SES, Intelsat duke it out in court as C-band auction rules head for vote

satellite earth station
SES accuses Intelsat of breach of contract and fiduciary duties. (Pixabay)

The FCC is set to consider C-band auction procedures at its open meeting in August as two of the main satellite players that need to vacate the spectrum are doing battle in a U.S. bankruptcy court.

The two satellite companies, SES and Intelsat, acted like best buddies when they were trying to sell their spectrum via the C-Band Alliance (CBA), which is now at the center of SES Americom's claim against Intelsat. The claim was filed in the same Virginia court where Intelsat is pursuing Chapter 11 restructuring.

Critics of the CBA long ago pointed out that it wasn’t “their” spectrum to sell. Rather, the satellite companies use 500 megahertz in the C-band to provide services to content companies like The Walt Disney Co., NPR and Comcast. Senator John Kennedy, R-Louisiana, has been one of the most vocal critics of the FCC giving what he has called a windfall to foreign-owned satellite companies.

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RELATED: Verizon, AT&T, T-Mobile support Pai’s C-band plan as backlash commences

FCC Chairman Ajit Pai referenced critics in his blog post on Wednesday announcing the C-band item on the August agenda, saying the commission rejected calls to “do literally nothing” until Congress passed a law on the subject, which hasn’t happened.

Indeed, minority Democrats who voted against the C-band order in February wanted to wait for Congress to grant the FCC clear authority to auction the spectrum in a way that would reduce the threat of litigation.

RELATED: Amid heated debate, FCC votes 3-2 to free up 280 MHz of C-band for 5G

Under Pai’s plan for $9.7 billion in accelerated relocation payments to incumbent satellite operators, the spectrum will be available for 5G two to four years earlier than otherwise would have been the case, he wrote in the blog. And despite COVID, the plan remains for holding a C-band auction within this calendar year – it’s due to start December 8.

Verizon and AT&T are expected to bid aggressively in the auction, with T-Mobile in the mix as well even though it’s got a trove of mid-band 2.5 GHz spectrum via the Sprint merger.

All three have recently submitted comments to the FCC about the transition plan. The auction will include 280 megahertz in the lower portion of the band, or 3.7-3.98 GHz. Another 20 megahertz will serve as a guard band. Auction winners will pay for the satellite companies to move to the upper 200 megahertz of the band on the accelerated timeline.

It’s unclear what effect, if any, the court fight between SES and Intelsat might have on the transition. Interestingly, part of the CBA’s argument for a private sale was all of the satellite players in the band had to be on board; they argued that if it wasn’t done their way, the relocation plan would fall apart.

SES vs. Intelsat 

In its claim filed July 14, SES explained that its action arises from a written agreement entered into by SES, Intelsat and others in the CBA. The agreement established SES and Intelsat as the lead members of the CBA and required all the CBA companies to work together as a unit to facilitate the C-band transition. Telsat and Eutelsat also were members of the CBA, although Eutelsat dropped out last fall.

“Under the Consortium Agreement, SES and Intelsat agreed to split both control of the CBA and the vast majority of its proceeds, with a percentage going to the other members of the CBA and to cover the CBA’s costs,” SES wrote in its court filing. “For over sixteen months, including during the course of numerous joint submissions to the FCC about the spectrum clearing process, the parties jointly performed their obligations under the Consortium Agreement with the understanding that the FCC would ultimately decide how the spectrum would be made available, including through a public auction.”

Even after Pai’s November 18, 2019, announcement that the FCC would hold a public auction of the C-band spectrum, the parties continued to work together for months, repeatedly affirming the Consortium Agreement through words and both private and public conduct, according to SES.

That all apparently changed when Intelsat in February declared the CBA was dead (PDF). After the FCC issued its draft order on February 7, 2020, which allocated a higher share of the overall payments to Intelsat, Intelsat “repudiated its obligations under the Consortium Agreement, including its obligations to split the proceeds received by Intelsat and SES evenly,” according to SES.

Its claim is for the damages SES has suffered or will in the future suffer, which it puts at no less than $1.8 billion.

RELATED: Intelsat declares C-Band Alliance dead as it seeks more money from FCC

According to Intelsat Director of Corporate Communications Meghan Macdonald, the company isn’t commenting on a pending claim. However, she said the CBA was originally established by agreement among the satellite operators to advocate for a market-based, private-auction approach to the U.S. C-band spectrum-clearing process. Under the CBA proposal, the satellite operators would run the private auction, receive the proceeds, and jointly clear the spectrum.

The FCC’s final order rejected that approach. “The final order provides for a public auction, run by the FCC, which treats each satellite operator individually based on their utilization of the spectrum,” she said via email, adding that Intelsat is currently the largest operator in the U.S., using more than 60% of the C-band spectrum in the continental U.S., so it would logically follow that it would stand to gain more.

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