even implicating the purpose underlying the AMR rule and therefore obtain DE benefits—is as unlawful as it is absurd," he said.

In the order explaining the decision, the FCC said AMR is "such a per se rule" that should not disqualify Grain from receiving bidding credits. More than 1,600 licenses will be available in an auction this November.

David Grain raised between $200,000 and $500,000 as a bundler for Obama’s campaign in 2008. He also donated $64,400 to the DNC and Democratic congressional committees in the 2008 election cycle, according to the Federal Election Commission, and contributed $5,000 for Obama’s Senate bid in 2004.

Grain began donating to Rep. Jim Clyburn (D., S.C.), whose daughter Mignon Clyburn is a Democratic FCC commissioner, in November 2009. Mignon Clyburn became a commissioner that August.

Overall, Grain has donated $8,400 to Rep. Clyburn between November 2009 and May 2012, according to the Federal Election Commission.

Mignon Clyburn voted along with Chairman Tom Wheeler and Commissioner Jessica Rosenworcel to waive the rule. Pai and Commissioner Michael O’Rielly dissented.

Grain Communications Group, the venture capital company Grain founded, has given $30,000 to Democratic candidates this election cycle, and $10,000 to Republicans.

House Energy and Commerce Committee Chairman Fred Upton (R., Mich.) and Communications and Technology Subcommittee Chairman Greg Walden (R., Ore.) said the waiver effectively changes the DE rules without any say from the public.

"The process is clearly broken, and something smells rotten on the 8th floor," Upton and Walden said in a statement. "FCC action, especially at the behest of those with real or perceived political connections, should be done by the book and far above reproach."

"Process rules are in place for a reason, and there is a transparent process available if the commission wants to pursue changes to the rules," they said. "Instead, a troubling pattern of process neglect is emerging, leaving a commission that too often shrouds its work in secrecy and takes shortcuts to impose its desired policies."

Pai said Grain’s waiver creates "risk and uncertainty" for the upcoming November wireless auction.

"We need clear, predictable, and legal rules that apply to all players and promote entry by small companies into the wireless business—not arbitrary waivers that yield no benefits other than a serendipitous profit to a preferred entity," Pai said.

Published under: Democratic Donors , FCC