TR Daily Sources: Pai Favors Set Incentive Payment to C-Band Operators
Wednesday, January 29, 2020

Sources: Pai Favors Set Incentive Payment to C-Band Operators

FCC Chairman Ajit Pai favors allowing a set incentive payment for C-band satellite operators rather than providing a percentage of winning bids in a sale of 280 megahertz of the spectrum, according to several sources outside the Commission.

Mr. Pai’s office has told the C-Band Alliance (CBA) of the incentive payment structure he favors and has floated a $5 billion set payment, the sources told TR Daily today.

The FCC declined to comment today.

The plan would conflict with CBA’s suggestion that the FCC approve “acceleration payments” equal to 100% of the winning bids in the C-band auction to incentivize incumbents to clear a portion of the 3.7-4.2 gigahertz band for terrestrial 5G services within 18 to 36 months (TR Daily, Jan. 16). The CBA said the FCC should require auction winners to make the incentive payments to satellite operators.

By contrast, Eutelsat S.A., a former CBA member, estimated last week that “total incumbent relocation expenses … should not exceed $7 billion” and said that “the Commission should measure relocation costs based on the satellite operators’ lost business opportunity to provide satellite transmission service resulting from the Commission’s reallocation of C-band spectrum from FSS to terrestrial 5G use” (TR Daily, Jan. 24).

Eutelsat said that “satellite operators assuming responsibility for earth station relocation [should] receive expedited relocation premiums based on a declining multiple of the relevant percentage of their respective baseline satellite operator relocation costs.”

Meanwhile, Sens. John Kennedy (R., La.), Brian Schatz (D., Hawaii), and Maria Cantwell (D., Wash.) introduced compromise C-band legislation (S 3246) yesterday that would reserve $5 billion for the relocation expenses of incumbents but only $1 billion for incentive payments (TR Daily, Jan. 28). Under the Spectrum Management and Reallocation for Taxpayers Act (SMART Act), the FCC would have to repurpose 300 MHz of C-band spectrum for terrestrial 5G use, including a 20-MHz guard band.

“There are many rumors regarding suggesting lump sum payments that span different values,” CBA spokeswoman Dianne VanBeber said today. “Eutelsat’s filing of last week featured a lump sum structure, but which was disconnected from the value of rights being surrendered, or the spectrum value created by quickly clearing the spectrum. This is why this past Monday we filed analyses of two globally respected firms on the potential value of the spectrum—set at $43B to $77B [TR Daily, Jan. 27]. We want to continue to run our businesses, serve our customers and implement our transition that ensures incumbent services are protected—all while quickly clearing the spectrum that will fuel 5G growth in the U.S. But as public companies – with American investors – we can only do that if we can achieve a fair outcome—nothing more and nothing less.”

“While some have questioned the authenticity of the reports that Chairman Pai now favors a set payment, and there is some dispute about the number, our sources reinforce the accuracy both of the FCC’s preferred structure and the approximate amount,” Blair Levin, an adviser for New Street Research LLP and a former FCC chief of staff, said in a research note today.

“Legislation remains unlikely but political forces are driving likely payments to CBA down. We don’t believe the odds of legislation are high or have even improved. But we think the odds of the CBA getting anything close to what they asked for … have gone down,” Mr. Levin added. “We cannot know whether Kennedy and the Democrats put the legislation together in response to what they heard Pai was thinking, or that Pai’s office floated its idea in response to what he thought the Senators were up to, or, alternatively, that the FCC and the Senators are playing a game of good cop/bad cop. But whatever the nature of the political dance, both the political opposition to CBA in the Senate, and the FCC Chairman’s Office, have shown their cards.

“We think it’s notable that both have a similar structure that eliminates the opportunity for CBA members to benefit as the auction revenues climb,” Mr. Levin added. “This suggests to us that policy makers are not buying the argument that the acceleration incentive payments should be based on the value that the bidders place on the spectrum in the auction. Rather, there appears to be agreement that the payments should be based on the services rendered to accelerate the transition.”

He added that “the risk of litigation has just gone up. … We think the judgement at the FCC at this time is that the CBA does have the flexibility to accept a set payment, but that is a judgement call that remains to be tested.”

Mr. Levin also said there is now an increased chance of a partisan split among FCC Commissioners.

He pointed out support for the bill by Democratic Commissioner Geoffrey Starks, who tweeted yesterday, “Congress can not only clarify our authority but also ensure that most of the auction proceeds go towards this country's urgent needs and not to foreign companies. Thank you to @MariaCantwell, @brianschatz & @SenJohnKennedy for your SMART bill addressing these important questions.”

Mr. Pai is expected to circulate an order for consideration at the FCC’s Feb. 28 meeting. He wants the Commission to approve an auction of 280 MHz of spectrum, plus a 20-MHz band. Mr. Pai wants the sale to begin this year.

Meanwhile, an ex parte filing yesterday in GN docket 18-122 on behalf of small satellite operators (SSOs) ABS Global Ltd., Hispasat S.A., and Claro S.A. criticized the CBA’s acceleration payment proposal.

“The CBA now agrees with terrestrial operators, the Small Satellite Operators (‘SSOs’), and Eutelsat that the Commission can use the Emerging Technologies framework to clear a portion of the C-band while taxpayers capture the benefits to which they are entitled. There is, thus, an even broader consensus that supports depositing all auction revenue into the Treasury, while requiring terrestrial operators to pay a clearing fee to satellite operators who are giving up their spectrum rights. Conceptualizing these clearing fees as ‘acceleration payments,’ as the CBA proposes, has merit,” the SSOs said.

“But the CBA goes astray in its attempt to argue that its members should receive 100% of the acceleration payments. It does so by disguising what it means by ‘acceleration,’ and conflating the concept with ‘relocation’ when discussing whether acceleration payments should go to nonmembers,” the filing added. “What the CBA really means—and says only when discussing the rights of its members—is that ‘acceleration’ payments are for the early relinquishment of spectrum rights that cannot be taken away without compensation. And the reason the CBA hides the ball is that the SSOs and Eutelsat have the same spectrum rights as the CBA members—and thus they, too, are entitled to compensation for relinquishing those rights.”

The filing continued, “Should the Commission pursue a path that builds off the CBA’s latest proposal (some version of which could be both reasonable and lawful), the FCC must ensure that acceleration payments are distributed reasonably to all satellite operators that are giving up their rights. Any distribution plan should, of course, also account for relocation expenses—but that can be done by setting aside a reasonable amount to be paid to all that experience dislocation arising from the FCC’s C-band reallocation, including earth station operators (‘ESOs’).”

In another ex parte filing, T-Mobile US, Inc., today said the FCC has “ample legal authority to require such ‘Relocation Payments’—and, if the incumbents do not relocate voluntarily, to implement involuntary relocation by modifying incumbent operators’ licenses.” —Paul Kirby, [email protected]

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