The FCC has rejected the C-Band Alliance’s plans to repurpose spectrum, leading to a collapse in Intelsat and SES’s share prices. But the battle isn’t over, writes Chris Forrester.
For the past few years the C-Band Alliance (CBA), a lobbying consortium made up of satellite giants SES, Intelsat and Ottawa-based Telesat, has been pitching to the Federal Communications Commission (FCC) for permission to sell a chunk of their satellite capacity over the US for use by would-be 5G operators. Paris-based Eutelsat was a member of the Alliance but withdrew in September.
Just about every market analyst and most industry observers reckoned that the CBA’s proposals – more or less – would win FCC approval. The CBA was planning to auction off a total of 300 MHz of their 500 MHz C-band satellite capacity, and various permutations were suggested but the bottom line was that a privately-held auction could generate billions for the spectrum owners.
The costs for satellite organisations are huge. They would have to fit filters and perhaps adjust up to 30,000 giant C-band receivers across the US and in use by cable and IPTV operators. Those costs have been estimated at between $2.5-$3.5 billion in order to eliminate potential interference and continuity of transmissions. There’s also the small matter of having to build and launch eight new satellites to replace the capacity sold off to the 5G sector.
The CBA, as part of its submissions to the FCC, had promised that out of the auction revenues it would voluntarily pay some huge sums to the US Treasure and thus avoid criticism that “all” of the auction cash would flow to non-US companies. Intelsat, despite being headquartered in Washington DC is formally domiciled for tax advantages in Luxembourg. SES is based in Luxembourg. Paris is home for Eutelsat and Ottawa is Telesat’s base.
In other words, it was argued that the likes of Verizon, AT&T, T-Mobile, Sprint and a handful of others would be transferring billions of dollars to “overseas” companies.
The CBA proposed voluntarily paying over an immediate 30% of net proceeds and then on a sliding scale upwards to 75% should be the auction prove to be especially lucrative.
But it isn’t to be. Late in the afternoon of 18 Nov, the FCC let it be known that they would host a public auction, and the payment process would be reversed in that the FCC would then pay out a percentage of its proceeds from the sale.
Laurie Davison, an equity analyst at investment bank Deutsche Bank, in a note on Nov 19 said the FCC’s public auction “could still generate proceeds for the companies”, however, it looks less likely that this will do more than cover the costs of re-purposing spectrum.
This comment was echoed by other bank reports and reflected the catastrophic market meltdown of Intelsat’s NYSE stock-market price during the afternoon of Nov 18 when it crashed almost 40%. SES tumbled 17% to €11.75 from an already depressed value on Nov 19. These values mean that the world’s two largest satellite operators have suffered a 40-50% collapse in their market values in barely two weeks.
However, it is worth remembering that the satellite operators totally own their spectrum. And the CBA in a statement late on Nov 18th issued what most see as a veiled threat, saying: “The [FCC] announcement does not address the critical involvement of the incumbent satellite operators in executing the complex task of reconfiguring and transitioning their networks. Nor does the announcement address the fundamental modification of the rights afforded by the existing FCC licenses held by the CBA members which would be required under a public auction approach”.
In other words, this argument is far from over. The CBA says they will stay in conversation with the FCC in order to secure the best outcome for the American public. No doubt the lawyers are already preparing their arguments!