Incentives for C-Band Incumbents an FCC Auction Challenge

An eighth-floor official said it appears Congress, not the agency, has authority to decide if the auction proceeds are to be used for goals like rural broadband or next generation-911. It's less clear what authority the commission has to make incentive payments from auction revenue to incumbents. Congressional action might be the clearest path because of the ambiguity, we were told. Chairman Ajit Pai's office didn't comment Friday.

Commissioner Jessica Rosenworcel referenced "fresh ambiguities about [C-band] authority" at the agency's December meeting. Michael Calabrese, director of the Wireless Future Program at New America, said incentive authority questions are "definitely of concern" to agency staff. New America, in a docket 18-122 posting, said the regulator can't specify or require premium payments to incumbents beyond actual relocation expenses, citing congressional limits to TV broadcasters with the 700 MHz and 600 MHz auctions and to Section 309(j) of the Communications Act, covering competitive bidding. The agency could authorize good-faith negotiations for premium payments to incumbents over a specific time, in exchange for expedited clearance, much as with 18 GHz band segmentation, it said.

Calabrese told us as long as the FCC doesn't require incentive payments, it could define good-faith negotiations in a way that also indicates who would be eligible. That includes small satellite operators with C-band authorization but not operations there, and what would be appropriate criteria for the negotiated incentive payments, such as proportions of the premium payments that would go to each incumbent based on C-band market share. He said a trickier issue is whether negotiations for incentive payments should take place before the auction, as prospective bidders would want to know the rough size of the payments.

Small satellite operators have been pushing on adding flexible use rights to C-band satellite authorizations. Those rights would be sold through an FCC-run auction and proceeds "allocated reasonably" to stakeholders ranging from taxpayers and earth station operators to satellite companies licensed to operate in the band. ABS Global CEO James Frownfelter told staffers including Office of Economics and Analytics acting Chief Giulia McHenry the FCC could use spectrum licensing authority and Section 316, covering license modifications, to modify incumbents' authorizations. That's "provided that the incumbent receives fair compensation to incentivize both relocation and relinquishment of valuable spectrum use rights.

Telesat Canada CEO Dan Goldberg, in talks with Wireless and Wireline Bureau staffers and International Bureau Chief Tom Sullivan, criticized the small satellite operators' plan. It would treat a satellite system that touches just a part of the continental U.S. equal to one covering the continent, he said.

Hill Support

Even if the FCC needs congressional authorization, getting that wouldn’t seem to be difficult given Capitol Hill support for freeing the spectrum, said spectrum allocation expert Yale economics assistant professor Mike Sinkinson. The broadcast auction spectrum clearing and repacking, while “a complicated morass,” was also a fairly well-understood engineering problem, he said. The C band is considerably tougher because of the legions of earth stations everywhere, technical aspects of clearing and repacking may need solving, he said.

A lawyer with satellite and spectrum auction experience said the FCC's encouraging bidders and incumbents to come to an agreement on incentives is what Congress has long had in mind. He said the challenge is creating a system that incentivizes satellite companies without the agency itself directly doing it, because that carries potential litigation risk.

Incumbents having non-exclusive access makes incentives a difficult chore since they can't compete against one another like stations did to sell rights to frequencies in the incentive auction, a broadcast lawyer said. The Spectrum Act generally lets the FCC do incentive auctions, but a key requirement is two competing bidders, he said.

The C-Band Alliance has argued spectrum licenses "cannot be fundamentally altered or taken away" without consent and "confiscating a significant portion of the CBA members’ C-band capacity would certainly constitute a basic and fundamental change." CBA didn't comment now.

FCC Backsliding: Wheeler

The FCC has gone backward this year on freeing up the band for terrestrial 5G, Brookings Institute Visiting Fellow and former FCC Chairman Tom Wheeler blogged Friday. The agency was set back by spending most of the year heading toward the CBA-pushed plan of satellite operators making deals directly with 5G interests, "outsourcing of the FCC’s job and the exporting of the taxpayers’ money," he said. The agency, now going for a public auction instead, has issues to address including auction structure, bidding eligibility and technical and service rules for new licensees, and that should have been addressed, he said. The biggest conundrum is whether to incentivize the incumbent satellite operators to more-speedily vacate the lower 3.7-4.2 GHz band and by how much, since Congress is sending conflicting signals, Wheeler said.

The FCC didn't comment on Wheeler's concerns.

Incentive payments help reduce risk incumbents fight in court any repacking and lost spectrum access, said Clemson University economics professor Thomas Hazlett in an interview. Incentive payments also help ensure they cooperate with the new entrants and continue to provide services in the band without customer disruption, he added.

Incentivization of satellite operators could get a pass from small-government advocates.

Citizens Against Government Waste "would prefer the taxpayers benefit as much as possible from the auction, but we're realistic in knowing there needs to be a reimbursement for the cost of vacating spectrum," said Technology Policy Director Deborah Collier. Whatever incentivization method is used needs congressional OK because only legislators have that authority, she said. As the FCC has to look harder at spectrum held or used by federal agencies, incentivization becomes a trickier issue, Collier said. "Once a federal agency gets a hold of something, they really don't want to let go."

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There's not enough time before the end of 2020 to design and conduct an incentive auction, in addition to a forward auction of new licenses, Eutelsat officials told McHenry, Sullivan and FCC General Counsel Tom Johnson, per a posting Friday. Instead, C-band satellite operators should be compensated for their lost business opportunities in the band by calculating the value of the potential fixed satellite services that could have been generated if the reallocated spectrum were fully utilized for FSS by each satellite offering coverage to at least half of the population of at least one state in the continental U.S. It said using Northern Sky Research data, that works out to $3.5 billion, with Intelsat getting 56.7 percent, SES 20.1 percent, Eutelsat 13.4 percent, small satellite operators 9.6 percent and Telesat 0.2 percent. Eutelsat said the satellite operators should also be eligible for extra payments for facilitation and expediting customer transition and relocation, plus nonrecurring transition costs.

Operations adjacent to the reallocated C-band frequencies could limit terrestrial use in the upper portion, perhaps necessitating different license categories, Charter Communications officials told aides to Commissioners Mike O'Rielly and Rosenworcel. It urged technical rules and interference standards before auction bidding.

The Competitive Carriers Association, discussing auction structure with an aide to Pai and staffers including McHenry, pushed for an overall aggregation limit so no bidder can acquire more than a third of the band in a market, and urged licensing in 20 MHz blocks. CCA suggested conditioning new terrestrial licenses on payment into a compensation fund to reimburse relocation and other costs.

Verizon, meeting with agency executives including Johnson, noted FCC emerging technologies principles let it include winning bidder payments to incumbents to clear repurposed spectrum quickly. The telco said the FCC should identify appropriate incentives for clearing, and penalties for failing to meet benchmarks and deadlines.

T-Mobile, in meetings with officials including McHenry, Wireless Bureau Chief Don Stockdale and Office of Engineering and Technology Chief Julius Knapp, also urged 20 MHz blocks. The carrier sought aggregation limits and modification of incumbent satellite operators’ and earth station users’ authorizations so after the transition, they're not authorized to operate or receive protections on the spectrum allocated for mobile broadband. The company said Communications Act Section 309(j) requires “auction proceeds” be deposited with the Treasury, but it doesn't stop the FCC from requiring auction winners pay incumbent licensees non-auction proceeds.