FCC Focusing on Set Incentive Fees for Licensees to Give Up C-Band Licenses

The FCC is pressing satellite operators in the C band to accept a compromise, under which they would be compensated for leaving the spectrum, but with a fixed fee, regardless of how much money comes in through an auction. Staff for Chairman Ajit Pai presented that scenario to the operators last week and reportedly held briefings for Congress' Appropriations and Commerce committees, said industry officials close to the proceeding. The FCC didn’t comment. Industry officials told us the incentive fee is expected to be only $5 billion total to be split among licensees. A trio of senators meanwhile bowed new C-band legislation Tuesday.

Senate Appropriations Financial Services Subcommittee Chairman John Kennedy, R-La., Senate Communications Subcommittee ranking member Brian Schatz, D-Hawaii, and Senate Commerce Committee ranking member Maria Cantwell, D-Wash., filed their Spectrum Management And Reallocation for Taxpayers (Smart) Act in a bid to designate C-band sales proceeds. The bill would set aside all but $11 billion of the money for telecom projects (see 2001280041). House Communications Subcommittee Chairman Mike Doyle, D-Pa., plans to use a Wednesday hearing on broadband access and digital equity issues to pin down Republicans’ position on C-band auction proceeds allocations (see 2001280003).

The Smart Act would allocate $5 billion in C-band spectrum sales to fund incumbents’ relocation, $1 billion in incentive payments to satellite companies and $5 billion to the U.S. Treasury for deficit reduction. It would set aside any remaining proceeds for rural broadband and next-generation 911 projects. The bill would also bar entities that the FCC, Congress, the Commerce Department or other federal agencies determine pose “a national security risk” from participating in the C-band auction.

The senators' bill would designate 33 percent of the project-focused proceeds for a NG-911 Trust Fund, with a cap of $12.5 billion. A separate Digital Divide Trust Fund would be used to disburse “any remaining amounts” for funding broadband projects in “underserved or unserved” areas and to support “other technologies, including telehealth, telemedicine, e-government, and educational opportunities at home.” The measure appears to draw some of its language from the Kennedy-sponsored Clearing Broad Airwaves for New Deployment (C-Band) Act (HR-4855/S-2921) and the Investing in America’s Digital Infrastructure Act (S-2956), which Schatz and Cantwell led (see 1911210056).

“What’s the goal here?” the C-Band Alliance said in a statement responding to the Smart Act: “To ensure that America gets 5G quickly, unlocking hundreds of billions of dollars in economic development and the benefits of leading the next wave of global tech innovation. To do this, satellite operators need to be incentivized to clear the spectrum quickly. But we also need to protect the incredibly valuable American video distribution system which serves 120 million American homes -- many in rural areas that are virtually impossible to fiber."

“Given that the CBA members are public companies, we are obligated under our fiduciary responsibility to our investors … to receive fair compensation for our assets,” CBA said: “That is our ask -- to be treated fairly for the value we bring to achieving the objective -- nothing more and nothing less. We think there should be a path that allows for fair treatment so that the greater goal -- 5G and its benefits -- can be realized.”

Kennedy told us before the Smart Act’s introduction he’s continuing to eye holding additional C-band-focused hearings once the chamber completes its trial on impeachment charges against President Donald Trump (see 2001090021). “I want my friends at the FCC to share with me their thoughts about the costs” of an auction “and who will pay” C-band incumbents to migrate off the frequency, Kennedy said. He also wants officials to explain the “advantages and disadvantages” of the different auction models, including an incentive auction.

“Some of my colleagues still think gobs and gobs of money should be given to the satellite companies and I don’t agree with that,” Kennedy said. He’s talking with Wicker and others about ways to reach a legislative compromise, but “we’re not there yet.”

Helpful to FCC

“The bipartisan Senate bill introduced today is needed to ensure the FCC is not held hostage to the demands of foreign satellite companies seeking an unjustified windfall at taxpayer expense,” said New America Open Technology Institute's Wireless Future Project Director Michael Calabrese. “The American public owns the airwaves,” he said: “This bill mandates an early auction and provides a generous incentive payment to satellite incumbents, but it also redirects $15 billion or more in auction revenue to fund major investments in rural broadband, digital inclusion programs and to modernize public safety infrastructure.”

Pai would have to circulate a C band item next week to be on the agenda for the Feb. 28 commissioners’ meeting. Many questions remain about the details of the likely approach, industry officials said Tuesday.

“The question is how much is the FCC offering,” said Roger Entner, analyst at Recon Analytics: “It is completely unclear who will end up with the better bargain in that case. Most folks who throw around a $50 billion for the C-band auction haven't shown anyone how they see this being funded.”

If the T-Mobile/Sprint deal goes through only three major bidders are likely -- AT&T, Verizon and Dish Network, Entner said: “AT&T said it has to fund any future auction through organic means, which is code for not much,” he said: “Verizon has probably a sizable war chest and then you have Dish. They had a lot more available funds when everyone thought they were going to flip spectrum. As an operator, their funding needs have increased exponentially. They will participate, but we can only speculate on how much.”

CBA

Clearing 300 MHz of C band in the lower 48 states will have a $3.3 billion price tag, the CBA said in docket 18-122 submission posted Tuesday. The single biggest expense will be procuring and launching eight to 10 satellites at $160 million each, plus an estimated $500 million in compression and modulation equipment, the alliance said. Other costs include $300 million for filter installation and antenna seeding, $100 million for equipment like integrated filters or switchable filters/low-noise block downconverter assemblies for certain customers, and $300 million for consolidating 14 telemetry, tracking and command and gateway sites into four, necessitating 36-48 new antennas and possibly real estate. CBA also estimated $500 million in lost revenue from compressed capacity meaning less bandwidth being sold.

CBA also filed economic analyses by NERA Economic Consulting and Evercore that pegged the value 280 MHz of C-band spectrum at $43 billion to $77 billion. It said its satellite members "are ready [to] execute" on clearing 300 MHz of the band for terrestrial 5G use but "simply do not have the flexibility to proceed" without receiving fair value for efforts in expediting the clearing of this spectrum and making it available quickly.

The three-page CBA letter accompanying the two analyses used "fair," "fairly" or "fairness" 10 times. NERA said the $43 billion-$77 billion estimate came from looking at international auction prices and then adjusting for U.S.-specific industry and license issues. Eutelsat separately submitted a white paper laying out what it said were legal justifications for doing a single forward auction, having an independent transition facilitator, and requiring a transition surcharge that would cover relocation and premium payments to incumbents as a condition for receiving a terrestrial license. It said satellite and earth station authorizations don't rise to property rights that are subject to the takings clause.

The FCC appears to want to do “something innovative with incentive payments tied to not just the amount of spectrum but also the timing of making spectrum available,” said Information Technology and Innovation Foundation Broadband and Spectrum Policy Director Doug Brake. “You don’t necessarily have the same dynamic as in the [TV] incentive auction where you actually need to price broadcast participation,” he said: “Demand played a key function in determining broadcaster’s incentive to give up their business. Here it’s certainly reasonable to have a large enough incentive such that CBA is not dragging its heels or crying foul, but in theory it doesn’t need to be directly tied to proceeds. In any event you have to have some sort of cost-based compensation for the transition, costs vary so much depending on a ton of factors.”

Brake is skeptical of any legislation that tries to cap compensation more generally. “It’s too complicated for the Hill to estimate these numbers well,” he said: “We should want the FCC focused on a successful, quick transition, not goosing revenue. If the FCC gives in to micromanaging from appropriators this thing will be a disaster.”

“Using a fixed fee, rather than payments that are more closely tied to incentives that replicate the market value of the spectrum, makes more sense, and would be more consistent with a market-oriented approach,” said Free State Foundation President Randolph May. “It’s possible that a fixed fee, depending on what it is, might coincidentally provide sufficient incentives that match what would be market-clearing incentives. But, given the pressing need to get the C-band spectrum cleared, I’d want the FCC to err on the side of ensuring sufficient clearing incentives.”