FCC Approves Plan to Pay Satellite Companies to Give Up Airwaves

(Bloomberg) -- U.S. regulators approved a plan to pay Intelsat SA and other satellite providers to give up airwaves so they can be redeployed for the fast 5G mobile networks being rolled out.

The Federal Communications Commission on a 3-2 vote Friday approved Chairman Ajit Pai’s plan for as much as $9.7 billion to clear the frequencies, with the money coming from bidders expected to include large telephone companies such as Verizon Communications Inc.

The action “will help deliver 5G services to consumers across our country and promote our global leadership,” said Pai.

The satellite companies use the spectrum to beam TV and radio programs to stations, but say they can give up part of it while still serving customers on frequencies they retain, in part because they would use new satellites to carry data.

The FCC will sell the airwaves at a public auction. Pai earlier proposed that Intelsat get as much as $4.85 billion for clearing airwaves quickly. The FCC in its vote didn’t say if that figure had changed.

Intelsat, which had asked for a higher payout, fell as much as 18% and closed down 4.9% at $3.86 in New York trading. Shortly after the vote in Washington, fellow satellite provider SES SA was little changed and Eutelsat Communications SA closed down 2.3% in Paris.

The FCC didn’t immediately release the text of its order, leaving it unclear if commissioners had changed proposed payments during deliberations ahead of the vote at the agency’s monthly meeting in Washington. Pai said the record didn’t support substantially increasing Intelsat’s share.

The FCC expects to release the text early next week, perhaps on Monday.

Intelsat said it would assess the order’s impact once the document is issued. “As we do so we will preserve all options to ensure our company is treated fairly and to protect our spectrum rights,” Intelsat said in an emailed statement.

SES and Telesat, another satellite provider, in a joint statement congratulated Pai. SES earlier opposed Intelsat’s bid for a fatter payment.

FCC Commissioner Geoffrey Starks, a Democrat, said disagreement among carriers leaves “a very real possibility” that the agency will end up “stuck in litigation and with any auction on indefinite hold.”

Luxembourg-based Intelsat in a filing asked for 60% or more of the pot. Fellow satellite provider SES, which also would give up airwaves, in a filing said it should get as much as Intelsat, compared with 41% as proposed by the FCC.

Intelsat’s finances “may remain stressed even with a large relocation payment” because core portions of its business are deteriorating, Stephen Flynn, a Bloomberg Intelligence analyst, said in a Feb. 27 note. Earnings may decline next year, as some customers flee and others renew contracts at lower rates, Flynn said.

Both FCC Democrats voted against the measure, with Jessica Rosenworcel, the agency’s senior Democrat, saying the agency wrongly failed to involve Congress, which could direct the billions of dollars for public purposes such as building rural broadband.

Pai said he’d welcome congressional action, but that it would be “irresponsible” to do nothing and wait for a divided legislature to act.

The FCC on Feb. 7 released its plan to pay the $9.7 billion to Intelsat, SES and other companies if they met deadlines for leaving the airwaves, and another $3.3 billion to $5.2 billion in reimbursement for costs of making the switch. SES would get about $4 billion, and Paris-based Eutelsat could receive $468 million.

Verizon has told investors that it is very interested in so-called mid-band airwaves like those to be offered at the auction approved by the FCC on Friday. The largest U.S. wireless carrier has been adding cell sites in more areas to address rising data traffic demands, but analysts have said Verizon needs more airwaves to help expand network capacity.

Verizon Chairman Hans Vestberg called the FCC’s action “another huge step forward.”

“The FCC clearly understands the need to move swiftly to ensure that critical wireless spectrum is quickly made available so that we can build the networks of the future,” Vestberg said in an emailed statement.

The FCC’s action “is a critical step toward unlocking the 5G economy,” Meredith Attwell Baker, president of CTIA, said in an emailed statement. The trade group represents major carriers such as AT&T Inc., Verizon and T-Mobile US Inc.

Senator John Kennedy, a Louisiana Republican, criticized the vote as a giveaway to foreign companies.

“Shelling out billions for airwaves we already own is no way to handle taxpayer money,” Kennedy said in an emailed statement. “These foreign satellite firms want all four feet and their snout in the taxpayer trough.”

The frequencies in question are in the 3.7 gigahertz-to-4.2 gigahertz area of spectrum, known as the C-band. Intelsat and SES dominate that patch of airwaves, which are considered well-suited for 5G networks. Proponents say the frequencies are needed to help the U.S. beat China in the race to 5G, the next-generation of wireless technology that promises to transform everything from robotic surgery to autonomous vehicles.

David Tepper’s Appaloosa hedge fund took an activist stake of 7.4% in Intelsat and has called for the company to reject the FCC’s plan.

©2020 Bloomberg L.P.

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