A Free Market Approach Should Be Used to Reallocate C-Band Spectrum

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Perspectives from FSF Scholars

July 17, 2019

Randolph May and Gregory Vogt

[Below is the Introduction and Summary to this latest FSF Perspectives . A PDF version of the complete Perspectives , with footnotes, is here .]

Introduction and Summary

There is widespread agreement within the Trump Administration, Congress, and the Federal Communications Commission (FCC) regarding the importance to the United States of maintaining its leadership in next-generation wireless communications. This agreement specifically includes the importance of the U.S. maintaining leadership, as the FCC put it in its July 2018 C-Band NPRM , of "fifth-generation (5G) wireless, Internet of Things (IoT), and other advanced spectrum-based services." And there is a consensus, that having already made significant strides under the leadership of FCC Chairman Ajit Pai and his colleagues in allocating low- and high-band spectrum, further efforts are necessary to allocate additional mid-band spectrum for 5G use.

That's why the FCC's proceeding examining the 3.7 - 4.2 GHz spectrum band, commonly referred to the C-Band, is, rightly, of such intense interest. The FCC has sought public comment, among other procedural options, on the use of some form of innovative market-based mechanism, employing voluntary, secondary market negotiated transactions, as a means of clearing some or all of the 3.7 - 4.2 GHz band for terrestrial mobile broadband use. The purpose of this Perspectives is to support the adoption of some form of free market-oriented approach that allows incumbent Fixed Satellite Service (FSS) operators to clear part or all of the C-Band spectrum using negotiated secondary market transactions that would, in effect, result in the flexible use of the spectrum by terrestrial mobile service providers in exchange for compensation.

Most importantly, we believe that, at the end of the day, the trade-offs involved in such a free market-oriented approach will enhance overall consumer welfare and reduce overall societal costs by maximizing the efficient use of this valuable mid-band spectrum. It most likely will put the spectrum to use more speedily than could be accomplished by employment of traditional spectrum allocation approaches. We recognize such a market-based approach involves various non-trivial issues that must be addressed before the Commission reaches final determinations. But by maximizing overall consumer welfare and reducing overall societal costs, it comports with the public interest. Consistent with compliance with applicable legal requirements, from a policy perspective, this should be the Commission's objective.

The FCC’s market-based procedural option was crafted from comments in the record. The C-Band Alliance (CBA or Alliance) eventually championed a market-based option. CBA is made up of the four largest FSS licensees that operate approximately 90 percent of the authorized satellites in the C-Band. The CBA proposes to conduct some form of private auction transaction, subject to Commission oversight, that, in exchange for compensation by new mobile licensees, would relocate existing FSS users to only a portion of the existing 500 MHz band. Filters to existing earth stations would be provided to reduce interference potential.

There is no question that adding more mid-band spectrum to existing allocations, such as has already been accomplished in the 3.5 and 2.5 GHz bands, is critical to achieving U.S. leadership in 5G. The economic benefits to U.S. consumers are enormous. CBA estimates that, under its proposal, spectrum could be moved to terrestrial 5G use in 18 to 36 months, faster than by an incentive auction conducted by the FCC. The Analysis Group estimated that 400 MHz of mid-band spectrum 5G could spur $274 billion in GDP growth, adding 1.3 million new jobs. The Brattle Group has estimated that for every year of delay in reallocating a portion of the C-Band could create total social costs of $10 to $20 billion per year. And NERA estimates that rapidly reallocating C-Band spectrum to 5G could add approximately $540 billion of annual tax revenues.

As stated above, we acknowledge there are a number of important issues that must be resolved, such as the amount of spectrum in the C-Band to be reallocated, the legal basis for the market-based approach, and whether a portion of the sale proceeds should be contributed to the federal government. Nevertheless, a market-based approach entails important public policy benefits, including substantial consumer welfare gains from earlier rather than later deployment of next-generation 5G services. The innovative nature of the free market approach is particularly justified in the C-Band given that each of the current FSS licensees is legally entitled to use the full 500 MHz of spectrum. Absent incentives for the incumbent operators to reach a voluntary agreement, the likelihood of "holdouts" is significantly increased. And earth station owners rely on C-Band transmissions to provide video and other services to their subscribers, and those services contribute billions of dollars to the U.S. economy. Booming demand for mobile broadband use clearly justifies actions that promote the most efficient use of spectrum, while adopting reasonable measures necessary to fairly accommodate legitimate affected interests.

The Commission has long looked to various types of voluntary secondary market transactions as a means of accomplishing more efficient use of the spectrum without the need for any heavy Commission involvement in the market process. To assure that the various interests affected are treated in a manner that, ultimately, comports with the public interest, in this instance, there is no doubt that meaningful Commission oversight of the process will be required. Nevertheless, if the process is successful, it may provide a model – even if not an exact one – for carrying out similar market-based transactions in other bands that lead to similar public interest benefits in maximizing efficient use of the spectrum resource.

* Randolph R. May is President and Gregory J. Vogt is a Visiting Fellow of the Free State Foundation, an independent, nonpartisan free market-oriented think tank located in Rockville, Maryland.

Read the complete Perspectives, with footnotes, here .