The months of extensive lobbying in favour of a privately-held C-band spectrum auction came to naught when FCC Chairman Ajit Pai, in a Tweet on November 18th said: “After much deliberation and a thorough review of the extensive record, I’ve concluded that the best way to advance these principles is through a public auction of 280 megahertz of the C-band conducted by the FCC’s excellent staff.”
The news caused an instant meltdown of Intelsat’s share price, which crashed almost 40 per cent until a New York Stock Exchange automatic trigger stepped in to halt trading and prevent further falls. There was a something of a recovery as the afternoon went on. The European bourses had closed for the day so neither SES nor Eutelsat were initially affected.
The immediate response from the CBA sounded like a threat, stating: “The announcement does not address the critical involvement of the incumbent satellite operators in executing the complex task of reconfiguring and transitioning their networks. Nor does the announcement address the fundamental modification of the rights afforded by the existing FCC licenses held by the CBA members which would be required under a public auction approach”.
Analyst Philip Cusick from JPMorgan said any CBA variation on the FCC’s plan is now “officially dead” and was worried that if the FCC and CBA cannot find a path forward, the target January 2020 start date would be in question.
However, the CBA announced that it was still collaborating with the FCC on an effective alternative plan.
Chairman Pai, in his note, also stressed that the FCC would be adopting four key principles as part of the auction process:
He said: “We must:
(1) free up significant spectrum for #5G,
(2) do so quickly,
(3) generate revenue for the federal government, and
(4) ensure continued delivery of services currently using the C-band.
He added: “With a strong track record of successful auctions, I’m confident [the FCC] will quickly conduct a public auction that will give everyone a fair chance to compete for this #5G spectrum, while preserving availability of the upper 200 MHz of the band for continued delivery of programming.”
Eutelsat welcomed the FCC’s decision.
On November 18th, Senators Wicker and Thune introduced the 5G Spectrum Act, which requires the FCC to allocate a minimum of 50 per cent of C-band auction proceeds to the US Treasury.
Analyst Giles Thorne from investment bank Jefferies said the FCC’s proposal is the “least worst path forward” and suggests that the FCC has engineered a Gordian Knot, saying: A public auction that has political and legal legitimacy but a roadmap of relentless disruption by the CBA to stop this administrative re-allocation of the band; and a private auction that has shakier legitimacy but the benefit of expediency through the full cooperation of the existing licensees. We still see room for a fudged middle-ground but, inevitably, timing is going to be pushed out.”
Sami Kassab, from Exane/BNPP said that even under the FCC plan there would be a “windfall” for the satellite operators. He says: “We use $0.25 per MHz POP (towards the lower end of consensus expectations and reflective of a public vs. private auction). We expect payment of 10 percent, 15 percent and 75 percent to be received from December 2020 (assumed closing of the auction) to December 2023. This implies a €5/share value for SES C-band spectrum rights. We remain at €2/share for Eutelsat’s spectrum rights as the higher US Treasury share would be offset by a higher share of proceeds under its allocation formula.”