TR Daily Pai Proposes $9.7B in Accelerated C-Band Relocation Payments
Thursday, February 6, 2020

Pai Proposes $9.7B in Accelerated C-Band Relocation Payments

FCC Chairman Ajit Pai today circulated to his fellow Commissioners a draft order that would require winning bidders in an auction of 280 megahertz of C-band spectrum to pay incumbent satellite operators up to $9.7 billion in accelerated relocation payments to free up the repurposed frequencies for terrestrial 5G services more quickly. The Chairman also circulated a draft public notice proposing procedures for the FCC-run auction.

A source told TR Daily that the FCC and the C-Band Alliance (CBA) had reached an agreement on the accelerated relocation payment level.

Mr. Pai’s fellow Republicans, Commissioners Mike O’Rielly and Brendan Carr, expressed support for the draft order circulated today, while Democratic Commissioner Jessica Rosenworcel expressed concerns about the Commission’s authority, as did House Democrats. Sen. John Kennedy (R., La.) complained that the $9.7 billion figure was too high.

Mr. Pai announced the details of his proposed order, which the agency will consider at its Feb. 28 meeting, during a speech this afternoon at an event organized by the Information Technology and Innovation Foundation. FCC officials briefed reporters later in the day on the plan, as well as on proposed rules for the auction. The texts of the items are scheduled to be released tomorrow.

Mr. Pai said he wants the auction of 280 MHz of spectrum in the 3.7-3.98 gigahertz band to commence on Dec. 8. The remaining 20 MHz to be repurposed would be used as a guard band in the 3.98-4 GHz band.

“Some might ask (and I’m sure some will): Why are any accelerated relocation payments necessary? The answer is pretty simple: speed,” Mr. Pai said in the text of his remarks. “Remember, we aren’t just asking the incumbents to move their services to the upper 200 megahertz of the C-band. We want them to do that quickly in order to free up spectrum for 5G sooner rather than later. And this transition will be much faster if we can create powerful incentives for incumbent operators to expedite the transition. And to make sure they follow through—they would only be paid the full amount if in fact they did so. That is why I favor targeted accelerated relocation payments.”

Mr. Pai added, “To be clear, I don’t favor accelerated relocation payments because they are in the private interest of satellite companies. The balance sheets of private companies are not my concern. I favor accelerated relocation payments because they are in the public interest. It is in the public interest to make available the C-band for 5G deployment as quickly as possible, as part of the national priority to promote American leadership in 5G. And to get the job done quickly, we need to align the satellite companies’ private interests with the public interest. That’s precisely what accelerated relocation payments will do.”

Mr. Pai conceded that “others might ask: Why not give satellite companies a certain percentage of auction revenues? To begin with, Congress could certainly do so. But the FCC’s ability to do so under current law—in particular, the Miscellaneous Receipts Act—is in serious doubt. Moreover, I think that it is important for any payments to be tied to the speedy clearing of the band. Again, we need to make sure that incumbent satellite operators have the right incentives to get the job done and get it done quickly.”

Mr. Pai said that he’s “been in this job long enough to realize that this proposal will receive criticism from both sides. On the one hand, satellite companies have been asking for a lot more money. But the purpose of an accelerated relocation payment is not to compensate them for the expected value of the spectrum. The purpose is to expedite of the clearing of the lower portion of the band for 5G.

“On the other hand, there will be those who will complain that $9.7 billion in accelerated relocation payments is too much. They agree such a payment is necessary, but they would prefer a smaller amount—in the neighborhood of $1 billion, for example,” the Chairman continued. “But that number would be far below the value to wireless companies of the accelerated clearing, and ultimately the value to American consumers of faster development of 5G. And it would not be enough to properly align the incentives of the satellite operators with our national interest of getting this C-band spectrum cleared quickly so it can be put to use for 5G.”

The accelerated relocation payments will only be made if the satellite operators meet certain deadlines, Mr. Pai stressed. “Specifically, satellite operators would receive these payments if they clear the lower 100 megahertz of the C-band in 46 of the top 50 Partial Economic Areas by September [30,] 2021 and the remaining 180 megahertz of the C-band by September [30,] 2023. That’s four years and two years faster, respectively, than the September 2025 timeframe our record indicates that we might otherwise expect,” he said. Absent the accelerated timelines, the FCC’s deadline for repurposing the spectrum would be Sept. 30, 2025, a senior FCC official told reporters on a conference call.

Mr. Pai emphasized that he is proposing to require winners in the C-band auction to also “reimburse satellite operators for their reasonable relocation costs” of moving their operations to the upper 200 MHz of the C-band. He said that FCC estimates that those costs will total $3 billion to $5 billion.

Mr. Pai first announced last November that he would propose a plan to sell 280 MHz of spectrum through an FCC auction, rather than permitting the private sale that had been advocated by the CBA (TR Daily, Nov. 18, 2019). In today’s speech, he discussed at length how he arrived at that decision and why he doesn’t think the FCC should wait for Congress to pass legislation further clarifying its authority and stipulating whether some proceeds of the auction should be used for priorities such as rural broadband deployment.

Mr. Pai cited the FCC’s 25-year track record of auctioning spectrum and suggested that “bidders would be less likely to participate in an untested private auction, one that was described in our record as ‘fiendishly complex.’ And if you don’t think testing out a new system for the first time in a high-profile proceeding can lead to major headaches, the Iowa Democratic Party would like to have a word with you.”

Mr. Pai also said that the FCC has shown that it can conduct such an auction “quickly. The Commission already has the necessary pieces in place, including the auction software development infrastructure, and under my proposal, we would get the auction started by the end of 2020. In fact, I can share with you the specific date on which the C-band auction would start: December 8.”

He also said that “a public auction is squarely within the Commission’s legal authority. By contrast, the leading plan for a private sale would have required an unprecedented grant of authority to private entities.”

As for the amount to be auctioned, Mr. Pai noted that such an amount had the support of the CBA and members of Congress, although he acknowledged that some broadcasters and cable operators had backed a sale of 100 MHz, while some wireless carriers and others wanted the entire band to be sold. “I believe this strikes the appropriate balance between making a large amount of spectrum available for 5G and preserving sufficient spectrum for incumbent uses,” Mr. Pai said of the 280 MHz to be auctioned.

Mr. Pai also noted there were varying views on how much satellite companies should get as an incentive to clear the spectrum quickly.

The CBA said that the FCC 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 GHz band for terrestrial 5G services within 18 to 36 months (TR Daily, Jan. 16). It said the FCC should require auction winners to make the incentive payments to satellite operators. The CBA also submitted analyses that said the spectrum was worth between $43 billion and $77 billion (TR Daily, Jan. 28).

Sens. John Kennedy (R., La.), Brian Schatz (D., Hawaii), and Maria Cantwell (D., Wash.) introduced the Spectrum Management and Reallocation for Taxpayers Act (SMART Act) (S 3246) last month that would reserve $5 billion for the relocation expenses of incumbents but only $1 billion for incentive payments (TR Daily, Jan. 28). The bill would require that $5 billion of auction proceeds go to deficit reduction with the rest going to next-generation 911 (NG-911) and broadband priorities.

In December, the Senate Commerce 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 of a C-band auction 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.

Mr. Pai also said today that the Commission “already has a strong legal foundation to take all the steps I am proposing today. Under Section 316 of the Communications Act, we have the authority to modify the licenses of C-band incumbents, which would still be able to provide the same level of service to their customers that they do today. Under Section 309, we have the authority to auction off the lower 280 megahertz of the C-band for flexible use. Under Section 303, we have the authority to set new technical rules for the lower 280 megahertz of the C-band. And under Title III and our Emerging Technologies Framework precedent, which has been upheld by the D.C. Circuit, we have the authority to require winning bidders in the C-band auction to pay for the relocation of the band’s incumbents.”

“Some argue that the FCC should wait for Congress to legislate on the C-band. But if you believe that advancing American leadership in 5G is important, if you believe it is a priority to make 5G spectrum available quickly, and if you believe that mid-band spectrum is especially critical, waiting for Congress to act first isn’t the best strategy,” Mr. Pai argued. “In fact, some might call it the absence of a strategy. Waiting to begin the C-band auction and transition isn’t in the national interest.”

“Now, don’t get me wrong. If Congress wants to direct that auction proceeds be used to address national priorities like rural broadband, it will find no bigger supporter than me,” he added. “As a Commissioner back in 2016, I first proposed that Congress adopt a ‘rural dividend’ so that 10% of auction proceeds would go toward rural broadband deployment. I am delighted so many have jumped on the bandwagon. And in this case, if the FCC approves an order on February 28, Congress could still require this year that auction proceeds be used to close the digital divide, implement Next-Generation 911, or any other similar priority.”

In response to a question after his speech today, Mr. Pai was asked about critics who complain that the FCC has been to slow to free up mid-band spectrum for 5G services. Ms. Rosenworcel has been such a critic. Mr. Pai said it was “curious” that those same people have opposed various FCC mid-band initiatives. He added that he is “trying to find creative solutions as opposed to pound[ing] the table.”

During the conference call this afternoon, senior FCC officials provided additional details on the proposed repurposing transition as well as on the proposed auction procedures.

Satellite operators planning to meet the accelerated deadlines would have to notify the FCC by June 12. The FCC would require the establishment of an independent relocation clearinghouse to oversee cost reimbursement payments. Each operator would have to submit a transition plan this summer describing the steps to relocate operations to the upper portion of the band. The plans would be subject to public review and two or more operators could submit a joint plan.

The draft order also proposes a process to select a relocation coordinator that will handle technical aspects of the transition and establish a timeline to ensure deadlines are met.

If a sufficient number of operators opt into accepting accelerated payments, they would be permitted to form a search committee to select the relocation coordinator. Otherwise, the FCC would procure one.

Mr. Pai is proposing an ascending clock auction similar to Auction 103, which is ongoing, with clock and assignment phases. The spectrum would be auctioned in 20-MHz blocks by partial economic areas (PEAs). Entities could bid on two categories of spectrum: five blocks between 3.7-3.8 GHz and nine blocks between 3.8-3.98 GHz.

The FCC also would propose to incorporate spectrum aggregation limits from its spectrum holdings proceeding, reviewing the amount of spectrum acquired in the auction to see if it exceeds any limits adopted. The FCC also would propose the adoption of small business and rural bidding credits.

One FCC official declined to discuss how the order proposes to divide up payment among various companies, although the official said the item does address that.

Another official noted that the draft order would apply to the continental U.S. and not Alaska, Hawaii, Puerto Rico, the U.S. Virgin Islands, or the Gulf of Mexico given remote challenges they face. The FCC would revisit those areas later to see what framework would be suitable, the official said.

A source told TR Daily today that the CBA and the FCC had reached an agreement on the $9.7 billion accelerated relocation payment figure.

During the conference call with reporters, a senior official declined to confirm whether that was the case. But the official said the agency was optimistic that satellite operators would agree to accept the additional funding in exchange for completing the relocation more quickly. Asked if the amount is subject to negotiation, the official said that Mr. Pai believes it is the right number and expects his colleagues to approve it and so there is no consideration right now of adjusting it. The Chairman would not have proposed the accelerated relocation payment level if he did not think it would be successful, and he believes satellite operators will have the necessary incentive to agree to relocate operations by the earlier deadlines, the official also said.

In a statement, the CBA said, “The imminent issuance of the draft order reflects the tireless efforts of many over the past several years to ensure that this critical spectrum comes to market safely, quickly, and efficiently. Today’s comments by Chairman Pai are a significant development in this important proceeding. We look forward to reviewing the draft order, once issued, to place Chairman Pai’s comments in full context.” The alliance also said that it was “pleased with Chairman Pai’s statement regarding the C-band draft order today.”

Steve Spengler, chief executive officer of Intelsat S.A., a CBA member, said, “The issuance of the draft order represents a significant milestone in a process that we began in 2017. We look forward to reviewing the draft order, once issued, to place Chairman Pai’s comments in full context. We note with appreciation the hard work of all stakeholders to get to this juncture, and the work to come leading up to the Commission’s vote on February 28, 2020.”

Eutelsat S.A., which dropped out of the CBA, declined to comment today, saying it wants to review the text of the FCC’s order.

Mr. O’Rielly, who had made it clear that he would not support accelerated payments that were deemed inadequate, expressed support for the order circulated today and referenced an agreement.

“Although I still need to review the particulars, it appears to be consistent with the principles that I set forth a while ago and worked hard with appropriate parties to secure, and I intend to support it,” he said. “Freeing the 280 MHz of spectrum, while protecting existing systems and remaining users, was my highest priority and where I successfully focused most of my effort. Much time and attention has been spent on the appropriate incentive payment for the satellite providers, and I am pleased that an agreement was reached that should allow them to fully and voluntarily participate in this transition. As I have always said, the satellite providers’ cooperation will be absolutely necessary for a speedy and successful reallocation, and I thank the Chairman for making this possible and for considering this item at the February meeting. Sticking to the announced auction date this December and conducting it on time will be paramount.”

Mr. Carr said, “This morning’s announcement is another big win for American leadership in 5G. It means even more mid-band spectrum will power American 5G, the American taxpayer will see billions of dollars of revenue, and the C-Band services that Americans rely on will be protected. It is a rare win-win-win in Washington, and I am proud to strongly support it. Unlocking the C-Band’s potential has been one of the most challenging public policy puzzles to solve that I’ve seen in my time on the FCC. Chairman Pai and his team deserve tremendous credit for where we are today. He’s landed this plane in the right spot and deserves tremendous credit for his leadership. It’s the right decision, and he should be praised for our action.”

But Commissioner Rosenworcel said, “With today’s announcement, I fear that the Federal Communications Commission is trying to substitute its will for the will of Congress. By ignoring ongoing legislative work, the agency is putting the future of 5G service on shaky legal ground. That’s because over time it has become clear that the Communications Act does not provide a clear pathway for key payments the agency plans to make here. By doing this on its own the FCC is denying the American public what could be extraordinary benefits from the auction of public airwaves. Working with Congress we can use the billions of revenues raised in this auction to do the very infrastructure projects this country so desperately needs—from deploying broadband in rural areas to updating 911 systems nationwide to solving the homework gap by expanding internet access to students across the country. At the same time, with the right legislation, we can lawfully incentivize the return of these airwaves by satellite companies and provide a blueprint for finding more 5G opportunities in the future.”

A spokesperson for Commissioner Geoffrey Starks’ office said, “We just received the item and are reviewing it closely.”

Mr. Pai’s plan drew criticism from Sen. Kennedy, who suggested that the accelerated relocation payment funding level was too high.

“My duty, and the FCC’s duty, is to the American taxpayers. The C-Band spectrum belongs to them, and the 5G opportunities it represents are also theirs. Unfortunately, the sum Chairman Pai suggested giving to foreign satellite companies is much too high, and it’s highly unfair to those taxpayers. We shouldn’t be in the business of spearheading Luxembourg bailouts when there are towns in Louisiana and across the country without access to broadband service,” Sen. Kennedy said. “My colleagues and I have put a bipartisan bill on the table that would pay down our national debt, modernize public safety and finally free rural communities from dial-up prison. Our priorities are in the right place, and I encourage the FCC to consider its proposal in light of those American priorities.”

House Energy and Commerce Committee Chairman Frank Pallone Jr. (D., N.J.) and communications and technology subcommittee Chairman Mike Doyle (D., Pa.) also took issue with Mr. Pai’s plan.

“We believe that this proposal only reiterates the need for legislation,” the lawmakers said. “The questionable legal basis for the satellite incentives will likely result in litigation, which will delay the deployment of 5G. Moreover, without Congressional action, this auction will not fund critical public safety infrastructure or bridge the digital divide. That is why we need legislation to provide the certainty needed for a rapid rollout of 5G and ensure all Americans benefit from the auction of the public’s airwaves. We continue to work with our Republican colleagues to achieve that end.”

House Commerce Committee ranking member Greg Walden (R., Ore.) and communications subcommittee ranking member Bob Latta (R., Ohio), said, “The U.S. must win the race to 5G; it’s us or China.” They added that “the Trump administration and Chairman Pai share that view—and today the FCC will take a major step forward in pursuit of that shared goal. The incumbent license holders agreed to the accelerated relocation of their operations on the C-band spectrum. This ensures critical mid-band spectrum gets to market for the deployment of 5G services.”

The committee also said that while the FCC does not need legislation to auction the spectrum, lawmakers have act to ensure proceeds go to priorities such as broadband deployment.

“One of the few areas of agreement in Washington is that the United States cannot afford to lose the race to 5G,” said Sen. Thune. “Chairman Pai’s announcement today reflects the principles of the 5G Spectrum Act, legislation Chairman Wicker and I introduced that would help ensure the United States leads the world in the 5G revolution. I applaud Chairman Pai and the FCC for their work on preparing a C-band auction that ensures this critical mid-band spectrum is made available quickly and efficiently.”

“Winning the race to 5G requires having additional spectrum available in order to deploy advanced networks,” said Sen. Wicker. “I have advocated giving the commission the flexibility to get this done quickly while protecting taxpayers.”

Industry parties and market-oriented groups generally praised the details of the draft C-band order released today, while public interest advocates were more critical (see separate story). —Paul Kirby, [email protected]

MainStory: FCC FederalNews SpectrumAllocation Congress WirelessDeployment Satellites

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