Eutelsat joins SES, Intel, Intelsat C-band proposal
July 12, 2018
By Chris Forrester and Colin Mann
Leading global satellite operators Intelsat, SES and Eutelsat are joining forces on a market-based proposal for the future use of the lower C-band spectrum in the US. Eutelsat has agreed to join the proposal initiated by Intelsat, Intel and SES. The US Federal Communications Commission (FCC) is set to announce its planned adoption of a Notice of Proposed Rulemaking on the matter on Thursday, July 12th.
The market-based proposal was developed in response to a proceeding initiated by the FCC. The proposal reflects the unique US telecommunications environment and aims to protect the quality and reliability of the extensive services provided by satellite operators in the C-band spectrum to US broadcasters, media, and data companies. The proposal establishes a commercial and technical framework that would enable terrestrial mobile operators to quickly access spectrum in the 3,700 to 4,200 MHz frequency band in the US, speeding the deployment of next-generation 5G services.
The partners note that C-band spectrum plays an essential role in the US broadcasting ecosystem, delivering seamless distribution of video and audio programming to more than 100 million US households, and reliably providing critical data connectivity in rural areas and emergency situations, as well as services delivered to the US government.
The proposal specifies the use of a consortium, which is open to all satellite operators delivering services in the C-band downlink frequencies in any part of the lower 48 United States. The consortium will oversee the governance of the initiative, define and implement the methodology for spectrum clearance, and serve as the sole interface for market-based transactions with parties interested in deploying terrestrial mobile services in specific portions of the C-band.
With Eutelsat joining the proposal, the three satellite operators will continue to work with customers, other stakeholders, and the FCC on the market-based proposal. The next phase of this effort will begin with the FCC’s planned adoption of a Notice of Proposed Rulemaking on Thursday, July 12. Intelsat, SES and Eutelsat together represent a very substantial majority of the relevant satellite C-band spectrum in use in the US.
“We are pleased to be joining this proposal which aims to create fair conditions for the shared use of C-band with mobile operators in the US while protecting the quality of services provided to our customers over the long term,” said Rodolphe Belmer, CEO of Eutelsat. “By joining this collaborative process, we will be able to advance our interests and those of our clients and contribute to the momentum of the initiative.”
In a joint statement, Intelsat CEO Stephen Spengler and SES President and CEO Steve Collar said: “We are pleased to have Eutelsat join Intelsat and SES in this endeavour, demonstrating that the industry is able to unite, collaborate and fully implement our market-driven proposal. Our solution is the only one which will maintain the high quality of the hundreds of incumbent services operating in the C-band today, protect the significant investments in space and ground infrastructure delivering these crucial services while also supporting the US goal of accelerating the 5G era.”
Around 5 per cent of the C-band capacity over the USA is supplied by Eutelsat via its Eutelsat Americas operation (the former SatMex satellites, writes Chris Forrester. The news means that the only other key supplier of capacity, outside of the consortium, is Canada-based Telesat.
A major investment bank report says that SES could do extremely well should the Federal Communications Commission (FCC) decide to approve modifications to the use of C-band frequencies over the USA.
But even without a favourable FCC decision, the bank’s report says that “top line” revenues for SES should revert to positive growth in 2H/2018, and – combined with the C-band prospects – has upgraded its advice to clients to “Outperform” for SES shares.
The investment bank says that while the general consensus is that SES could free up 100 MHz of C-band spectrum over the USA, the bank suggests that 300 MHz could be freed up. This could be spectacularly valuable for SES (and Intelsat in a similar manner) as observers expect the FCC to permit a simple sell-off of the freed-up spectrum to US cellular operators.
Sami Kassab, a senior analyst at Exane/BNPP explains: “We upgrade SES to Outperform from Underperform as we believe the market fails to fully capture the spectrum value associated with its ownership of US C-band rights. Our view of the satellite industry has not changed: we see scope for increased satellite capex efficiency to drive value in video DTH orbital positions, but to put structural long-term pricing pressure on segments with low barriers to entry, namely the connectivity and data markets.”
The bank’s report continues: “What has changed is our view on the value that can be unlocked from SES’s C-band spectrum rights. Late last month the FCC issued a draft proposal putting satellite operators’ proposal at the centre of all alternatives on how best to offer spectrum to telcos for the roll-out of 5G networks. This suggests that SES’s C-band spectrum offers hidden value that we had previously deemed too uncertain to price in; our analysis points to as much as c.€10/share. This explains the bulk of our target price increase to €22 from €10.”
SES’s share price rose July 11th by 2.6 percent (€0.41 cents) to €16.37.
The reason for this optimism is the world’s (and in particular the USA) thirst for bandwidth. “The coming roll-out of 5G will require more bandwidth,” says Kassab. “Among ways to meet this demand is for satellite operators to free up bandwidth by optimising their C-band spectrum use – an approach that the FCC’s recent draft proposal suggests it may endorse. SES has estimated it can initially free up 100 MHz, and this seems to be what consensus models. But our analysis of 1,000+ US C-band transponders shows SES could manage to triple that amount, unlocking €10/share of value.”
SES will unveil its Q2 results on July 27th, and there’s a risk that the satellite operator could adjust if formal guidance downward. Kassab adds: “But despite this risk, SES share price has risen by around 50% in the past three months. In our view, this suggests that the C-band optionality, rather than short-term operating trends, has become SES’s main share price driver. With consensus expectations 5% below current 2020 revenue guidance, we believe the risk of a revised guidance may be already priced in. Any dip in the share price could offer a buying opportunity as we continue to expect organic revenue growth to revert to growth in H2 18 and 2019 (estimated).”