TR Daily CBA Seeks Amount Equal to C-Band Winning Bids for ‘Acceleration’
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Thursday, January 16, 2020

CBA Seeks Amount Equal to C-Band Winning Bids for ‘Acceleration’

The C-Band Alliance (CBA) told the FCC today that it should approve “acceleration payments” equal to 100% of the winning bids in the C-band auction to incentivize incumbent satellite operators to clear a portion of the 3.7-4.2 gigahertz band for terrestrial 5G services within 18 to 36 months.

The CBA submitted an economic analysis on the value created from the accelerated clearing of the C-band that concluded that impacted satellite operators should be paid an amount that is at least equal to the aggregate amount of winning bids at an auction of the spectrum. The fee should be paid outside of the auction process, according to the paper, which was prepared by Coleman Bazelon and Paroma Sanyal of The Brattle Group.

Last November, FCC Chairman Ajit Pai announced that he plans to pursue an FCC-run auction of 280 megahertz of the C-band rather than the private sale pushed by the CBA (TR Daily, Nov. 28, 2019). FCC officials have said that Mr. Pai plans to ask his colleagues to vote on an item, which would also include a 20-MHz guard band, early this year and that he wants to commence an auction of the spectrum by the end of 2020. The relatively quick time frame for the auction could shorten the overall period to complete the rebanding transition.

The FCC “possesses broad authority under Title III of the Communications Act to require winning bidders of a public auction for terrestrial mobile rights in the lower 300 MHz of the 3.7 GHz to 4.2 GHz band (the ‘C-band’) to agree to pay for accelerated clearing as a condition of their participation in the public auction, and as a condition of their receiving an initial license conveying terrestrial mobile rights,” the CBA said in an ex parte filing today in GN docket 18-122. “The Commission also has an ample basis to determine, based on the attached supporting economic analysis, that an accelerated clearing payment equal to aggregate winning bids of a C-band spectrum auction license would reflect a conservative estimate of the fair market value of accelerated clearing for such license. Dividing that payment among Fixed Satellite Service (‘FSS’) operators pursuant to a fair and transparent measure of relative usage can provide for the equitable treatment of incumbents.

“There is no doubt about the desirability of acceleration payments,” the CBA added. “Speed is paramount if the United States is to come from behind and win the race to 5G to secure its technological dominance in the future. And the record in this proceeding establishes a broad consensus among relevant stakeholders that incumbent FSS operators should receive payments above clearing costs to enable the rapid clearing of the lower 300 MHz of the C-band and enable the provision of 5G service. In addition, the CBA has recently explained how such acceleration payments could guarantee the rapid transition of existing C-band service to 60% less spectrum in 18 to 36 months—without disrupting service to the nearly 120 million American households that rely on C-band delivery of video and audio programming. … Providing such certainty will solve the holdout and free rider problems identified in the Notice of Proposed Rulemaking and elaborated in the record. Solving such problems will serve the public interest, foremost, by enabling a far faster transition of the C-band.

“In addition, and as explained below, acceleration fees can be proportioned based on a reasonable estimate of what the accelerated clearing would be worth to winning bidders relative to the value of the encumbered spectrum, and in a manner that will ensure that these payments do not divert revenues from the U.S. Treasury,” the CBA argued. “Indeed, the certainty provided by an appropriate acceleration payment will likely result in higher valuation of the spectrum asset and thus even greater revenues for the Treasury. This approach will also serve the public interest by preventing the Commission from becoming embroiled in an unnecessary legal battle regarding the scope of its license modification authority, and will avoid the risk of establishing dangerous precedent about the FCC’s ability to unilaterally devalue existing licenses. In the long run, recognizing that existing license holders should be both fairly compensated and incentivized to participate in technological transformation will enhance the value of FCC licenses (and future auction revenues), by providing additional certainty to all current and prospective license holders about the scope of the rights conferred by those licenses.”

The CBA argued that employing a “modified application” of the FCC’s emerging technologies regulatory framework would produce a number of benefits, including “[e]liminating the need for involuntary relocation[,] [which] would also serve the public interest because it would reduce legal uncertainty. Involuntary relocation requires the Commission to modify licenses held by incumbents pursuant to Section 316. Here, that would mean the elimination of interference protection in the lower 300 MHz of the C-band for all FSS operators. And while the Commission may make that change with regard to the small satellite operators whose C-band services are focused outside the continental United States (‘CONUS’), implementing that change with respect to CBA members would be ‘much too extensive to be considered a “modification”’ for reasons the CBA has extensively explained. If the Commission were to take that unlawful action, CBA members would be forced to defend their legal rights. The Commission should avoid such ‘judicial delays’ by embracing ex ante an accelerated clearing price that fairly incentivizes CBA members and ensures that they will consent to the change.”

“Under a typical application of the Emerging Technologies framework, the FCC captures for the Treasury through the auction the value of the spectrum asset discounted by the length of the relocation period and the expected cost of relocating the incumbent. Here, assume a baseline 10-year relocation period—which, as past experience shows, may be conservative—can be accelerated by 7 to 8 years under the CBA clearing scenario, where 100 MHz is cleared within 18 months and an additional 180 MHz is cleared within 36 months. The value of the acceleration from a baseline scenario to an accelerated scenario is then expressed as a percentage of the value of the spectrum under the baseline scenario,” the CBA said.

“Based on this methodology, the Brattle Group estimates that the value created by accelerated clearing is up to 149% of the value of the spectrum under baseline clearing,” it added. “Indeed, their analysis shows that any premium for risk above approximately 2-3% suggests that the value created by an accelerated transition substantially exceeds the baseline of the encumbered spectrum, meaning the Treasury will in effect receive a portion of the acceleration premium that the incumbents would ordinarily be entitled to under the Emerging Technologies framework. In light of these considerations, the Brattle Group concludes that setting an accelerated clearing fee at 100% of the auction winning bids conservatively estimates the projected net present value of accelerated clearing.”

“In addition to determining the relative amount of an acceleration payment, the Commission should also ensure a transparent and equitable split among incumbents who share non-exclusive rights,” the filing added. “The split should be related to the relative outputs necessary to effect the public interest benefits of accelerated clearing. To fairly measure and execute that, the Commission could divide acceleration payments among C-band satellite operators according to their proportionate transmission to active C-band antennas in CONUS. Allocating shares based on this objective metric reflects appropriately the extent and cost each FSS operator will undertake to prepare the spectrum for 5G services.”

The CBA continued, “The SSOs’ [small satellite operators’] assertion that they should be compensated for 100 percent of the transponders on any C-band beam that touches even a small fraction of CONUS belies the technical limitations of their fleets. Furthermore, it is completely inconsistent with the public interest in having the share of acceleration payments be directly related to clearing activity so that these payments incentivize the activities required to make the spectrum available for 5G. There is nothing at all that is required of the SSOs to clear the C-band and therefore there is no public benefit derived from making payments to them.”

The Brattle Group analysis said that the fee imposed on auction bidders “would be paid outside of the auction context and would not directly impact auction receipts. Such a fee should be directly related to the benefits to the new terrestrial licensees created by the accelerated transition. Such benefits of gaining access to a swath of spectrum sooner are, naturally, proportional to the value of spectrum. As the analysis in this paper demonstrates, an accelerated clearing fee, no less than equal to the amount of aggregate winning bids of the C-Band spectrum auction licenses, would reflect a conservative market value estimate of accelerated clearing for those licenses. This is because under reasonable assumptions about how terrestrial licensees value spectrum, an accelerated transition will more than double the value of the C-Band spectrum if it was repurposed under a baseline FCC spectrum reallocation.”

Payments to C-band satellite operators above the cost of rebanding expenses have been controversial, with Sen. John Kennedy (R., La.) opposed to them and others in Congress supporting at least some such compensation. Last month, the Senate Commerce, Science, and Transportation Committee approved a modified version of the 5G Spectrum Act of 2019 (S 2881) (TR Daily, Dec. 11, 2019).

Under the bill, which was introduced by committee Chairman Roger Wicker (R., Miss.) and Sen. John Thune (R., S.D.), chairman of the communications, technology, innovation, and the Internet subcommittee, at least 50% of the gross proceeds would have to be deposited into the U.S. Treasury if the auction raised up to $40 billion, at least 75% for the next $10 billion, and at least 90% for the remaining proceeds.

Last November, before Mr. Pai indicated he would pursue an FCC-run auction, the CBA, which had pushed for a private sale, said that if the Commission adopted its plan, it would commit “to pay a portion of net proceeds of a CBA-led auction to the U.S. Treasury pursuant to the following progressive formula: 30% of net proceeds up to $0.35/MHz-POP, 50% of incremental net proceeds up to $0.70/MHz-POP, and 75% of incremental net proceeds thereafter” (TR Daily, Nov. 15, 2019).

Peter Pitsch, head–advocacy and government relations at the CBA, told TR Daily in an interview this afternoon that the fee proposal advanced by his group today was selected to be “consistent” with the Wicker-Thune legislation. Under both that bill and the CBA’s proposal, satellite operators could get an amount equal to the amount that could go the U.S. Treasury or other government priorities, he noted.

“We’ve come forward with what we think is a much better deal than we have previously given and think it’s very defensible in legal and policy terms,” Mr. Pitsch said.

Asked why carriers wouldn’t bid less for spectrum at the auction knowing they would be responsible for compensating satellite operators, Mr. Pitsch echoed the CBA’s filing and the Brattle analysis in saying that the spectrum would be worth more if it’s made available more quickly

“We’re saying to policymakers, ‘Look, you wanted to have a public auction, we’re trying to make that work,’” Mr. Pitsch said. “We’re trying not to be greedy. We are willing to strike a reasonable stance.” —Paul Kirby, [email protected]

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