TR Daily CBO Predicts Relocation Payments Will Depress C-Band Auction Revenues
News
Tuesday, February 25, 2020

CBO Predicts Relocation Payments Will Depress C-Band Auction Revenues

The Congressional Budget Office today estimated that an auction of 280 megahertz of C-band spectrum will generate $15.4 billion in revenues, less than half of the $32 billion that it said bidders would be willing to spend.

CBO said that winning bidders are expected to pay less to win the licenses mostly because of the relocation payments they would have to pay incumbents under a draft FCC order to be considered at Friday’s meeting. Under the draft item, bidders would have to pay up to $9.7 billion in accelerated relocation payments as well as regular relocation payments that the FCC estimates will total $3.3 billion to $5.2 billion.

CBO’s report analyzed the 5G Spectrum Act of 2019 (S 2881), which the Senate Commerce, Science, and Transportation Committee approved in December over the objection of Democrats (TR Daily, Dec. 11, 2019).

A substitute version of S 2881 approved on a 14-12 vote would require the FCC to auction at least 280 MHz of the C-band beginning by the end of next year, the same framework being pushed by FCC Chairman Ajit Pai. The Commission would be permitted to use auction proceeds to cover the costs of incumbent licensee or registered receive-only operator relocations as well as the relocation expenses of and compensation for licensees and entities with market access rights to the spectrum.

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. The bill also would require the FCC to reserve 10% of the proceeds for broadband infrastructure in unserved or underserved areas. The bill would require that 10% of that amount be used in tribal areas.

CBO said today that it “estimates that under current law the auction of licenses to use 280 MHz of C-band spectrum will generate net offsetting receipts totaling $15.4 billion over the 2020-2030 period. As discussed below this estimate reflects CBO’s expectation that winning bidders will be willing to spend about $32 billion to acquire such C-band licenses, but will pay less than that amount to the Treasury under current law because in order to use the licenses they will have to make payments to existing users and engage in other complex transactions that affect the value of the licenses.”

CBO added that it “estimates that bidders will anticipate relocation and incentive costs totaling about $15 billion. That projection includes roughly $5 billion for relocation expenses to cover costs incurred by satellite companies for new satellites and costs incurred to provide alternative services to thousands of Earth stations that receive the satellite signals and transmit them to consumers.”

CBO also estimated that “companies will reduce their gross bids by about 5 percent, or $1.6 billion, to account for the additional uncertainty about when frequencies will be available for new terrestrial services. In total, CBO estimates that proceeds from a C-band auction under current law will be $16.6 billion less than the estimated market value of $32 billion.”

FCC officials have argued that requiring auction bidders to pay C-band incumbents accelerated relocation payments will actually increase proceeds to the Treasury because wireless companies will bid more because of the increased certainty about when they will be able to access the repurposed spectrum. But critics have suggested that such mandatory relocation payments will cut into auction revenues.

In another C-band development, ACA complained in an ex parte filing yesterday in GN docket 18-122 that at least one satellite provider operating in the C-band is “unreliable,” adding that makes it all the more important for the FCC to “adopt precise rules that dictate the exact role and responsibilities of satellite operators, the rights and protections of earth station users, and the dispute resolution mechanism that will be used for settling disputes that may arise quickly and inexpensively.”

In the filing, which reported on meetings last week with legal advisers to FCC Chairman Ajit Pai and Commissioners Brendan Carr and Geoffrey Starks, ACA cited disputes among satellite operators over Intelsat S.A.’s contention that it should get a bigger share of the FCC’s proposed $9.7 billion in accelerated relocation payments.

“In particular, SES [and later Telesat Canada] alleges that Intelsat is reneging on commitments it made to the other CBA members and to the Commission over the course of the proceeding in an effort to achieve greater financial gain over the other. In response, Intelsat claims that SES has improperly shared confidential information and engaged in deliberate mischaracterization. Further, associations representing the satellite operators’ customers have raised concerns that the satellite operators will not abide by the commitments they have previously made to their customers, both contractually and in their transition plans,” ACA said.

“These public disputes show that one or both of the satellite operators are unreliable firms and inclined to pursue their financial gains at the expense of others in their industry, including their own customers, notwithstanding that they have generally been partners in this proceeding,” ACA added. “If these multi-billion dollar companies are willing to do this to each other and to their largest customers, mom-and-pop small MVPDs are rightfully fearful how these companies will treat them when money is on the line. For all these reasons, the Commission must adopt precise rules that dictate the exact role and responsibilities of satellite operators, the rights and protections of earth station users, and the dispute resolution mechanism that will be used for settling disputes that may arise quickly and inexpensively.”

ACA said that it “reiterated and expanded upon its previous position[s] that relocation costs be defined as those necessary to ensure that incumbent satellite operators continue to be able to provide substantially the same (or better) service to incumbent earth station operators, and that incumbent earth station operators continue to be able to provide substantially the same service to their customers after the relocation as they were able to provide before. For the same reasons advanced by Verizon, ACA Connects agrees that the Draft Order’s heavy emphasis on ensuring that incumbents only receive lowest-cost equipment could be problematic. As ACA Connects has previously noted, and as discussed here, above all other considerations, incumbent earth station operators should receive equipment that allows them to provide substantially the same service to their customers after the relocation as they were able to provide before, judged by quality and reliability. Only after this criterion is met should the Clearinghouse consider other factors such as ‘lowest-cost.’” —Paul Kirby, [email protected]

MainStory: FCC FederalNews Congress SpectrumAllocation WirelessDeployment Satellites

Back to Top

Interested in submitting an article?

Submit your information to us today!

Learn More