The Intelsat-Intel application to the FCC to permit terrestrial 5G cellular operators to access some of Intelsat’s C-band spectrum over the US has gone down like a proverbial ‘lead balloon’ amongst many of the world’s major satellite operators.
On October 4th, SES issued an extremely cautious response to the proposal, and since then Asia Satellite Broadcasting (ABS) of Hong Kong and Bermuda has come out firmly against the move, while AsiaSat reportedly accused Intelsat’s proposal an act of desperation. Intelsat is heavily indebted and could easily earn considerable financial revenues from the move.
Equity analysts at investment bank Jefferies were equally forthright, saying that the move is a “spectrum sleight of hand” in that Intelsat has for years resisted any move from the telcos to appropriate its C-band spectrum.
Jefferies says: “The mobile industry has for decade(s) been lobbying the ITU that satellite operators need to give up a portion of the C-band for mobile use in the face of a tightening spectrum supply and booming consumer demand. The platform for assaults on the C-band has been the periodic World Radio Communications Congresses, where governments and regulators meet to debate the merits of current spectrum allocations. The satellite operators have to date seen off the risk given: 1. There is evidence to suggest that no such spectrum crisis exists and that mobile operators aren’t fully utilising what has already been made available to them; and 2. That the C-band is generally well used in important applications – as a mid-band frequency in the 4-8 GHz range, C-band has good propagation characteristics and been put to effective use in distributing TV in tropical climates.”
The logic, as far as Jefferies is concerned, says: “There is undeniably insatiable demand for connectivity on the move. The evolution of wireless standards to meet / drive that demand manifests itself in each generation of mobile technology. While we’re still only in the midst of the 4G roll-out, 5G has already begun to enter the landscape. As alluded to above, spectrum remains a critical input to that revolution – C-band can expand the cache of licensed, harmonised spectrum. Separately, preempting future assaults on the C-band (and note that preparatory work for WRC-19 has already started) provides satellite operators with the confidence to keep investing in satellites and applications that use the C-band. Intelsat’s proposal, therefore, has undeniable industrial logic. But there is of course a nebulous subtext that can’t be ignored.”
That subtext suggests that Intelsat’s pursuit of a “market-based” model signals that its concession of a portion of the C-band will come at a price. “While not explicit on the matter, we’d assume that Intelsat wants to lease access to its spectrum to the mobile operators. We know from Inmarsat’s experiences with LightSquared that this can be highly value accretive given the revenue streams are incremental and come with close to zero variable costs (apart from any cost of re-banding existing traffic). But should the FCC approve the proposal, there won’t be a “quid” without a “quo” – satellite spectrum is issued for free into perpetuity, at least at the ITU level – the national regulators (like the FCC) can then extract financial concessions as they carry out their regulatory mandates to promote competition and protect the consumer.”
The implications for the bank are not wholly negative: “We can say with some conviction that this is a welcome, but speculative, development. Needless to say, for such an indebted operator, a 100 per cent margin revenue stream would dramatically alter the risk profile of the company. What’s challenging is estimating the size of that revenue stream; what the commercial and regulatory obligations would be of crystallising that revenue stream; and what the ex-ante regulatory consequences would be. Inmarsat’s travails with Ligado are a testament to the rocky road Intelsat is about to walk.”