Below is an another excerpt from my work-in-progress “Outer Space Auctions“; once again, I have placed my scholarly citations below the fold:

Several nation-states have begun to recognize property rights in outer space via national law, including the USA,[1] Luxembourg,[2] the United Arab Emirates,[3] and Japan.[4] None of these national laws, however, establish property rights in orbits or in launch rights. Here, I will propose a market in space launch licenses and in space orbits.

Under existing U.S. law, if a private firm like SpaceX wants to launch a satellite into orbit from the United States, it must first obtain licenses from at least two government agencies: the Federal Aviation Administration (FAA), and the Federal Communications Commission (FCC). The FAA exercises authority over the launching and re-entry of commercial space vehicles. As a result, any private company that wants to launch a rocket or other kind of spacecraft from the United States into outer space must obtain a launch license from the FAA–specifically, from the FAA’s Office of Commercial Space Transportation.[5] What criteria does the FAA use to grant or deny these launch licenses? To get a launch license, the applicant must prove that it is able to take financial responsibility if the launch goes wrong and that the launch won’t threaten U.S. national security, but this regulatory process is slow, costly, and cumbersome: it can take up to six months to get a launch license from the FAA.[6]

In addition to the FAA’s jurisdiction over rocket launches, the FCC has jurisdiction over the orbits of communication satellites launched from the United States. Although the FCC was originally established by Congress in 1934 to regulate wire and radio communications,[7] today the FCC has become the primary space regulator of the U.S. commercial space industry.[8] 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 one observer: “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.”[9] 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”[10] The FCC allocates these orbits not only to prevent satellites from bumping into one another, but also to avoid signal interference in outer space.

So, why doesn’t either the FCC or FAA conduct “orbit auctions” or “launch auctions”, i.e. why doesn’t the FCC sell orbits or the FAA sell launch rights or orbit rights to the highest bidder, instead of giving away these licenses for free? A historical precedent for orbit auctions is the Omnibus Budget Reconciliation Act of 1993 (OBRA-93).[11] Among other things, OBRA-93 gave the FCC the legal authority to use auctions to allocate property rights in the electromagnetic spectrum. Subsequently, Congress expanded the FCC’s auction authority when it enacted the Balanced Budget Act of 1997. Based on these legislative precedents, perhaps the current Congress could enact similar legislation authorizing the FCC or FAA, or both, to conduct orbit and launch auctions.

So, how would a “launch auction” or “orbit auction” work? The type of auction that most people are familiar with is the “first-price sealed-bid auction” in which all bidders simultaneously submit secret bids, i.e. no bidder knows how much the other auction participants have bid. The sealed bids are then opened on a certain date, and the person with the highest bid (or second-highest bid in the case of a “second-price auction”) is declared the winner. This is not, however, the method used by the FCC to allocate broadband spectrum licenses. Instead, the FCC uses a method proposed by economists Paul Milgrom and Robert Wilson called the “simultaneous ascending auction” or “simultaneous multiple-round auction.” [For more, see this excellent summary/presentation by Madhumitha Harishankar.]

In brief, two of the main differences between the traditional auction format and the FCC format is that the sealed-bid auction usually involves just one round of bidding. In the simultaneous ascending auction, by contrast, there are multiple rounds of bidding, and all bidders are allowed to revise their bids after each round. (Bidders are even allowed to withdraw from the auction after each round.) The highest bids are announced to all the bidders after each round of bidding, and these rounds will continue to occur until no new bids take place. At that point (no new bids), the licenses are sold to the highest bidders. The simple simultaneous ascending auction format described here has many desirable properties.[12] So, why doesn’t the FCC or FAA, or both, use some variation of the simultaneous ascending auction to allocate orbit or launch licenses, especially for the new generation of mega-constellation satellites?

[1] The U.S. Congress enacted the Commercial Space Launch Competitiveness Act in 2015. See Orphanides 2015.

[2] Luxembourg enacted the Law on Exploration and Use of Space Resources in 2017. See Calmes et al. 2023

[3] The United Arab Emirates adopted Federal Law No. 12 on the Regulation of the Space Sector in 2020. See Spacewatch 2020.

[4] The Japanese Diet enacted the Act for Promotion of Business Activities regarding Exploration and Exploitation of Space Resources (uchu shigen no tansa oyobi kaihatsu ni kansuru jigyou katudou no sokushin ni kansuru houritu) on June 15, 2021. See Spacewatch 2021.

[5] See the FAA’s Commercial Space Transportation website, available at https://www.faa.gov/space.

[6] See the FAA’s Getting Started with Licensing (Commercial space assistance tool) website, available at https://www.faa.gov/space/licenses/licensing_process/.

[7] See, e.g., Coase 1959, pp. 5-7.                                 

[8] See Alexander 2022, p. 54 (concluding that the FCC “has effectively become [the] primary space regulator” of the U.S. commercial space industry).

[9] Alexander 2022, p. 52.

[10] Ibid.

[11] An Act to provide for reconciliation pursuant to section 7 of the concurrent resolution on the budget for fiscal year 1994. Public Law 103-66; 107 Stat. 312 through 685 Stat. 1025.

[12] See, e.g., https://blogs.cornell.edu/info2040/2021/10/30/simultaneous-multiple-round-auctions/.