Intelsat Spectrum Payout Stalls in Congress, Pushing It to FCC

Todd Shields and Rebecca Kern

(Bloomberg) -- Satellite companies Intelsat SA and SES SA may now have to wait for a U.S. regulator to decide how much they should be compensated for diverting some of their airwaves to mobile users, after Congress failed earlier this week to pass a measure that would allow a lucrative payout.

But that regulator, the Federal Communications Commission, hasn’t said whether the companies should get paid at all.

Disagreements stalled a Republican measure to let the Luxembourg-based companies share in almost half the revenue expected from the airwaves sale with the rest going to the U.S. Treasury. The language didn’t make it into a package of spending bills awaiting President Donald Trump’s signature, and lawmakers say there’s no time to advance the legislation before Congress leaves Washington for its year-end break.

“It is dead as fried chicken,” said Senator John Kennedy, a Louisiana Republican who aligned with the Democrat seeking a smaller payout for the satellite providers. “I felt that it would be a windfall, an unjustified windfall, an unearned windfall for the satellite companies. This spectrum belongs to the American people.”

At stake is a tantalizing pot of $40 billion or more expected from bidders for the airwaves that the companies have used for decades but now say they can do without. For lawmakers, the money holds out promise of finally funding broadband expansion to ill-served rural areas. For Intelsat, the payout offers hope to handle a crushing $14 billion debt load.

At the same time, the sums anticipated show the hunger for new airwaves by mobile providers such as Verizon Communications Inc. and T-Mobile US Inc. that are gearing up for advanced, fast 5G wireless networks. Right now the airwaves, known as the C-band, are used to deliver TV and radio programming to stations around the U.S. The satellite providers want to sell part of the swath while maintaining service on the remainder.

Congressional inaction would leave the field to the FCC, where Chairman Ajit Pai is working on plans for an auction to be run by the agency beginning in 2020, rather than the private sale the companies preferred. Pai hasn’t publicly said whether the companies will get paid; he may show his hand if he wants the FCC to vote on his plan at its Jan. 30 meeting.

Worried investors have hammered shares of Intelsat and SES.

Intelsat hemorrhaged more than 70% of its market value this year through Tuesday, including a record one-day dive of 40% last month. Defying that plunge, some analysts are sticking with the stock: Intelsat has five buy recommendations and five holds, with only one sell, according to data compiled by Bloomberg. Their price targets call for a three-fold rally in the next 12 months.

Analysts are about as bullish on SES, despite a 25% swoon in 2019. Nine analysts say buy and seven say hold, along with one sell.

Satellite providers using the C-band have “always maintained that the FCC has the authority to move forward without legislation, but we acknowledge that legislation could clarify certain aspects of this complex undertaking,” Dianne VanBeber, spokeswoman for the C-Band Alliance, said in an emailed statement. The lobbying group is made up of Intelsat and SES, the heaviest U.S. users of the airwaves, along with Ottawa-based Telesat Canada, another satellite provider.

VanBeber said that “speed is essential for the U.S to be positioned to win in the important race to 5G. We will continue to work constructively with the FCC and Congress as the C-band proceeding moves into the New Year.”

Tina Pelkey, an FCC spokeswoman, declined to comment.

FCC Commissioner Jessica Rosenworcel, a member of the minority Democrats, told reporters last week that “We’re going to need some clarification of our authority from Congress” including how to authorize paying the satellite providers, and how the money may be spent.

Some compensation “is likely” to discourage lawsuits from satellite providers who expect to be paid for moving from their accustomed frequencies, but “the FCC’s path forward remains unclear,” Matthew Schettenhelm, a Bloomberg Intelligence analyst, said in a Nov. 20 note.

Kennedy said he’ll be watching closely. The senator oversees funding for the FCC, and played a role in getting Trump to call Pai in the days before the FCC chairman announced he’d not allow the private sale the companies wanted.

“I will chase this issue like a hound from hell,” Kennedy said in an interview. “If they go through the back door and give away the American people’s money I will hound them the rest of their natural lives, and so will a lot of other members of the United States Senate.”

If the auction brings in $30 billion to $35 billion, “I don’t think it’s fair to give $20 billion to the foreign satellite companies,” Kennedy said. “Why should they get the money instead of the American people?”

Auction proceeds normally go to the U.S. Treasury, meaning the FCC would need to find a workaround if money is to flow to Intelsat and SES and to other satellite providers using the airwaves in the U.S., including Telesat and Paris-based Eutelsat Communications SA.

Wireless Future

The FCC could require the satellite providers to vacate auctioned airwaves at the end of a period, say 10 years. Auction winners could pay the providers to leave earlier, so the frequencies are cleared for the new 5G uses.

Under that scenario the FCC couldn’t fund rural broadband, said Michael Calabrese, director of the Wireless Future Project that promotes broadband deployment. The group wants the agency to allow a form of wireless broadband on C-band airwaves that aren’t sold at auction.

“If this is an FCC solution, it goes to the Treasury and that’s it,” Calabrese said in an interview. In a statement acknowledging criticism about possibly paying foreign companies, he summarized the outcome as “maybe less for Luxembourg, but nothing for Louisiana.”

The prospect unsettles some on Capitol Hill.

“The FCC wants to move forward without any guidance from Congress, and that’s a grave, grave error, and we’re communicating that to them,” Senator Brian Schatz, a Hawaii Democrat who favors using auction funds to pay for rural broadband, told reporters.

In the House, Representative Greg Walden, an Oregon Republican, said he wants lawmakers to try again in 2020.

“I think we’re all wrestling with the Rubik’s Cube, if you will, trying to figure out what’s the right way through this one. So time will be better for that,” Walden told reporters.

To contact the reporters on this story: Todd Shields in Washington at tshields3@bloomberg.net;Rebecca Kern in Washington at rkern21@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net, Gregory Mott

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