Equity analysts from investment bank Exane/BNPP spent an intense week talking to industry executives as well as regulators in Washington, and taking advantage of the Satellite 2019 conflab.
The result is a 15-page report which very much focuses on the prospects for the C-Band Alliance’s financially important release of some 180 MHz of C-band spectrum over the US to help push 5G’s adoption.
The highlights of the report talk about Congress wanting more than the 180 MHz on offer. “We also understand that the US Congress is comfortable with a windfall profit to foreign satellite operators as long as spectrum is delivered in the required quantity (the more, the better) and an acceptable time horizon (perhaps 5–7 years for additional spectrum tranches).”
The bank said: “We believe the CBA is ready to accept a modified proposal that would see the US Treasury compensated if it is regulatory entitled to proceed with a private sale.”
That report was echoed on May 13th when some key US senators urged a speedy resolution of the C-band redeployment, saying: “As the FCC has noted, mid-band spectrum offers favourable signal range and indoor penetration combined with increased capacity that comes from frequency reuse; this makes mid-band spectrum particularly important for the initial deployment of 5G,” wrote Sen. Roger Wicker (chairman of Committee on Commerce, Science and Transportation) and Sen. John Thune (chairman of the Subcommittee on Communications, Technology, Innovation, and the Internet).
Their report continued: “In the year since passage of that law, the need for action has become even more acute … we urge the Commission to act quickly to make spectrum in the 3.7 GHz to 4.2 GHz band available for 5G.”
Exane met with FCC Commissioner O’Rielly, in charge of C-Band at the regulator, who helped the bank understand the current state of affairs from the FCC’s perspective. “Our meeting with Alex Damato -Congresswoman Matsui’s senior legislative assistant and tech advisor, and with Eric Einhorn, tech advisor to Senator Schatz, informed our understanding of how Capitol Hill views C-band developments.”
The bank’s report says: “The FCC has identified several hurdles that need to be resolved before it can proceed to the final order. These include: Small Satellite Operators (SSO), the windfall tax issue, claims from incumbent users and content companies in particular. It considers that all these problems can be solved. The FCC has yet to decide on whether it supports a private sale, an incentive auction or an FCC-run auction. We believe that a private sale orchestrated by the CBA with light regulatory oversight remains the most likely scenario.”
Timing was also discussed. “We believe the CBA is likely to file the band plan by the end of this month. We believe that a C-band bill is likely to be introduced within 4–6 weeks. We also believe that FCC Commissioner O’Rielly continues to be keen to proceed quickly but that the ultimate timing decision is in the hands of Chairman Pai. FCC Commissioner O’Rielly argued he would “prefer the Order to come in November rather than December and in October rather than November but that he could live with an Order in January 2020”. His comments suggested that a longer delay (to say June 2020) would be problematic. We also understand that it would take the CBA around 8 weeks to start the auction when the final Order is published. The auction is likely to be quick and not take as long as [a similar exercise] in Germany for instance.”
The end result is that the bank maintains its ‘BUY/Outperform’ rating on both SES and Eutelsat (Eutelsat is a minor beneficiary of the C-band proposal) despite what the report describes as “fundamental challenges” for the satellite industry.