Orbit auctions?

Alternative title: Review of Payton Alexander’s “The FCC: America’s Other Space Agency”

A few days ago (see here), I mentioned that Reason magazine just published a collection of essays regarding various aspects of space exploration in its December 2022 issue. Here, I will review one of the best essays in this issue: Payton Alexander’s piece, which is titled “The FCC: America’s Other Space Agency”.

When you think of outer space, you might think of NASA, but Mr Alexander, an attorney in Washington, D.C. who represents space and satellite clients, notes that it is the Federal Communications Commission (FCC), and not NASA, that “has effectively become [the] primary space regulator” of the U.S. commercial space industry. Although the FCC was established by Congress in 1934 to regulate wire and radio communications, this expansion of the FCC’s jurisdiction into outer space is based on the fact that satellites are like flying radio antennas, or in the eloquent words of Mr Alexander: “If you’re putting anything in space–be it a communications satellite, a weather satellite, even a human being–you’re going to be communicating with it.”

Among other things, the FCC “parcels out orbital altitudes to ensure that constellations of satellites in non-geostationary orbit do not collide or cause interference with each other.” The FCC allocates these orbits not only to prevent satellites from bumping into one another, but also to avoid signal interference in outer space. As a result, if you want to launch a satellite into orbit from the United States, you must first obtain a special license from the FCC. So, what criteria does the FCC use to grant or deny these launch licenses? More to the point, why doesn’t the FCC conduct “orbit auctions”, i.e. why doesn’t the FCC sell orbits to the highest bidder, something I suggested on this blog on many occasions (see here, for example)?

To his credit, Mr Alexander appears to be receptive to this idea! He mentions Ronald Coase’s landmark 1959 article “The Federal Communications Commission“. As Mr Alexander correctly notes, Professor Coase’s 1959 article planted the seeds “for a revolution that would transform telecom policy in the U.S. and around the world.” Specifically, when Coase wrote his 1959 article, the FCC allocated radio and TV frequencies by holding formal hearings or “beauty contests”, a costly and totally subjective proceeding in which competing applicants would explain how their proposed uses of a given frequency would “serve the public interest”, a vague and indeterminate standard.

Coase’s FCC article, however, proposed a different method for allocating frequencies: markets. In the words of Mr Alexander:

“The FCC, Coase suggested, should hold out a section of the electromagnetic spectrum, divided into chunks of a few megahertz each, and accept bids from interested parties who sought to use it to provide service. Bids would be evaluated almost entirely in terms of dollar value, with less attention paid to the merits of this or that proposed business plan. The primary purpose of the auction paradigm would not be to raise money. The point would be to put skin in the game and gauge the value of the business a prospective operator envisioned. Coase reasoned that an entrepreneur would be unlikely to bid $1 billion for a few megahertz of spectrum unless she were confident her returns would be even greater. And if she came up short, she’d be left holding the bag, a calculation similar in some ways to that of an entrepreneur seeking a loan to start a business.

“The article became one of the most influential economics papers of the last century. But for decades, hardly anyone listened to Coase. When he testified to the commission, Commissioner John S. Cross asked, “Are you spoofing us? Is this all a big joke?” Much later, when Washington abounded with proposals to liberalize, marketize, and privatize, officials paid more attention. Thirty-four years after the publication of Coase’s article, the Omnibus Budget Reconciliation Act of 1993 authorized the FCC to conduct its first spectrum auction. Since then, more than 100 auctions have been held … [and] have brought in over $200 billion for the Treasury ….”

Although Mr Alexander doesn’t call for orbit auctions outright (much to my chagrin, I might add), as I explained in this 13 December 2021 blog post, the logic of Coase’s argument extends to outer space. After all, as Mr Alexander himself notes, the vast majority of American launches are conducted by private providers for private customers. So, why not allow these private firms to bid for the right to launch their satellites into outer space? Just a thought …(Note: I will review Eric Berger’s “We Are Going to the Moon” essay next.)

About F. E. Guerra-Pujol

When I’m not blogging, I am a business law professor at the University of Central Florida.
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