Pai Likely Looking for Compromise on C Band Amid Lawmaker Talks

The amount satellite operators would receive to exit the C band on an expedited basis appears to be in flux headed into FCC Chairman Ajit Pai’s big unveil Thursday of his proposal. Some at the FCC earlier appeared to take a hard line, suggesting a $5 billion incentive payment for all operators (see 2001290049). Pai may be willing to offer a higher amount but less than $10 billion.

Pai would likely have to increase the payments to get Commissioner Mike O’Rielly on board. FCC Democrats Jessica Rosenworcel and Geoffrey Starks are expected to continue to press for legislation to provide certainty on an order, which could delay an auction until 2021. O’Rielly remains the key vote (see 2002030061).

Senate Commerce Committee Chairman Roger Wicker, R-Miss., and Senate Communications Subcommittee Chairman John Thune, R-S.D., want to give Pai “head room” to negotiate a high payment but would be happy to if it comes in as low as possible, said a lawyer active in the proceeding: “Pai has the incentive to keep it low to mitigate the blowback” from Senate Appropriations Financial Services Subcommittee Chairman John Kennedy, R-La., who discussed the C band with President Donald Trump (see 1911010052) and could play the “Trump card.”

Pai also has a “Trump card,” said Cooley’s Robert McDowell: “The president admires Ajit and trusts his judgment. So he may have more headroom on this than many observers realize.”

The C-Band Alliance didn’t comment. CBA represents some of the biggest satellite operators that would be affected by moving them from the band to make way for 5G.

House Bill

House Commerce Committee Chairman Frank Pallone, D-N.J., and ranking member Greg Walden, R-Ore., were readying a measure that would set allocations for C-band auction proceeds.

Some lobbyists and officials expect Pallone and Walden to unveil the bill Thursday morning, just before Pai unveils his proposed order. A spokesperson for committee Democrats confirmed work on the measure and said “we hope to put that out soon.” Pallone and Walden “are definitely working on a legislative solution,” a House Commerce Republican spokesperson emailed.

The Pallone-Walden measure is expected to somewhat mirror language included in the Spectrum Management And Reallocation for Taxpayers (Smart) Act (S-3246), which Kennedy and Senate Commerce Democratic leaders filed last week (see 2001280041). That bill would set aside all but $11 billion of the money from the sale for rural broadband and next-generation 911 projects. The reserved $11 billion includes $5 billion to fund incumbents’ relocation, an additional $1 billion in incentive payments to satellite companies and a further $5 billion to the U.S. Treasury for deficit reduction.

The House Commerce measure is expected to propose allocating $9 billion for incentive payments, well above what senators proposed in S-3246. The measure would also differ from S-3246 in that it will include more language to authorize the FCC’s planned auction. It could also provide a vehicle for enacting broadband and other related legislation, including the Digital Equity Act (HR-4486/S-1167), lobbyists said. That bill would allocate federal funding for digital inclusion (see 1909200047).

Lobbyists noted any final legislative deal requires agreement from Wicker and Kennedy. Wicker’s 5G Spectrum Act (S-2881) would set a graduated scale for amounts the FCC would be required to return to the Treasury from C-band proceeds, beginning with “not less than 50 percent” of the first $40 billion.

Democrats have been hoping buy-in from Walden could sway Wicker, who himself has been awaiting guidance from Pai, one lobbyist said. Another factor likely to shape an allocations legislative agreement is that the amount of money available has become “much lower” since the Congressional Budget Office’s December scoring of a public auction, another lobbyist said.

Lawmakers Talk

Walden pushed back against expectations for an imminent filing of the bill, telling reporters Wednesday he, Pallone and others are “working toward” its introduction. He noted he was speaking with House Communications Subcommittee Chairman Mike Doyle, D-Pa., about the bill’s wording. “We just spent a whole vote series talking” about it, Walden said. “I’m not going to get into the specifics of what we’re negotiating.”

Doyle confirmed he’s “moving forward” in his discussions with Walden and others. “A lot of us feel due to the uncertainty about what the FCC can and can’t do, we need legislation,” Doyle said. “Our goal hasn’t changed, and that is to come with a formula that allows this auction to move forward as quickly as possible while maximizing the amount of money that we get to do some of the things we want to do” to fund telecom priorities. A big part of the talks are centering on the allocation amounts, he said: “The key is finding the sweet spot, where everybody can nod their heads and say yes.”

American Enterprise Institute visiting scholar Roslyn Layton said the FCC needs to accommodate C-band incumbent concerns. “You don’t want to send a message of, ‘Hey, come forward. We’re going to shoot you down,'” Layton told us: “It’s more important that we create a pathway” to make more spectrum available in other bands. The FCC should look at the long-term implications, she said. “You don’t want to be so tough on the satellite people that you force them into bankruptcy and litigation." CBA members deserve credit for coming forward, and “the upside is big,” she said.

“Incumbents should be reimbursed for their costs” here, said Citizens Against Government Waste Vice President-Policy and Government Affairs Deborah Collier: “It should be sufficient to cover expenses while protecting the interests of taxpayers.”

Pressure

Pai is under some pressure.

Free-market groups sent Pai a letter seeking quick action. “There is no time to waste,” they said. “Delaying the start of the complicated process of spectrum reallocation will only suit China’s interests. Conducting such a complex auction under a compressed timeframe will require the FCC’s full attention. We would like to see you lead on the C-band with the same speed, vigor and principle you have brought to other items throughout your productive tenure at the FCC.” Americans for Tax Reform, AEI, the Competitive Enterprise Institute, Heritage Action for America, Lincoln Network, Institute for Policy Innovation and R Street Institute were among signers.

The FCC shouldn’t rush, countered New America Open Technology Institute's Wireless Future Project Director Michael Calabrese. “The commission has never required winning bidders to make windfall incentive payments to incumbents, let alone foreign companies that are using at most half the band for a shrinking business that generates total revenues of less than $350 million per year.” He said Pai “should hold off on a vote and give Congress time to clarify the agency’s authority, neutralize any litigation risk, and ensure that C-band revenues flow to rural broadband deployments and next generation 911 infrastructure.”

America's Communications Association met Wireless Bureau Chief Donald Stockdale, Office of Economics and Analytics acting Chief Giulia McHenry and other staff to lay out in detail concerns. MVPDs “must know now ‘how much’ they will be eligible to receive in cost recovery payments,” ACA said in docket 18-122, posted Wednesday. “That amount should be capped at no less than $2 million per earth station headend for the fiber delivery option and $1.4 million per headend for the satellite delivery option.” The group backed a neutral coordinator and said cable companies need options, including delivery via satellite, super-headend fiber and managed video service provider fiber.

The Competitive Carriers Association met aides to all commissioners except Rosenworcel. “We stressed the importance of establishing at the outset a requirement that all equipment must be operable across the C-Band,” CCA said: “Interoperability is critical to reducing costs and maintaining a robust equipment ecosystem.” The FCC should hold a single forward auction with aggregation limits given the amount of spectrum available, CCA said. “Consider adopting small business and rural provider bidding credits, as it has in the past.” The Computer & Communications Industry Association and Incompas also endorsed aggregation limits.

If the FCC offers an aggregate dollar amount below CBA's minimum -- probably around $16 billion in aggregate -- then the consortium likely drops out of the process, and the FCC will need to decide whether to go forward, New Street Research's Blair Levin wrote investors Wednesday. He said if the regulator does, CBA might try to work out accelerated clearing payments directly with winning bidders: The agency and CBA are likely to come to mutually agreeable terms. The analyst said capped payments of $16 billion is most probable, though there also could be capped payments of $20 billion, in line with the Thune/Wicker proposal. Levin said if an auction goes forward without CBA participation, it likely will generate "far less" revenue than a CBA-led clearing. Levin said a compromise “most likely.”

Basing clearing and repacking reimbursements on the value of terrestrial 5G use of the C band instead of on the cost to relocate to comparable facilities would violate FCC "well-settled incumbent relocation policies," Eutelsat filed. Other routes of allocating payments, such as by number of earth stations aimed at particular satellites, don't correlate to the amount of C-band satellite capacity that must be relocated to comparable facilities, it said. The company had dropped out of CBA.