WASHINGTON-A watchdog group said a quasi-governmental corporation set up to fund small telecom startups spends nearly as much on executive salaries and overhead as on investments in companies.
The Center for Public Integrity said its investigation found the Telecommunications Development Fund paid more than $7 million in executive salaries and other expenses the past six years, while investing $9.4 million of seed money in startups.
TDF, championed by Rep. Edolphus Towns (D-N.Y.), was included in the 1996 telecom act to jumpstart small communications firms in hopes of spurring innovation and competition. It is funded by interest on up-front spectrum auction payments.
Towns, author of an amendment to the spectrum relocation fund bill that would allow TDF to make loans, was angered by the watchdog group’s report.
“He is still very proud of his association and the work he has done to create TDF, and he feels the article is a gross mischaracterization of what he said and what he feels about TDF,” said a Towns spokesman.
The CPI said FCC Chairman Michael Powell appointed himself to the board, which it said raises questions about the appropriateness of having the nation’s top telecom regulator in charge of a venture-capital fund in the same industry he regulates.
“It’s not a conflict of interest,” said David Fiske, an FCC spokesman. Fiske said TDF is subject to thorough oversight, noting Powell and other government officials associated with TDF are not involved in investment decisions.
The TDF legislation reserves seats on the fund’s board of directors for officials from the FCC, Small Business Administration and Treasury Department. Fiske said Powell’s predecessor, William Kennard, also served on TDF’s board. Kennard is now managing director of the Carlyle Group, an investment firm based here.
Frank Howard, a TDF spokesman, said the CPI report is not balanced. He said TDF management salaries comprise $720,000 of the total overhead expenses. “The salary and bonus structure is well under venture capital norms,” said Howard.
The probe by CPI, whose investigation of FCC travel prompted a crackdown by Senate Commerce Committee Chairman John McCain (R-Ariz.), could subject TDF to greater scrutiny.
“We have an upcoming board meeting in July and I’m hoping some of these matters will be addressed at that time,” said Thomas Hart, a TDF board member and one of the original architects of the fund.
