Various equity analysts have reported in some detail on how they see the C-band restructuring evolving over the US. The Federal Communications Commission (FCC) closed its timetable for comments on December 11th on its ‘Notice of Proposed Rulemaking’ last week. The FCC is not likely to make a decision until mid-2019, but a consortium of North American satellite operators (Intelsat, SES, Telesat and Eutelsat Americas, the C-Band Alliance) want to reassign 200 MHz of C-band spectrum for sale to wireless telcos.
The Alliance sent an email on December 19th to the FCC’s chairman Ajit Pai and his fellow Commissioners stressing that rural consumers will also be reached, while existing C-band customers will be “fully protected”.
That protection will need 8 new satellites – provided the Alliance’s scheme wins FCC approval. “This assessment is based on future demand currently expressed by CBA member’s customers. These new satellites will enable Intelsat and SES to operate approximately the same amount of capacity to carry video and other services that they have today in 500 MHz, but using only 300 MHz of spectrum. These new satellites are part of the secret to clearing C‐band spectrum for 5G while fully protecting current C‐band customers,” said the CBA’s email.
Berenberg Bank’s team say that unsurprisingly, a large number of detailed comments (some 300) have been submitted, with interested parties all promoting their own views. “In terms of the key players, we believe that the following comments are most relevant:
– T-Mobile: T-Mobile noted that the C-Band Alliance’s approach caps spectrum at 180MHz, which is insufficient for the roll-out of 5G, and recommended that the FCC manage the spectrum auction in phases, and require that 300MHz be freed up (200MHz in certain rural areas). It criticised the fact that all proceeds will go to the Alliance rather than to the taxpayer and suggested that the spectrum proceeds be divided between the FCC and the satellite operators, thus ensuring that the US taxpayer benefits from the auction
– Verizon: T-Mobile’s competitor called for swift action by the FCC, and thinks that the market-based proposal of the C-Band Alliance is the best path to promoting the public interest and the national imperative by quickly introducing a significant portion of spectrum for 5G while protecting existing users of the band. Like T-Mobile, it called for more than 200MHz to be cleared (the amount that the C-Band Alliance has said it can free up).
– Comcast: Unsurprisingly, the cable operator focuses on protecting the existing users of C-band spectrum, noting that C-band satellite transmissions play a key role in the video distribution ecosystem, and added that more work is required to protect users of C-band. It argued, for example, that the use of filters may not provide adequate protection from signal interference, and noted that a re-farming of C-band spectrum will affect the operators of tens of thousands of earth stations and millions of American households, while the “foreign-based operators” would “pocket … the windfall”.
This last statement is key to the future prospects for at least the two satellite majors – and their share prices – and they have stated bluntly that unless their ‘market-based approach’ is approved then they will not permit the restructuring plan. Berenberg, for example, places €6 as an ‘extra’ value per share on the potential gain from the Alliance’s plan.
Meanwhile, Exane/BNPP’s analyst Sami Kassab sees Verizon’s comments as strongly supporting the C-Band Alliance’s scheme, and reminds investors that Verizon is asking for more than 200 MHz to be freed up. The bank says: “Although this may not be achievable within the next 36 months, we believe that more spectrum could be freed within the next five years.”
Indeed, the bank sees the potential upside for SES (and by implication Intelsat) and Eutelsat as considerable. The bank suggests that SES, and its current typical €17 share price as being €22 (and an upside of almost 30 per cent). For Eutelsat – which is a much smaller beneficiary of any C-band reallocation – but still has a 37 per cent upside, and a target share price of €25 (from a today’s typical €18).