CBA: Stock losses put into perspective

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It hasn’t been a prosperous time for the C-Band Alliance of Intelsat, SES and Telesat. Both Intelsat and SES suffered significant mark-downs in the share prices on the back of negative comments from investment bank JPMorgan with its comments (which was reported on November 13th).

In essence, the bank says that there are serious concerns over the CBA’s proposals for the sale of key C-band frequencies over the US. The report prompted a major sell-off (12.34 per cent) of Intelsat stock on November 12th, and another spectacular 29 per cent price crash followed by a thumping 14.72 per cent fall for SES on November 13th to €14.45.

However, satellite analyst Sami Kassab at Exane/BNPP in his note to clients – which could have been headlined ‘Don’t Panic’ – managed to put the bad news into perspective, saying that JPM’s report and subsequent press coverage does not add much to the debate and is of questionable quality.

Kassab says: “As we have argued in the past, we think the FCC will adopt a hybrid approach and not the CBA plan as it stands. The key question is whether the FCC will allow monetary compensation for satellite operators and at what level (ie US Treasury contribution).”

He adds:  “From a political perspective we think the FCC is bound to come up with an Order that has the backing of Capitol Hill. We don’t think they will say we adopt the CBA, close our eyes and hope it all goes well. They are going to announce an Order with conditions, restrictions, oversight, control etc. Look at Eutelsat alternative plan. It proposes that satellite operators sign bilateral binding agreements with the FCC. No need for the CBA anymore. So the noise on the FCC moving away from the CBA could be the FCC moving to this type of agreement.”

“But at the end we continue to believe the FCC will allow for compensation that satisfies satellite operators. Because if unsatisfied, Intelsat and SES will go to the Supreme Court to have their rights upheld. This is the only argument they ever had and still have. This would lead to long delays at a time when there is a consensus that time is the essence.”

Kassab admits that it is unclear and critical how big the “voluntary” contribution will be.  “Will it be the 25 percent that Congresswoman Matsui put in her bill? Will it be 40% like in 2017? Will it be 50/50? We still assume 25 percent.”

He also covers the support that the CBA proposals still enjoy. “Disney and all major content companies, the Church of Jesus Christ, ATT, Verizon all back the CBA against T-Mobile or ACA proposal. The CBA has gathered consensus. Alternative proposals have not.”

“We also argue that public auction vs private auction is a red herring as long as the satellite operators are happy with the auction principles. Remember the Communication Act requires the FCC to organise competitive auctions anyway.”

Nevertheless the key unknowns are US Treasury’s demands and spectrum pricing. “But having Deutsche Telekom cut its dividend last week arguing it needs the cash for the C band auction is a good sign for pricing,” he states.


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