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Nov. 16, 2019, 1:22 p.m. EST

‘Give away $60 billion’ to foreign companies? The ‘America First’ Trump administration faces a tricky 5G choice

Supporters of a spectrum-auction plan from a European-Canadian alliance say it’s the best way to ensure the U.S. doesn’t fall behind on 5th-generation wireless technology

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By Victor Reklaitis, MarketWatch


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The FCC draws flak while aiming for nationwide 5G.

A big step in the U.S. deployment of 5G wireless could take place by year’s end, as the Federal Communications Commission has appeared on track to back a plan from the satellite industry for auctioning off radio spectrum.

A section of spectrum is due to get repurposed for wireless carriers to use for fifth-generation services, and three satellite companies have proposed running an auction for this “C-band” spectrum as they relinquish it. The companies have formed a C-Band Alliance and maintain their plan offers “by far the fastest way” of achieving 5G deployment and competing with other countries — especially China, where a long-awaited 5G service has just rolled out — and yet not disrupt existing U.S. broadcast services.

But some Republican and Democratic lawmakers aren’t buying the C-Band Alliance’s arguments, and they instead want the FCC to run a public auction of the spectrum. These objections have led some analysts to warn this week that the FCC might delay a decision on the issue, after an order favoring the alliance looked set to come as soon as at the regulatory agency’s Dec. 12 open meeting.

Republican Sen. John Kennedy is among the alliance’s most vocal critics on Capitol Hill, and he has lobbied President Donald Trump on the issue. The Louisiana lawmaker has stressed that the C-Band Alliance’s membership consists of two Luxembourg-based companies, Intelsat /zigman2/quotes/205500850/composite I +7.93% and SES /zigman2/quotes/202472664/delayed FR:SESG -1.98%  , and Canada-based Telesat, whose principal shareholders are Canada’s Public Sector Pension Investment Board and U.S.-based Loral Space & Communications Inc. /zigman2/quotes/202940920/composite LORL +0.98%  

“These three foreign corporations want the FCC to give them the airwaves and let them auction them off, and the foreign companies get to keep the money,” Kennedy said in a speech last month on the Senate floor . “Gosh, I couldn’t ask for something like that with a straight face. But you know what’s even more incredible? The FCC is thinking about doing it.”

Kennedy suggested such a move wouldn’t fit with the Trump administration’s “America First” stance, as he noted the proceeds for the auction are expected to amount to about $60 billion. “Don’t give away $60 billion that belongs to the people of America to two companies in Luxembourg and one other one in Canada,” he said.

Shares in Intelsat have lost 45% this week amid concerns about the C-band auction. J.P. Morgan analysts downgraded the company to neutral from overweight, saying in a Tuesday note that the C-band process is “looking more complicated than it seemed only weeks ago.” The bank’s team added that “while an order could come in the next couple of months it may not be a clean win for the C-band satellite companies.” SES shares have fallen 17% this week, and Loral’s stock has dropped 4%.

Related: Sen. Kennedy criticized for calling Speaker Pelosi “dumb” at Trump rally

Also: America first, fine — but these European nations would like to be No. 2

/zigman2/quotes/205500850/composite I 6.53, +0.48, +7.93%

In the House, two Democrats and two Republicans rolled out a bill last month that would require the FCC to run a public auction of C-band spectrum. The C-BAND Act comes from Pennsylvania Democratic Rep. Mike Doyle, California Democratic Rep. Doris Matsui, Ohio Republican Rep. Bill Johnson and Montana GOP Rep. Greg Gianforte.

Much of the C-Band Alliance’s auction plan is “deeply concerning,” said Doyle at a Capitol Hill hearing on the spectrum sale last month. “If we do nothing and tell our constituents that we gave away $60 billion to a handful of foreign satellite companies and left the folks back home high and dry, this is something the American people are never going to forget.”

Kennedy on Wednesday said he planned to introduce a Senate version of the C-BAND Act.

The C-Band Alliance, for its part, has stressed that it’s not planning to pocket all of the proceeds. It wrote in a letter last week to lawmakers that it’s “committed to making a significant contribution to the U.S. Treasury.” Height Capital Markets analysts have estimated the negotiated amount could be a “20% cut, net of clearing costs, for the government.”

The key feature of the C-Band Alliance’s proposal is that it gets 5G rolled out as quickly as possible while protecting an ecosystem that helps deliver broadcast services to nearly 120 million U.S. homes, a spokesman for the alliance told MarketWatch on Monday in an email. That ecosystem has been occupied for “decades by major U.S. broadcasting players,” and it has been “built out by the satellite companies with the investment of billions of dollars over time,” the spokesman added.

In its letter last week to lawmakers, the C-Band Alliance stressed that no other auction plan would free up spectrum for 5G as rapidly.

“Time is of the essence,” the letter said. “Just last week, the three largest Chinese mobile network operators — China Telecom /zigman2/quotes/200463528/composite CHA -0.16%  , China Unicom /zigman2/quotes/205476740/composite CHU +0.93%  and China Mobile /zigman2/quotes/204514293/composite CHL -0.26%  — simultaneously announced the rollout of their 5G networks and launched plans in dozens of cities across China. Losing the global race to 5G to China would bring dire economic and national security consequences and give China the power to unilaterally establish the technological rules of the road for decades to come.”

Read more: China launches massive 5G mobile network

An Oct. 15 letter to Kennedy from FCC Chairman Ajit Pai was encouraging for supporters of the C-Band Alliance’s plan, analysts at Beacon Policy Advisors said in a recent note. Pai wrote in the letter that the agency’s top priorities in setting up an auction were speed, the amount of spectrum, revenue for the federal government and incumbent protections.

Height analysts are continuing to predict this week that the FCC will back the alliance’s plan, though it might delay its decision a little due to lawmakers’ objections. The analysts said in a note Thursday that they see a 75% chance of the agency approving the satellite industry’s plan at the Dec. 12 meeting. “We believe there is a small chance that, due to the timing of the hearing and out of respect for Sen. Kennedy, Pai moves the order to the January meeting, though we believe he would prefer not to do this if at all possible,” the Height team said.

The C-Band Alliance, through 5G Everywhere in America LLC, has disclosed spending $515,000 in the past two years on lobbying regulators and lawmakers on its auction plan. The proposal’s opponents include T-Mobile US Inc. /zigman2/quotes/204659678/composite TMUS +1.04%  and advocacy groups such as Citizens Against Government Waste and Public Knowledge . Meanwhile, AT&T Inc. /zigman2/quotes/203165245/composite T +0.03%  and Verizon Communications Inc. /zigman2/quotes/204980236/composite VZ +0.61%  have signaled some support for the plan, joining the C-Band Alliance in filing a set of principles for the auction with the FCC, and the alliance’s supporters also include groups such as the Competitive Enterprise Institute, R Street Institute and Tech Freedom.

This is an updated version of a story first published on Nov. 11, 2019.

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Victor Reklaitis is MarketWatch's Money & Politics reporter and is based in Washington, D.C. Follow him on Twitter @VicRek.

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