5G, Coming to a Smartphone Near You: Spectrum Wars Explained

Jan. 15, 2020, 10:30 AM

The coming of the next wave of smartphone technology, known as 5G, is creating critical demand for a public resource that’s in short supply, invisible to the naked eye, and could bring in tens of billions of dollars to the U.S. Treasury: radio waves.

Radio waves, or spectrum, are the prized conduit for cellular networks to carry text messages, voice signals, and data to smartphones.

The Federal Communications Commission is tasked with managing commercial use of radio waves. That job is getting trickier as AT&T Inc., Verizon Communications Inc., T-Mobile US Inc., and Sprint Corp. roll out fifth-generation cellphone services, which will need significantly more spectrum compared to existing 4G mobile networks.

1. What Does 5G Need?

5G wireless networks will run on a mix of low-, mid-, and high-band spectrum. Low-band spectrum signals travel miles but can’t transmit a large volume of data. High-band airwaves only travel hundreds of feet but can carry massive amounts of data at lightning fast speeds, making it possible to download a full-length movie on a smartphone in just seconds.

Carriers already have plenty of high-band and low-band spectrum. But they still lack crucial mid-band airwaves, which are particularly ideal for 5G because the signals travel far and carry more data than the old 4G networks.

2. How Does the FCC Regulate 5G?

The FCC by law is required to assign spectrum for private-sector use based on what’s in the public interest. It typically allocates those spectrum licenses, to mobile carriers, TV broadcasters, and other companies, by hosting auctions.

That’s the plan for a swath of mid-band spectrum that promises to be ideal for 5G development. FCC Chairman Ajit Pai says the agency intends to auction that swath, known as the C-band, to mobile carriers before the end of 2020.

Carriers could bid as much as $50 billion to acquire licenses on those airwaves—revenue that could go to the Treasury, according to an estimate by investment firm New Street Research.

3. What’s the Catch?

The auction, and the money it could deliver to the Treasury, sounds promising except for one major factor that’s yet-to-be-settled: satellite operators already have rights to the C-band.

The companies are foreign-owned, and include Luxembourg-based Intelsat S.A. and SES S.A. and Canada’s Telesat.

They use the C-band to distribute TV shows to broadcasters and cable companies—programming that reaches more than 100 million U.S. households.

And they want to be compensated for their lost spectrum real estate if the FCC auctions it off.

4. How Should Satellite Operators Be Compensated?

Congress can’t agree on whether the satellite operators should be paid at all beyond the costs incurred from being evicted from airwaves they have relied on for decades. Pai, so far, has been silent on the question of compensation.

Spectrum licenses can be an extremely valuable commodity because radio waves are a finite resource.

It’s common for license holders to demand compensation before agreeing to vacate airwaves that they may have already paid to use. The government, too, has historically been receptive to making lucrative payouts to incumbent spectrum users in order to make more space on the airwaves.

For instance, Congress in 2012 passed a law that led to the FCC approving more than $10 billion in compensation to TV broadcasters that agreed to move off spectrum so wireless carriers could bid at auction to acquire licenses on the frequencies. Those low-band frequencies helped carriers improve their 4G networks and lay the groundwork for 5G.

In that case, though, payments went to a sympathetic cause—struggling local TV stations across the country. Now, lawmakers are fighting over whether foreign satellite companies also deserve compensation, and if so, how much. For Intelsat, compensation could greatly help it pay down billions of dollars in debt.

5. How Is This Playing Out?

Pai announced in November his plan to auction almost 60% of the satellite spectrum to wireless carriers to support 5G, while retaining a portion of the airwaves for TV programming distribution.

The announcement was a blow to the satellite companies, which had lobbied the FCC for more than a year for approval to sell their spectrum rights in private transactions—a proposal that was met with unease on Capitol Hill over concerns that they would reap billions of dollars.

Now, the debate on Capitol Hill, and at the FCC, has shifted to whether satellite companies deserve a portion of the auction revenues. One camp, backed by some influential Republicans, argues that giving the satellite operators some of the proceeds would discourage them from suing and, thereby, delaying mobile carriers from accessing the spectrum.

Sen. John Thune (S.D.), the No. 2 Senate Republican, and Senate Commerce, Science, and Transportation Committee Chairman Roger Wicker (R-Miss.) are spearheading a bill that would send at least 50% of auction revenues to the Treasury, allowing the FCC to send some of the proceeds to the satellite companies as compensation.

The committee in December 2019 approved the bill in a 14-12 party-line vote, but it’s encountered opposition from some Democrats and GOP Sen. John Kennedy (La.), who say it would open the door for satellite companies to receive a multibillion-dollar auction windfall.

Those lawmakers want more money to go to the Treasury and government initiatives to expand internet access in rural areas. Meanwhile, House Republicans and Democrats are engaged in their own negotiations over auctioning the airwaves.

To Learn More:

— From Bloomberg Law:
Intelsat, SES Warn About Payment for Vacating C-Band Airwaves

FCC Would Auction Satellite Airwaves Under Bipartisan House Bill

— From Bloomberg News:
C-Band Analyst Says Spectrum Auction May Net $50 Billion (1)

Intelsat Spectrum Payout Stalls in Congress, Pushing It to FCC

— Pai explains auction decision in letter to Wicker

To contact the reporter on this story: Jon Reid in Washington at jreid@bloomberglaw.com

To contact the editors responsible for this story: John Dunbar at jdunbar@bloomberglaw.com, Melissa B. Robinson at mrobinson@bloomberglaw.com

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