Satellite operator Eutelsat Communications SA used to walk in lockstep with its bigger rivals, insisting on substantial compensation if the US government took back frequencies reserved for their use and assigned the airwaves to others.
Now the Paris-based company has gone rogue — and is finding a receptive audience in Washington.
Eutelsat dropped out of a lobbying alliance with Intelsat SA and SES SA. It has proposed to the US Federal Communications Commission a payout that would be a fraction of what its erstwhile partners are seeking — forfeiting a jackpot that has tantalised investors and sent shares on a boom-and-bust trip over two years.
“Our proposal is grounded in FCC precedent and offers the greatest certainty for making airwaves available for 5G deployment in the US in a timely way,” Eutelsat’s director of financial communication, Joanna Darlington, said in a statement.
Eutelsat’s concept is gaining ground with American officials. FCC staffers have briefed lawmakers and others in recent days, saying the agency is leaning toward a payment of less than $10bn to be shared by the satellite providers, according to three people who asked not to be named because the matter hasn’t been made public.
Eutelsat’s its chief executive officer, Rodolphe Belmer, met Janury 28 with FCC Chairman Ajit Pai, according to a filing, a sign the company’s idea is being considered at high levels.
Pai declined to comment on the agency’s plan at a news conference on Thursday following a monthly commission meeting. But he said he intends to release details in coming days and seek a vote at the FCC’s meeting on February 28.
Under Eutelsat’s proposal, airwaves auction winners would pay for reimbursing the satellite companies. Payouts would be based on the lost revenue opportunity from the airwaves that are to be sold, rather than calculated as a percentage of revenue from auctioning the airwaves. That would result in about $7bn to the providers. The plan Intelsat and SES submitted to the FCC seeks almost half the proceeds of an airwaves auction that could reach $77bn, to be split among satellite providers.
The apparent acceptance of Eutelsat’s concept means Intelsat and SES “have moved from once being in the pole position with the whip hand, to being in fourth position in the race,” said Tom Wheeler, a former FCC chairman now a visiting fellow at the Brookings Institution in Washington.
Robert Berg, a senior analyst at Berenberg bank in London, said Eutelsat’s strategy makes sense. The company wants an assured payoff that relies on a simple formula, rather than gambling on a bigger and more controversial pay day later. “They see that as the easier and quicker way,” Berg said in an interview. “You get ‘X’ and you don’t have to worry if the auction is big or small.”
In any case, the satellite companies would be giving up part of the spectrum they now use to beam television and radio programs to stations. Mobile providers are expected to bid for the freed frequencies, for use in high-speed 5G service that would underpin such e-wizardry as autonomous vehicles and remote surgery. Satellite providers would use airwaves they retain to serve today’s customers.
For more than a year, the three satellite providers argued together that they should run the airwaves sale and determine the proceeds’ destination. Unity crumbled when Eutelsat in September left the C-Band Alliance, named for the spectrum at issue, that includes SES and Intelsat, both based in Luxembourg.
Two months later the FCC’s Pai decided on a public auction. That sets up a potential problem for the providers: Revenue from auctions run by the FCC goes directly to the US Treasury.
The companies are intent on a work-around. The C-Band Alliance says the FCC can require companies that buy airwaves at the auction to commit to a second set of payments later, this time to satellite providers to hasten the day when providers leave the airwaves. The term of art in their FCC filings is “acceleration payments.” “We want to be treated fairly,” Dianne VanBeber, vice president of investor relations at Intelsat, said in an interview. “You have to prove to your shareholders that you get a fair transaction. That’s all we want.”
Concerns about the ultimate payday for satellite operators have erased more than half of Intelsat’s market value this month.
Eutelsat occupies a unique niche in the unfolding debate. By global revenue it’s about one-third smaller than either Intelsat and SES. It says it has about 5% of the C-band market, while Intelsat and SES say they combine for about 90%. That means a split of auction revenue based on US market share would leave Eutelsat with a sliver compared to Intelsat and SES.
Eutelsat tallied potential lost revenue from the airwaves to be relinquished at $3.5bn, and told the FCC that Intelsat deserves 56.7% of that, with SES getting 20.1% and Eutelsat claiming 13.4%. Other providers would take the remainder.
Companies also could share in $1bn of payments to leave airwaves sooner rather than later. Those payments could push Intelsat’s take to $2.98bn, and the total payout to satellite providers at $5.25bn. The plan calls for another $1bn to help owners of receiving stations on the ground adjust to the change in frequencies.
The figures are well below the estimated $15bn that the C-Band Alliance would need to win in order for Intelsat to tame its debt load to a more sustainable level, given its share of the proceeds, according to Bloomberg Intelligence. Intelsat needs at least $5.5bn to get its leverage to around 6 times debt to a measure of earnings, according to BI telecom analyst Stephen Flynn.
Eutelsat’s stance illustrates an “unprecedented demand” by the C-Band Alliance to base payment the value of the spectrum’s use for a different service by a different industry, said Michael Calabrese, director of the Wireless Future Project, which promotes broadband deployment.