TR Daily Levin: New 3.7-4.2 GHz Band Proposal Gives Pai ‘Leverage’ Against CBA
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Monday, August 26, 2019

Levin: New 3.7-4.2 GHz Band Proposal Gives Pai ‘Leverage’ Against CBA

An alternative proposal backed by ACA, the Competitive Carriers Association, and Charter Communications, Inc., gives FCC Chairman Ajit Pai “significant negotiating leverage” with the C-Band Alliance, according to Blair Levin, an adviser for New Street Research LLC and a former FCC chief of staff.

In a research note yesterday, Mr. Levin said that a new round of filings in the FCC’s 3.7-4.2 gigahertz band proceeding “suggests to us that the policy debate will start revolving around the policy merits of two proposals; that from CBA and that from a coalition of ACA, Charter and CCA. That is, while other proposals will remain in the mix, the policy debates, as well as the political coalitions will evolve in a way that one or the other will emerge as the victor, though neither is likely to emerge unedited.”

He added that “while CBA may be in the lead, the coalition proposal now provides Chairman Pai significant negotiating leverage that he might have thought he did not have before. That is, while in 2018 CBA suggested that if the FCC did not do what it wanted, there was no viable alternative for reallocating spectrum for 5G, Pai now has the ability to argue back that there are alternatives. Thus, as discussed below, Pai has the ability to more clearly dictate policy.”

“We think the FCC leadership is signaling that it wants to vote the item in November, that it wants to reallocate at least 300 MHz and that the CBA single round auction proposal will not prevail and will have to be redone, with the possibility that the FCC itself will run the auction. It is also signaling that the previous CBA position—that if the CBA members don’t receive all the proceeds they will simply prevent any reallocation—is not viable,” Mr. Levin added. “As to the November timing, we still think December remains more likely but don’t believe the difference is material to investors. As to the 300 MHz, we think it will be difficult for CBA to be able to reallocate 300 MHz on the same timetable that it says it can reallocate 200 MHz. That suggests that CBA may propose to auction 300 MHz worth of licenses at the same time but that the spectrum associated with those licenses will become available over several tranches. That solution will raise questions of auction design, revenues, and post auction market structure that we have not yet seen publicly discussed but we think will have to be debated before the FCC can vote on its order.”

“As to the distribution of proceeds, we understand the CBA is in discussions with the FCC to define the ‘significant voluntary contributions’ their members are willing to make to the United States Treasury from the sales proceeds,” Mr. Levin added. “It is too early to know how those discussions are proceeding but we would simply note that: 1) there is no precedent for ‘voluntary contributions’ in an auction; 2) that if the broadcast incentive auction is used as a model, the percentage of total proceeds distributed to the broadcasters was about 50%; and 3) whatever Pai agrees to will be second-guessed by members of Congress who, looking at trillion dollar deficits, will likely find any agreement a convenient target to demonstrate the member’s own vigilance in lowering deficits.”

In a footnote, Mr. Levin added, “We don’t mean the CBA and FCC are literally discussing the issue as you read this. Rather, we think Pai has signaled that the US Treasury has to get something and that as the process moves forward, the parties will meet and nail down a specific number.”

Meanwhile, ACA commended the FCC for adopting a protective order in the proceeding today.

“We’re glad to see the FCC act on ACA Connects’ request to put in place a protective order in this proceeding. It’s been extremely troubling that the satellite industry has withheld vital information from the record on its current and projected use of the C-Band and the current and projected demand for its services, among other important data and information,” ACA said. “We’re glad that the FCC has taken this action to allow parties to the proceeding to gain access to this information. This information will allow parties to challenge many of the CBA proposal’s core assumptions. It wasn’t possible to do this without access to this info. ACA Connects will also be able to use this information to better demonstrate why the 5G Plus Plan is the country’s best path forward for winning the race to 5G.” —Paul Kirby, [email protected]

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