TR Daily Pai to Pursue FCC-Run Auction of C-Band in 2020
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Monday, November 18, 2019

Pai to Pursue FCC-Run Auction of C-Band in 2020

FCC Chairman Ajit Pai announced today that he plans to pursue an FCC-run auction of 280 megahertz of spectrum in the 3.7-4.2 gigahertz band rather than the private sale pushed by the C-Band Alliance (CBA). The decision reflects a shift from what appeared to be momentum to authorize a private auction of the spectrum.

Mr. Pai had been expected to circulate a draft order in the proceeding this week for the Commission’s Dec. 10 meeting, but a senior FCC official told reporters on a conference call this afternoon that Mr. Pai now plans to ask his colleagues to vote on an item early next year.

“I previously announced that I would make a decision on how the FCC should proceed by this fall and outlined four principles that the FCC must advance through this rulemaking. First, we must make available a significant amount of C-band spectrum for 5G. Second, we must make C-band spectrum available for 5G quickly. Third, we must generate revenue for the federal government. And fourth, we must protect the services that are currently delivered using the C-band so they can continue to be delivered to the American people,” Mr. Pai said in a letter to a number of members of Congress today. “After much deliberation and a thorough review of the extensive record, I have concluded that the best way to advance these principles is through an auction of 280 megahertz of the C­band conducted by the Federal Communications Commission's excellent staff. With a quarter­century track record of transparent and successful auctions, I am confident that they will conduct a public auction that will afford all parties a fair opportunity to compete for this 5G spectrum, while preserving the availability of the upper 200 megahertz of this band for the continued delivery of programming.”

The decision is a blow to the CBA, which had advocated a private auction of 280 MHz of spectrum (increased from an earlier 180 MHz). The CBA also has called for a 20-MHz guard band, which Mr. Pai also supports.

Recent commitments by the CBA don’t seem to have swayed Mr. Pai and others at the FCC. During today’s FCC call with reporters, one official said that the reason Mr. Pai decided to pursue an FCC-run auction is because the CBA failed to convince the Commission and many industry players that it would be able to conduct a fair and transparent auction process.

The CBA last week committed to contribute between 30% and 75% of the proceeds of the private sale, depending on how much was raised, to the U.S. Treasury (TR Daily, Nov. 15). However, it said that the income tax obligations incurred by CBA members as a result of the auction would count toward the payment. The alliance also said it would work with Congress to see a portion of the payment to the Treasury set aside for an open access 5G network.

The CBA also joined recently with five wireless carriers, including Verizon Communications, Inc., and AT&T, Inc., in proposing principles for an auction that would make it look similar to sales that have been held by the FCC (TR Daily, Oct. 29). For example, there would be a multiple-round ascending clock auction, sealed bids and package bidding would be prohibited, and bid data would be released after each round, consistent with recent FCC auctions.

In committing to the principles, CBA backed away from its earlier Flexible Use and Efficient Licensing (FUEL) auction design plan, which proposed a sealed-bid, second-price, combinatorial auction that would have only two rounds (TR Daily, June 11). That plan drew considerable criticism, an FCC official noted to reporters today.

FCC officials also said that the FCC has ample legal authority to conduct the auction and suggested that if Mr. Pai decided to pursue the CBA plan, the Commission could run into legal trouble if it didn’t seek additional comment on recently submitted CBA filings.

A public auction is the most streamlined and quickest way to auction the C-band spectrum, one official said, countering the argument of the CBA and its allies that the alliance’s plan would put the spectrum in the market much more quickly than a traditional FCC auction. One reason, the CBA has said, is because an FCC auction would result in extended litigation.

The official said that Mr. Pai believes that satellite interests and the public interest can be aligned so all parties can come to the table in agreement. The official also said that incumbents can be protected from interference through the 20-MHz guard band, the use of video compression technology in the upper 200 MHz of the 3.7-4.2 GHz band, and the deployment of new satellites. However, those satellites have been proposed by the CBA.

The official also said that while there has been historic concern about scheduling auctions too closely together, the FCC believes that the rampant need for 5G spectrum warrants auctioning the C-band before the end of 2020. The FCC plans to auction 3.5 GHz band priority access licenses (PALs) in an auction that is scheduled to begin in June 2020. A wireless industry source told TR Daily today that the FCC has said that the C-band auction is expected to be held in the second half of 2020. The FCC also is eyeing an auction of unused 2.5 GHz band educational broadband service (EBS) frequencies.

Another official told reporters that any suggestion that Mr. Pai had decided to pursue an FCC-run auction due to pressure from President Trump was false and was an effort to try to distract parties from the failures of the CBA’s plan. However, the official said that President Trump called Mr. Pai on Oct. 30 to discuss the proceeding following a conversation that Sen. John Kennedy (R., La.), who opposes a private auction, had with the president about the proceeding. Mr. Pai discussed his principles and options in the record, the official said. The president did not express an opinion about what the FCC should do, the official added. The official also said that no one at the White House expressed any view of the proceeding, either on the public vs. private auction concepts, or on how to resolve any other issues.

The officials declined to discuss a number of specifics about the proposal that Mr. Pai plans to circulate, including whether the FCC will consider a draft order at its January meeting, the proposed structure of the C-band auction, whether a transition facilitator would be selected, and what any split would be between revenues for the Treasury and any incentive payments to satellite operators.

Other Commissioners weighed in on Mr. Pai’s announcement today.

“Moving forward quickly with a transparent process that frees up ~300 MHz of spectrum while returning money to the Treasury will help extend America’s 5G leadership,” Commissioner Brendan Carr tweeted. “Getting this done in 2020 is the right call. With even more mid-band spectrum added to the mix of airwaves already freed up for 5G, I'm excited about the opportunity that next-gen connectivity will deliver to America's families & businesses. Glad we're moving forward with speed[.]”

“As I’ve said consistently, a public auction is the best and fastest way to make the C-Band available and ensure that all Americans benefit. I’m glad @AjitPaiFCC agrees, and I look forward to working with my colleagues on next steps,” Commissioner Geoffrey Starks said.

The CBA said in a statement today that Mr. Pai’s “indication that he intends to pursue a public auction of C-band spectrum is a significant departure from the CBA’s market-based proposal. The announcement does not address the critical involvement of the incumbent satellite operators in executing the complex task of reconfiguring and transitioning their networks. Nor does the announcement address the fundamental modification of the rights afforded by the existing FCC licenses held by the CBA members which would be required under a public auction approach.

“To ensure U.S. national security interests, U.S. leadership in 5G innovation and the expected accompanying GDP and job growth, the full cooperation of the satellite operators will be required to ensure the successful clearing of the C-band while protecting the incumbent broadcast services enjoyed by millions of U.S. households,” the CBA added. “We will continue to work cooperatively with the FCC to develop an effective alternative plan and achieve the best outcome for the American public while protecting the interests of our users and the rights of our companies.”

Eutelsat Communications, which withdrew from the CBA, said it “welcomes the decision of the FCC laying out a framework for the public auction of a portion of C-band spectrum between 3.7-4.2 GHz, which it regards as an important first step in expediting rapidly and equitably the clearance of C band frequencies for mobile 5G services. Eutelsat looks forward to engaging with the FCC in a fruitful and positive dialogue aimed at shaping an equitable and efficient process to facilitate the expedition of the auction and subsequent clearing of the frequencies, so that 5G can be rolled out in a timely manner throughout the CONUS.”

Meanwhile, Senate Commerce, Science, and Transportation Committee Chairman Roger Wicker (R., Miss.) and Sen. John Thune (R., S.D.), chairman of the communications, technology, innovation, and the Internet subcommittee, today introduced the 5G Spectrum Act of 2019, which would require the FCC to commence a public auction of the C-band by Dec. 31, 2020, make at least 280 MHz available, and require at least 50% of the proceeds to be captured for taxpayers.

Under the bill, proceeds could be used for the “relocation of incumbent licensed or registered receive-only earth station operators operating in the covered band” and for the relocation and compensation of licensees in the spectrum or “grantees of market access rights in the contiguous United States to spectrum in the covered band.”

“After years of delay, this legislation would get crucial mid-band spectrum into the market to benefit the American people and secure our position as the leaders in the race to 5G,” said Sen. Wicker. “Senator Thune and I have been working together for over a year to come up with the best way to expand access to 5G, especially in rural areas, and secure value for all Americans. I look forward to continuing to work with him as we get this legislation over the finish line.”

“This legislation, which is a win-win for taxpayers, would quickly free up much-needed spectrum – the airwaves over which digital information flows – and, as a result, put more money back in the U.S. Treasury,” said Sen. Thune. “I have long supported efforts to make additional mid-band spectrum available for commercial 5G use so we can lead the world in the 5G revolution. More spectrum means more opportunities for American entrepreneurs and consumers, especially those in rural America, to innovate and access better and more efficient information and technology.”

Sen. Kennedy welcomed today’s FCC announcement.

“Chairman Pai is putting the American taxpayers and our 5G efforts first by conducting a public auction. There were swamp creatures in government who were trying to help their telecommunication buddies put all four feet and their snout into the trough. Fortunately, the FCC prevented that from happening,” Sen. Kennedy said in a statement. “This spectrum belongs to the American people.”

During a conference call this afternoon, Sen. Kennedy told reporters that he is still planning on holding a hearing on Thursday on the FCC’s auction program. The scheduled witnesses are Office of Engineering and Technology Chief Julie Knapp and acting Office of Economics and Analytics Chief Giulia McHenry (TR Daily, Nov. 15). The senator is chairman of the Senate Appropriations Committee’s financial services and general government subcommittee, which has jurisdiction over the FCC.

He also said he plans to continue to push fiscal year 2020 appropriations report language urging the FCC “to conduct a public auction of the C-band spectrum that is fair, open, and transparent” (TR Daily, Oct. 3).

In addition, he criticized the bill introduced today by Sens. Wicker and Thune, saying that taxpayers should get more than half of the revenues from the auction. “I’m putting a hold on that bill,” he said.

Sen. Kennedy was asked if he believes President Trump influenced Mr. Pai’s decision.

“I’m not going to talk about a private conversation I had with the president of the United States,” he replied. “I can’t tell you about the inner workings of the White House.” But he said he approached the president to discuss the proceeding and that Mr. Trump was aware of the issue. “I walked away from the conversation very pleased with it,” the senator said. Other lawmakers also commended Mr. Pai.

“I’m glad that FCC Chairman Pai agrees that a private sale of the C-Band – with the lion’s share of potentially $60 billion in proceeds going to a few foreign companies – is a terrible idea,” said House communications and technology subcommittee Chairman Mike Doyle (D., Pa.). “I introduced the bipartisan C-BAND Act – along with my colleagues Subcommittee Vice Chair Doris Matsui (CA-6), Congressman Bill Johnson (OH-6), and Congressman Greg Gianforte (MT At-large) – which would authorize the FCC to conduct a public auction of the C-Band [TR Daily, Oct. 24]. Now it’s critical that Congress move quickly on passing this legislation so that we can use the proceeds of this auction to fund broadband build-out, Next Generation 911, and closing the digital divide.”

Rep. Matsui, who is co-chair of the Congressional Spectrum Caucus, said, “Today’s decision is a victory for open and transparent government. In the race to 5G, the stakes are high, and we need to win. The way we do that is by quickly and efficiently freeing up mid-band spectrum – making our economy and communications systems more competitive. I have repeatedly called on the FCC to pursue a public auction with input, and I applaud Chairman Pai for adopting my commonsense approach. This is a critically important first step to kickstarting a 5G revolution in the United States, and I look forward to working with the FCC and my colleagues in Congress to ensure that C-Band spectrum is allocated in a fair and efficient manner.”

A variety of other parties also weighed in on today’s C-band developments, with some praising Mr. Pai’s announcement even though they had been open to a private auction of the spectrum.

Joan Marsh, AT&T’s executive vice president-regulatory & state external affairs, said, “The C-Band represents an important 5G opportunity for the U.S., but to unlock its potential a series of objectives must be met. As we have previously said, any path forward must chart a course toward a fair, open and transparent auction; compensation to C-Band licensees for relinquishing rights and relocating services; proceeds for the U.S. Treasury; and a clear and reasonable transition plan that ensures broadcasters, programmers and earth station operators that their services will not be interrupted and that their relocation costs will be reimbursed. We support the approach outlined by Chairman Pai today and we look forward to working with the Commission to help unleash this important spectrum for 5G.”

“The United States has gotten off to a fast start in the race to 5G. But for the US to continue to lead this race, it is critical that the FCC move quickly to make C-Band spectrum available for 5G,” said Craig Silliman, EVP and chief administrative, legal, and public policy officer for Verizon. “The process of identifying spectrum and putting it into service for customers takes time. Any auction should include appropriate incentives and protections to ensure it could be put to use in short order. China and other countries have already provided huge blocks of mid-band spectrum to carriers for 5G, and there is a risk that those countries will become the hub of 5G innovation and investment if the US fails to act promptly to do the same. We strongly encourage the FCC to move with urgency so that our nation does not fall behind.”

Neville Ray, president-technology for T-Mobile US, Inc., tweeted, “Thank you @FCC and @AjitPaiFCC for seeing the need for more spectrum and the benefit of a public and transparent C-band auction.”

“As we have been saying for quite some time, availability of mid band spectrum is of critical importance to the successful deployment of 5G technologies especially for rural America. That is why we are very pleased that the Chairman has committed to conducting a public auction of 280MHz of mid band spectrum by the end of 2020,” said Grant Spellmeyer, vice president-federal affairs & public policy for United States Cellular Corp., which also signed onto auction principles with the CBA. “We look forward to seeing further details from the FCC as soon as they are available about the myriad of issues that need to be resolved in order for the auction and clearance of this spectrum to occur. This is a good day for rural America.”

“We applaud Chairman Pai for his decision to repurpose C-Band spectrum through a public auction as ACA Connects, Charter and CCA proposed in our 5G Plus Plan,” said ACA President and Chief Executive Officer Matthew Polka. “We look forward to working with the FCC Chairman and his fellow commissioners on the details of an auction and on a transition plan that allocates necessary funds to accommodate incumbent users and gives cable earth station operators, including in rural America, the flexibility to transition to fiber-based solutions.”

“Chairman Pai’s announcement of a public auction for C-band spectrum is good news for consumers, industry competition and the U.S. economy. I commend the Chairman for his focus on this incredibly important issue for competitive carriers – it is a win-win-win situation that certainly has the American taxpayers’ best interests in mind,” said Steve Berry, president and CEO of the Competitive Carriers Association. He also praised the introduction of the 5G Spectrum Act.

“We applaud the FCC’s decision to use a public auction to allocate this valuable national spectrum resource as this tested, transparent and market-based approach will enable new entrants to be successful, ensure widespread deployment of 5G including to rural areas, and contribute billions of dollars to the U.S. Treasury,” said Charter Communications, Inc.

“We thank Senators Wicker and Thune, and Chairman Pai for their focus on good spectrum policy. The Chairman’s statement and his guiding principles for the auction are good news for the fixed wireless industry and rural Americans,” said Louis Peraertz, vice president-policy for the Wireless Internet Service Providers Association. “One of the services currently using the C-Band is point-to-point fixed wireless services. With the announcement, WISPA believes it leaves open the possibility that with a few technical rule changes, the FCC could easily and quickly permit new coordinated point-to-multi-point uses, both protecting the delivery of programming and expeditiously bridging digital divides in rural areas.”

“NAB is pleased that Chairman Pai has committed to protecting video and audio programming delivered using the C-band, including by working to ensure the continued reliability of service,” said Dennis Wharton, EVP-communications for the National Association of Broadcasters. “This process must ensure that services that rely on C-band satellite distribution are maintained and protected throughout the transition and going forward. We look forward to continuing to work closely with the Commission, the satellite industry, and other stakeholders to help clear spectrum for new 5G services while ensuring robust protections for content distribution to make the transition effective and workable for satellite operators, their customers, and the American public.”

Institute for Policy Innovation (IPI) President Tom Giovanetti said IPI “supports Federal Communications Commission (FCC) Chairman Ajit Pai’s policy, announced today, to conduct an open public auction of 280 mhz of the C-band. This announced policy is the right policy for continued innovation and expansion of wireless, and follows a well-understood and largely successful path of public spectrum auctions.”

“No doubt the C-Band proceeding is a complicated one, with policy and legal uncertainties all around. That said, I remain convinced that some form of private auction secondary market transaction would most likely enhance overall consumer welfare and advance the U.S.’s goal of achieving 5G leadership,” said Free State Foundation President Randolph May. “In large part this is because it is likely to be a speedier way of making more C-Band spectrum available. The private auction approach would also be a useful precedent for achieving a more free market-oriented spectrum policy going forward.”

“Our Public Interest Spectrum Coalition has argued from the start that only a public auction is permitted by the Communications Act and avoids the dangerous precedent of paying incumbents a massive windfall for spectrum they do not own and never paid for. There is ample FCC and court precedent for a public auction that requires winning bidders to pay transition costs and also allows them to negotiate incentive payments to incumbents to clear all or part of the band more quickly than required,” said Michael Calabrese, director of the Wireless Future Project at the New America Foundation’s Open Technology Institute. “In the meantime we will be urging Congress to pass legislation that designates the net revenue to close the broadband gap in rural and other underserved areas.”

Phillip Berenbroick, policy director at Public Knowledge, said Mr. Pai’s decision “is the right one and will allow the Commission to move forward quickly to repurpose and auction a significant swath of crucial mid-band spectrum for 5G wireless networks. A public auction of the C-Band is the outcome that best serves the public interest by ensuring the sale has sufficient oversight and transparency, promotes competition and diversity in spectrum licensees, helps close the digital divide, and returns the auction proceeds to the public. Importantly, today’s decision places the Commission on sound legal footing, and ensures that making C-Band spectrum available for wireless use is not unnecessarily delayed. Additionally, the public will benefit from a FCC-led auction that will likely return tens of billions of dollars of proceeds to the Department of Treasury. Congress can then allocate those funds to projects that help close the digital divide by making broadband universally available and affordable, and promoting digital equity.”

Taxpayers Protection Alliance President David Williams said “this is a win for taxpayers and consumers. With a public auction of the C-band, critical airwaves can be freed for 5G deployment without the prospect for delays and legal disputes. Thanks to the FCC’s decision, millions of underserved Americans will enjoy access to ultra-fast broadband.”

In a research note released yesterday, Blair Levin, an adviser to New Street Research LLP and a former FCC chief of staff, forecast Mr. Pai’s announcement today and speculated if the White House interest had prompted the Chairman’s decision.

“As we have warned, it appears that Congress (particularly Senator Kennedy) and the White House are now material players on the issues of who runs the auction and how the proceeds are distributed,” Mr. Levin said. “While CBA attempted to resuscitate its plan with a specific offer to transfer funds to the Treasury, we think that effort will likely fall in the category of too little, too late, as the FCC moves in towards an FCC run auction with more proceeds likely to go to the Treasury. CBA, however, retains significant leverage and is still in a position to achieve much of their original goal. While much of the discussion has been about who runs the auction, we point out how an FCC run auction can provide significant funds to various stakeholders in ways that also directly are tied to achieving public purposes.”

In a research note today, Walter Piecyk and Joe Galone of LightShed Partners said, “The FCC has the authority to auction the C-Band. However, we do not believe it has the authority to use auction proceeds to pay clearing costs or incentives to selling spectrum holders. The ‘incentive auction’ of broadcasters spectrum it ran in 2017 was unique and took a material amount of time to attract support from interested parties. The construction and implementation of the incentive auction took even more time. We believe the complications of running an incentive auction are even greater with C-Band spectrum given its active use under existing licensing. We are skeptical that the FCC could execute on a promise to conduct that auction by the end of 2020 even though there is clearly pressure to execute in that time frame.” —Paul Kirby, [email protected]

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