Anti-Windfall Precedent, Anterix (2020)
We have fielded some questions about Windfalls and how the FCC has handled them in the past. The Anterix Report & Order set a precedent worth examining in detail.
Summary of the FCC’s anti-Windfall Provisions in the Anterix Report & Order, May 14, 2020 (WT Docket 17-200)
The FCC realigned the 900 MHz band to facilitate the deployment of modern broadband services for critical infrastructure industries. This realignment established a new 6 megahertz broadband segment while retaining 4 megahertz for legacy narrowband operations. To achieve this, the FCC adopted a negotiation-based transition mechanism, allowing a prospective broadband licensee to obtain a new county-based license after successfully negotiating with and clearing a significant majority of incumbent narrowband users. The rules provided for the mandatory relocation of a limited number of remaining incumbents (excluding complex systems) at the expense of the broadband licensee.
The FCC established a two-pronged anti-windfall mechanism to ensure that the public is compensated for the value of spectrum being repurposed for broadband in the 900 MHz band. Recognizing that the transition creates significant new value for the eventual broadband licensee, the rules are designed to prevent undue enrichment. First, any applicant for a new 6 MHz broadband license must surrender up to 6 MHz of existing 900 MHz narrowband licenses in the same county. This minimizes the amount of new spectrum granted from the Commission's inventory. Second, if an applicant relinquishes less than 6 MHz of spectrum, it must make a direct monetary payment to the U.S. Treasury for the difference. The value of this spectrum differential is calculated using a formula based on the final prices from the 600 MHz forward auction, reflecting the similar propagation characteristics of the two bands. This framework ensures that the broadband licensee does not receive a net increase in spectrum holdings without compensating the public, aligning the transition with the public interest.
Brief background on the arguments made on the record in the proceeding that relate to the Windfall issue(s)
The NPRM explicitly "sought comment on what actions might be necessary to mitigate such risks" of creating an "undue windfall" for prospective broadband licensees. (para. 91)
Several stakeholders expressed significant concern about the potential for a windfall. The FCC noted, "Many commenters express a concern about a potential windfall." (para. 91) This included entities such as the "City of Los Angeles Department of Water and Power... Hawaiian Electric Companies... Lower Colorado River Authority... [and] NextEra Energy, Inc." (para. 91, footnote 270)
Anterix, the primary proponent of the transition, argued that "the resulting benefit of transitioning to broadband outweighs any windfall." (para. 91)
The FCC ultimately rejected the argument that no anti-windfall measure was needed, stating, "We find the requirement to return 900 MHz spectrum to the Commission, up to 6 megahertz, an important antiwindfall measure." (para. 91)
The Commission justified its decision by citing precedent from the 800 MHz proceeding, which "provides guidance on the reasons why an anti-windfall payment serves the public interest in situations, such as here, in which a prospective licensee receives spectrum from Commission inventory in exchange for a commitment to transition a band in a manner that benefits the public interest." (para. 92)
The legal authority for imposing these provisions was asserted under the Commission's "broad spectrum management and licensing authority," and the FCC noted that it "received no comments on our legal authority to require an anti-windfall payment." (para. 95)
Key Windfall Details
Dual anti-windfall provision for new 900 MHz broadband licenses
Spectrum Surrender: Applicants must return to the Commission all their existing 900 MHz SMR and B/ILT spectrum licenses, up to a maximum of six megahertz, in the county for which they are applying for a broadband license.
Monetary Payment: If an applicant surrenders less than six megahertz of spectrum, a mandatory monetary payment is required to compensate for the spectrum differential being provided from the FCC's inventory. This payment must be made to the U.S. Treasury before the new broadband license is granted.
Compliance requirements -- Specific Rules
Rule Codification: The anti-windfall provisions are codified in the Commission's rules. Specifically, § 27.1503 Broadband license eligibility and application requirements states:
(c) Anti-Windfall Provisions. (1) The applicant must return to the Commission all of its licensed 900 MHz SMR and B/ILT spectrum, up to six megahertz, for the county in which it seeks a broadband license. … (2) If the applicant relinquishes less than six megahertz of spectrum in accordance with 27.1503(c)(1), then the applicant must remit an anti-windfall payment prior to the grant of the 900 MHz broadband license.
Calculation of Monetary Payment: The FCC detailed the precise formula for the anti-windfall payment in paragraph 93:
"To calculate the anti-windfall payment, we first would determine the difference between the amount of spectrum, in kilohertz or megahertz, relinquished by the broadband license applicant in the relevant county and the six megahertz of a 900 MHz broadband license. Next, we would calculate the dollars per MHz-pop prices for the 600 MHz auction based on the final forward auction prices for a generic 10 megahertz license in each PEA. We would then multiply the difference in the amount of spectrum by the 2010 county population estimates and the calculated dollars per MHz-pop price of 600 MHz spectrum in the county to arrive at the anti-windfall payment for that county."
Example Calculation: The FCC provided a specific example for Santa Fe County, New Mexico:
"For example, if an eligible 3/3 megahertz broadband license applicant holds a total of 5 megahertz of 900 MHz spectrum in Santa Fe County, New Mexico, we would require an anti-windfall payment for 1 megahertz of 900 MHz broadband segment spectrum in Santa Fe County. Applying our formula to the Santa Fe County example, the licensee would owe an anti-windfall payment of $86,969." (para. 94)
Special Provision for AAR Relocation: The spectrum that Anterix contributes to facilitate the nationwide relocation of the Association of American Railroads (AAR) will be counted toward its surrendered spectrum total for anti-windfall calculation purposes.
"Moreover, we clarify that, where a cancelled license listed in Appendix E covers all or part of a county where Anterix is the broadband applicant, the Commission will deem Anterix's cancelled license to be spectrum relinquished towards the six megahertz total for purposes of calculating any applicable anti-windfall payment." (para. 104)
Eligibility Requirements
To be eligible for a new 3/3 MHz broadband license in a specific county, an applicant must satisfy a two-pronged test designed to ensure they are the best-positioned entity to transition the band and to prevent speculative applications.
50% Spectrum Threshold: The applicant must hold licenses for more than 50% of the total amount of licensed 900 MHz spectrum (both SMR and B/ILT) within the relevant county.
This calculation is based on the total spectrum licensed in a county, excluding any spectrum held in the Commission's inventory.
Applicants can include spectrum from:
Geographic-area licenses (like SMR licenses) that overlap the county.
Site-based licenses (B/ILT or SMR) whose service contours (defined as a standard 20-mile radius around the base station) intersect the county boundary.
The FCC provides credit for spectrum acquired through applications filed on or after March 14, 2019, to facilitate incumbent relocations.
90% Clearing Threshold: The applicant must demonstrate that it has cleared the new broadband segment by reaching agreements with a supermajority of incumbents. Specifically, the applicant must hold licenses for, reach an agreement to clear (through acquisition or relocation), or provide interference protection to, covered incumbents that collectively hold licenses for at least 90% of the site-channels in the broadband segment.
This threshold covers site-channels located within the county and within 70 miles of the county boundary, as well as geographically licensed channels that overlap the county.
The applicant's own holdings in the broadband segment count toward this 90% threshold.
Complex Systems Exception: Any "complex system" (defined as a system of 45 or more functionally integrated sites) with a site in or within 70 miles of the county must be accounted for via a private agreement. These systems are exempt from mandatory relocation, making a negotiated deal with them essential for an applicant's eligibility.
Calculation of Monetary Payment to Treasury
If the total surrendered spectrum is less than 6 MHz, the applicant must calculate the monetary payment owed using the FCC's formula, which requires:
The spectrum differential (6 MHz minus surrendered MHz).
The dollars per MHz-pop price from the 600 MHz auction for the relevant PEA.
The 2010 U.S. Census population data for the county.
Helpful Data:
Guiding Principles of Anti-Windfall Provisions
The FCC clearly states the purpose of the anti-windfall provisions for affected stakeholders:
Minimizing the Grant of New Spectrum: The spectrum surrender requirement is intended to make the transaction as close to a 1-for-1 swap as possible, reducing the net new spectrum granted from public inventory.
"This requirement reduces the amount of spectrum in the Commission's inventory that is needed to grant a broadband segment license." (para. 89)
Compensating the Public: The monetary payment ensures that when new spectrum is granted, the public (via the U.S. Treasury) is directly compensated for its value.
"We find it in the public interest to require the broadband license applicant to make an anti-windfall payment that will compensate the U.S. Treasury for spectrum assigned from the Commission's inventory." (para. 90)
Ensuring Fair Value and Public Benefit: The FCC frames the provisions as ensuring a fair exchange and that the public reaps the benefit of the band reconfiguration.
"...provisions for a potential anti-windfall payment, would ensure that the public received the full benefit of the reconfiguration in exchange for making other spectrum available to Nextel." (para. 92, referencing the 800 MHz proceeding)
Promoting Efficient Spectrum Use Over Speculation: The rules are intended to motivate genuine efforts to deploy services rather than simply acquire more valuable spectrum.
"...it will enable the conversion of narrowband to broadband licensing—an initiative that we have determined will result in the most efficient use of spectrum to best serve the public interest—while ensuring that participants are in fact engaging in this conversion in an effort to increase efficient spectrum use and not merely acquire more spectrum." (para. 95)
Conclusion
The Anterix Report & Order provides a precedent for future spectrum repurposing, with its market-based, two-pronged anti-windfall mechanism. It balanced the goal of incentivizing a licensee to transition a band to a higher-value use with the public interest imperative of receiving fair compensation for a public resource. The framework's reliance on auction-derived valuations, clear eligibility thresholds, and incumbent-clearing rules creates a replicable model for similar proceedings.
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REPORT AND ORDER, https://www.fcc.gov/ecfs/document/05141978203157/2
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