In Delay there is No Plenty: Economic Impacts of the FCC’s C-Band Plan

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This morning, Federal Communications Commission Chairman Ajit Pai is scheduled to be the sole witness at a hearing before the Senate Appropriations Committee entitled “Oversight of FCC Spectrum Auctions Program.” The Commission has recently completed Auction 103 and Auction 105 (3.5 GHz) is under way, but with committee chairman Senator John Kennedy’s long-standing interest in the C-Band, this hearing likely will focus on the upcoming auction of approximately 280 MHz of this prime mid-band spectrum for commercial mobile broadband use that was formerly reserved for satellite communications.

Senator Kennedy has been wary of Chairman Pai’s carefully structured decision that balances the interests of the incumbent satellite operators, their customers and affiliated earth stations, and the mobile wireless industry in the C-Band.  In return for a rapid clearing of the band, the satellite incumbents are promised $9.7 billion in “acceleration payments.”  By shaving years off the clearing process in return for these payments, this much-needed mid-band spectrum gets put to use faster in the proverbial “Race to 5G.”  Senator Kennedy views the acceleration payments as inappropriate because the funds could be used to bring broadband to the “towns in Louisiana and across the country without access to broadband service.”

Senator Kennedy’s heart is in the right place, but so is Chairman Pai’s.  Examining the logic of the Commission’s incentives to the incumbents reveals that the accelerated payments plan will increase, not decrease, the money available for the Treasury to fund the social programs of choice—like broadband to Louisiana.  This extra funding is not an unintended side effect.  The Commission’s proposal is designed purposely to increase auction revenues by an amount larger than the acceleration payments.  Indeed, this buy-low, sell-high program is expected to increase the funds available for social programs by about $1 billion over what is available without acceleration payments.

Ever the conscientious legislator, in the three months since the Commission voted out its C-Band Order, Senator Kennedy has kept a keen eye on the proceeding.  Hence today’s hearing, during which we can probably expect Senator Kennedy to focus on his two remaining concerns.

First, Senator Kennedy worries about the impact of the recent bankruptcy of Intelsat—one of the major incumbent satellite users of the C-Band spectrum—on the proceeding.  In Senator Kennedy’s view, Intelsat’s bankruptcy indicates Intelsat “has no intention of accepting the FCC’s deal.”  Fortunately, the deal is still on.  Intelsat has made it clear that they have no intention of ceasing operations.  In fact, Intelsat’s efforts to restructure its debt burden is an integral part of its plan to expeditiously clear the C-Band, an effort that will cost the company hundreds of millions of dollars years before it receives any acceleration payments. Accordingly, eliminating the incentive for Intelsat to accelerate the clearing of the band would blow up the Commission’s carefully crafted C-Band paradigm, costing the U.S. Treasury nearly a billion dollars in additional net proceeds. 

Second, in a letter sent to Chairman Pai, Senator Kennedy requested that the acceleration payments to satellite operators be conditioned with a “Buy American” requirement to ensure that all clearing investments flow to the United States aerospace industry.  During this tough economic time, Senator Kennedy’s proposal would be a welcome boon to the U.S. economy, especially the aerospace industries that are suffering more than most.  In published research I conducted a few years ago, each million dollars in technology investment supports 10 technology jobs and perhaps 24 jobs across the entire economy. 

So what does this mean in terms of the C-Band proceeding?  According to the FCC, we can expect incumbent satellite operators to invest around $2 billion in equipment to reconfigure their networks.  Using the multiplier I just mentioned above, this new investment will support between 20,000 and 48,000 jobs.  This is a large payoff in any economic setting, but particularly helpful now when the U.S. unemployment rate exceeds 10% and will do so for many months

The satellite incumbents are on board with Senator Kennedy.  SES and Intelsat—two major incumbent satellite operators in the C-Band—have committed to “Buy American” when they reconfigure their network.  For example, SES has selected two U.S. satellite manufacturers, Northrop Grumman and the Boeing Company, to deliver four new satellites as part of the company’s accelerated C-band clearing plan to meet the Federal Communications Commission’s objectives to roll-out 5G services. Intelsat plans to purchase four satellites from Maxar Technologies and two satellites from Northrop Grumman.

Repurposing to the C-Band for 5G use faced myriad complex legal and economic issues, all of which were successfully negotiated by the Commission.  In what may be the fastest turnaround of spectrum in history, the C-Band auction is expected to be up and running by year-end.  Not only will the auction repurpose huge chunk of much-needed spectrum for commercial mobile broadband use, but the American taxpayer will benefit from increased auction revenues.  And, with these satellite companies’ contracts with the U.S. aerospace industry, the American economy stands to gain thousands of good jobs during these difficult economic times.

Congress has every right to conduct its important oversight responsibilities, and thus today’s hearing is welcome.  The benefits of the C-Band’s repurposing are many, and I expect Congress will understand that any delay to the Commission’s carefully crafted auction timetable will do more harm than good.