Public Auction Option Could Become Pai Preference for C-Band Clearing

A big question for the agency is how to make sure satellite companies get enough money from the sale so they don’t sue, officials said. Intelsat's stock fell earlier last week on concerns the C-Band Alliance is losing on its plan for a private spectrum sale.

CBA released more details Friday on its proposal, involving sharing an ever-increasing portion of proceeds with government the more frequencies sell. Intelsat closed up Friday 11 percent to $13.41. And the office of one of the FCC's two Democrats noted his general backing for government-run bidding.

FCC Office of Engineering and Technology Chief Julius Knapp and Office of Economics and Analytics Acting Chief Giuliana McHenry will testify at a long-sought Thursday Senate Appropriations Financial Services Subcommittee hearing on the commission's C-band process (see 1910170038), the committee said Friday. Senate Appropriations Financial Services Chairman John Kennedy, R-La., secured FCC cooperation last week in scheduling testimony from McHenry and Knapp after briefly threatening to seek subpoenas (see 1911130063). The hearing begins 11 a.m. in 138 Dirksen.

Kennedy has been working to retain Senate Appropriations Committee-backed pro-public auction language (see 1909190079) in the chamber's version of the FY 2020 FCC-FTC budget bill (S-2524) despite opposition from Senate Commerce Committee GOP leaders. He said last week he's filing a Senate version of the Clearing Broad Airwaves for New Deployment (C-Band) Act. HR-4855 would require a public FCC auction of 200-300 MHz of “contiguous” spectrum on the frequency by Sept. 30, 2022 (see 1910240046).

Lawyers active in the proceeding said Pai faced an uphill fight on a private auction. They attributed that to language in Communications Act Section 309 and pressure from Capitol Hill to bring in money for the Treasury from what some forecast will be a potential record-setting auction.

Hail Mary?

A CBA proposal for dividing band-clearing proceeds that could net the Treasury unspecified billions of dollars (see here, docket 18-122) is seemingly throwing a Hail Mary pass to try to salvage the private sale option, Citizens Against Government Waste President Tom Schatz told us. Under the plan, 30-50 percent of net private sale proceeds would be remitted to the Treasury after costs. The first private auction would be in Q1.

CBA said it's discussing with Congress the idea that part of those Treasury proceeds would pay for an open-access 5G network for rural broadband that a third party would deploy within five years of the spectrum's being available. The service would be available on a wholesale basis.

The coalition has heard nothing concrete from the FCC, Intelsat Vice President-Investor Relations Dianne VanBeber told us. “While we know that the FCC team is dedicated and talented, history has proven that a government-run process will take many more years than would a privately run auction,” she said: “We understood that speed was an important objective for the FCC, and developed our proposal to respond to that need. Our need to build and launch new satellites to clear the requested spectrum is the long pole in the tent with respect to cleared spectrum, and this takes approximately 30 months.” Satellite launches couldn’t start until auction proceeds are distributed, she said.

“A public auction could remove the only incentive for the satellite operators to execute the huge and complex task of reconfiguring and transitioning the system, as well as compensating us for the billions of dollars in infrastructure investments we have made over the last decades,” VanBeber said. "‘The devil is in the details,’ and we will work diligently with the FCC to determine what details would result in a path forward that works for all stakeholders.”

Phoenix Center Chief Economist George Ford said the CBA plan has advantages over an FCC auction. The consortium plan’s sliding scale would mean as much as 70 percent of auction proceeds would go to government, compared with 35 percent in the TV incentive auction, he said. “Broadcasters had about the same rights to their spectrum as do the satellite providers.”

“Treasury would get those funds from the CBA more reliably and faster than a public auction could produce,” Ford said: “The satellite providers have strong incentives to quickly clear the spectrum, to maximize the amount of spectrum made available given the constraint of serving existing customers, and to minimize the cost of the repurposing. They may also be motivated to clear even more spectrum in the future. It’s not clear those motives are retained in a public auction.” Carriers generally support the CBA plan, he said. Ford noted that the CBA’s proposal is “innovative, which results in fear and ignorance.”

Pai

New Street’s Blair Levin told us Pai appears to be leaning toward a public solution. The FCC has legal authority to schedule an auction, the analyst said. “The commission has ample authority to ensure compensation to incumbent satellite providers and other users to facilitate for the efficient repurposing and repacking of the C band,” he said: “As it has in connection with prior auctions, the commission could require winning bidders to provide reimbursements and for relocation costs and incentives for accelerated activities.”

Pai's messaging “has been consistent throughout,” emphasizing the need for a plan that maximizes the amount of spectrum cleared for 5G, can be done quickly and delivers a “healthy return to the U.S. Treasury,” said Tom Struble, R Street Institute tech policy manager. Pai remains open-minded, Struble said: “The record is still developing and could still go either way. And it seems like the two proposals are actually converging a bit now, with CBA offering to improve the terms of their deal, by clearing more spectrum and offering a greater share of auction proceeds to the Treasury.”

Things are in flux, Wells Fargo’s Jennifer Fritzsche told investors Friday. “We expect the carriers (likely with [Verizon] leading the way) to be working with the CBA to push this plan,” she said: “We agree that timing is of the essence, if the FCC is not able to settle on a plan in 1H 2020, the window likely gets closed as we get through the November 2020 Presidential election.”

The principles Pai laid out “point towards some form of private market auction” to ensure rapid deployment, said Free State Foundation President Randolph May. May hopes Pai’s “market-oriented inclinations cause him to go with the most market-oriented approach, and to remember, at least from a public policy perspective, enhancing overall consumer welfare is more important than enhancing Treasury revenues.”

Starks

An auction could net Pai some bipartisan eighth-floor support.

Commissioner Geoffrey Starks' office said in a statement his position "has been clear since the September Open Meeting, where he clearly stated his strong concerns about a private auction and his expectation of a public auction. He has publicly reiterated that position several times.” Commissioner Jessica Rosenworcel's office didn't comment.

CBA's formula was likely in response to congressional support of a public auction, said Schatz, who testified last month against the plan before Senate Appropriations Financial Services (see 1910170038). The formula didn't sway him, nor did pledging funds for an open-access 5G network, which he called "completely unacceptable."

An FCC official told us it's still not clear how the money would be allocated and or divided. That CBA might pocket more than half of the proceeds isn't palatable to this person.

It's unclear if regulators will like the CBA offer, but it and Intelsat "are in a better position now that they have made a firm one," New Street Research analyst Vivek Stalem emailed investors.

However the band is freed up, the repacked spectrum needs to be free of harmful interference from adjacent uses, NAB, content companies and the big four broadcast affiliates' associations told eighth-floor aides, per a docket 18-122 posting Friday. They said band clearing needs to come with protections including technical rules on interference prevention, detection, mitigation and enforcement for C-band users; means of ensuring adequate satellite capacity is available over the repacked C band, including by the launch of additional satellites; reimbursement of costs including those dealing with adoption of compression technologies; and ongoing oversight and enforcement by the agency. At the meetings were CBS, Discovery, Disney, Fox, Univision and Viacom.

Charter Communications, in meetings with Knapp and other FCC staff, said the agency under the Communications Act has authority to require auction winners to pay incumbent band users to speed reallocation of the band for terrestrial use. It said such payments wouldn't be compensation for a government resource or service and wouldn't be "money for the government" under the Miscellaneous Receipts Act.