The two biggest members of the C-Band Alliance (CBA) are no longer doing business together after Intelsat told the Federal Communications Commission (FCC) on Wednesday that the CBA is essentially dead and the FCC should instead treat Intelsat, SES and Telesat as individual companies.
It’s a remarkable move given that the satellite companies have been collaborating for over a year on ways in which to make some C-band spectrum available for 5G, arguing at times that the engagement of the satellite companies as a group was the most expedient way to get mid-band spectrum for 5G. (When Eutelsat dropped out of the alliance last year, the remaining members said they represented about 95% of the revenues for the U.S. C-band market, playing down Eutelsat’s engagement.)
In this week’s filing with the FCC (PDF), Intelsat said the FCC’s draft order on the C-band, which the commission is scheduled to consider at its February 28 open meeting, does not contemplate a meaningful role for the CBA and because of that, efforts by Intelsat and SES to operate joint telemetry, tracking and control gateway sites are not likely to move forward.
Importantly, Intelsat is demanding that it get more money out of the C-band relocation. Instead of the 50% of the total amount of incentive as proposed in the FCC’s draft order, Intelsat believes it should get between 60% and 67% of the total of the $9.7 billion in proposed compensation.
Rumblings about bankruptcy
A day prior to Intelsat’s filing, the president of hedge fund Appaloosa, which owns about 7.4% of Intelsat’s stock, sent a letter to Intelsat’s board urging the company to withhold acceptance of the FCC’s order until it could get more money out of the deal.
“Intelsat cannot bear the risks associated with the current Order as it is structured,” wrote Appaloosa President David Tepper. “We urge you to withhold acceptance pending negotiation of an agreement with the FCC on fair commercial terms. Failing that, we believe the Board has no choice but to resort to bankruptcy and litigation in order to protect Intelsat’s valuable license rights from an illegal modification.”
Adding fuel to the fire is the fact that the satellite companies are foreign-owned entities, which has been the focal point of efforts like that of Senator John Kennedy, R-Louisiana, to reduce or practically eliminate the compensation the satellite companies ultimately get for relocating because, the theory goes, the spectrum is that of the American taxpayers.
Just last week, Kennedy delivered a speech about how the FCC agreed to give the foreign satellite companies $15 billion of taxpayer money “for nothing,” and he urged the FCC to negotiate a better deal for taxpayers.
SES, which appeared to be tight friends with Intelsat throughout months of wrangling over how the C-band would be handled, wasn’t happy with its former partner’s “eleventh hour” change of course.
“SES is disappointed by Intelsat’s eleventh-hour attempt to renounce its commitments made to other CBA members and the Commission over the course of this proceeding, in aid of a transparent and egregious attempt to capture a greater share of the proposed accelerated relocation payments,” the company said in a statement on Thursday. “Having worked collaboratively for a long period of time on this project, this sudden and recent change in direction by Intelsat is both disappointing and not legally compliant. SES will hold Intelsat responsible under its commitments.”
“SES reaffirms its steadfast support for the Commission’s objectives to ensure global leadership in 5G, and it stands ready, willing, and able to play a central role in the expedited clearing of a portion of the C-band,” the company stated. “SES believes that there remains an important role for the C-Band Alliance (CBA), and that the CBA’s collaborative clearing plan is the most efficient path to clear the spectrum. That said, SES is prepared to act on its own in the clearing process if necessary, while protecting its customers.”
During Intelsat’s quarterly earnings conference call, Dianne VanBeber, vice president of Investor Relations at Intelsat, said Intelsat wasn’t going to take any questions on the C-band proceeding, referring analysts to the prior day's FCC filing.
But Intelsat President Stephen Spengler offered some general observations, saying the CBA was established to advocate for a market-based proposal a couple of years ago.
“It has worked very well towards those goals in general because you can see a lot of the activity the CBA incorporated in the draft order. But as we know the FCC changed the path in November and moved towards a public auction,” he said, according to a Seeking Alpha transcript. When the draft order came out on February 7, “it was very clear that the FCC was treating each satellite operator individually and so, therefore, we believe it made sense for each company to respond from its own perspective.”
It’s not clear what happens next. Wireless operators like AT&T and Verizon have been telling the FCC in separate filings how they think the C-band auction should be structured, and they’ve been relying on the C-band spectrum to fill their mid-band needs for 5G. T-Mobile also has been highly engaged throughout the process, even though it stands to gain a trove of 2.5 GHz spectrum with the Sprint transaction.