A proposal from the C-Band Alliance for the 3.7 to 4.2 MHz spectrum demonstrates how allowing economic incentives to be rewarded offers potentially better outcomes for satellite operator license holders, device manufacturers, consumers, and the US Treasury. In this case, the driving force for increased spectrum availability has been electronics manufacturers with a multibillion dollar opportunity to sell connected devices for 5G wireless and the Internet of Things.
A model of an Airbus OneWeb high-throughput satellite – via REUTERS
Together, the parties have developed a proposal in which 40 percent of the 500 MHz of spectrum can be repurposed within one to three years, while the satellite operators retain the remainder of the block to serve their 120 million customers. Proceeds from a private auction would be used to build and launch improved satellites, install equipment to reduce interference, and cover the costs of “repacking” the spectrum. While the spectrum was allocated to the satellite operators long before the Federal Communication Commission (FCC) conducted auctions, the group offers to pay a significant fee to the Treasury, a fee that would likely be higher and be paid sooner than under a public auction model.
There is a little-known transformation going on in the satellite industry, but it parallels the sea change experienced by other network industries in which technological advancement has allowed exponential improvements in capacity at a fraction of the historical cost. The satellite industry has committed some $20 billion to new high-throughput satellites with multiple spot beam technology, some with 500 gigabit capacity. These new satellites can achieve 400 percent more throughput than earlier models— delivering broadband internet at download speeds of 100 Mbps — and feature such drastically reduced latency that satellite technologies are now part of the 5G standards.
Some transmissions are simply more efficient via satellite: Signals travel faster through space than through fiber on Earth. As such, certain industries and applications will demand satellite technologies for their speed, availability, security, and mobility. Consider the cases of in-flight broadband (a market with a potential one billion customers in the US alone), the continuous global tracking of objects such as containers across locations with little to no mobile coverage, and an ATM network across Southeast Asia. Moreover, satellite broadband is the quickest way to close the digital divide for some 20 million Americans at zero cost to taxpayers. Because satellites can deliver transmissions in the same quality to anyone anywhere, it may be the most equitable of telecommunication technologies. Ostensibly with these high-throughput satellites, the C-Band Alliance operators would offer high speed broadband to their 120 million customers in addition to the broadcast content they deliver today.
The C-Band Alliance represents four satellite operators with rights to a block of 500 MHz of prime spectrum across the entire US, unlike most other spectrum rights, which are licensed to small geographic areas. Auctioning this spectrum requires that all operators participate, as anyone not cooperating creates a holdout problem. The group has proposed an innovative private auction model designed by Stanford economist Paul Milgrom, an auction pricing expert. His research on what has become known as the simultaneous multiple round auction was implemented by the FCC in 1994 and has become a mainstay for FCC auctions. Milgrom also advised the FCC on the design of the groundbreaking incentive auction in 2012.
The proposed private auction, the Flexible Use and Efficient Licensing (FUEL) model, is designed to be fast (two to four weeks), fair to small and large bidders alike, and flexible in the variety of bidding packages that can be presented. It offers 180 MHz (nine blocks of 20 MHz each) for 406 Partial Economic Areas. This design offers areas small enough to allow small bidders to participate and large enough to achieve critical mass of licenses for an effective auction. Milgrom notes that even with a good design, traditional public auctions take years of procedural deliberations and months of software coding, bidder training, and evaluation. The FUEL model is designed to improve on the shortcomings of earlier auctions and get some of the spectrum in play by as early as next year. Admittedly, the FUEL model will not be perfect for all, but it based on Vickrey computations which underpin widely-used online advertising models.
On the other hand, a public auction would reportedly take seven to 10 years to complete, with each year representing a missed revenue opportunity of some $50 billion. It would deprive the satellite companies of use of the entire band and their business with 120 million end users. It suggests that the 120 million users today would be ported onto fiber networks which have yet to be built, let alone be approved by municipalities. Secondary markets are well established, so the FCC need not conduct the auction. Rather the auction design is proposed to accommodate a variety of terrestrial operators that want to participate. Many have incentives to delay the infusion of spectrum to the market and deter the vital competition that reinvigorated satellite operators can bring. The reality is that the broadband market is increasingly competitive, and thankfully, technology allows increasing efficiency in the use of spectrum. Rather than control prices and reward favored players, Congress and the FCC should do more to lessen the regulatory barriers on terrestrial operators.
The FCC has broad authority to approve license sale, transfer, and other spectrum transactions. It can impose a range of conditions or allow flexibility, as the Wheeler FCC did with XO Communications at 28 GHz and Straight Path at 39 GHz. These companies subsequently sold their rights without an auction. Another option is simply to transfer the licenses without an auction, which can be done as there is no mutual exclusivity and therefore no requirement for use of competitive bidding.
Some claim that since the satellite operators are European companies, they should not be allowed to earn revenue on the transaction, regardless of the investment they have made over the decades. Not only would such an imposition likely be illegal, it’s disingenuous. Foreign companies are a vital part of the American economy, and they promote competition. Look no further than the German-owned T-Mobile, which promises to harness the synergies of spectrum-rich Sprint and invest even more in its network now that the acquisition is approved. It’s a different story for firms that pose national security risks. Thanks to the Trump administration, the FCC, the Treasury Department, and the Department of Commerce have enhanced tools to address those risks.
Compared to the teeth-pulling of incumbents to recover spectrum in other bands, the CBA proposal is a gift that came on the scene without any federal policymaker having to do anything. It demonstrates not only that market actors respond to supply and demand, but that they can generate outcomes better than those engineered by regulators.
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