WASHINGTON — Satellite operators Intelsat, SES and Telesat on Nov. 15 detailed how they would calculate the proceeds they have pledged to contribute to the U.S. treasury if the Federal Communications Commission accepts their proposal to privately auction C-band spectrum sought by 5G network operators.
The satellite operators, acting collectively as the C-Band Alliance, would send $8 billion to the treasury if the spectrum fetches a minimum price of 35 cents per megahertz, analyst Tim Farrar and a former FCC official familiar with the spectrum auctions told SpaceNews. That per-megahertz price is multiplied by the population within the cleared spectrum’s geographic coverage, they said.
If the auction draws higher per-megahertz pricing, the C-Band Alliance’s “progressive formula” for contributions could send upwards of $20 billion to the treasury according to Farrar, and $24 billion according to the former FCC official.
The C-Band Alliance faces growing pressure from Congress, where several House members and a key senator are pushing for an FCC-run public auction so all of the proceeds go to the U.S. government. That political pressure led JP Morgan to downgrade Intelsat’s stock Nov. 12, contributing to a sell-off that caused Intelsat’s stock to lose about 40% of its value in two days.
A central issue politicizing the public versus private auction debate is how much money the U.S. government would get from the transfer of satellite C-band spectrum to cellular and cable companies for 5G networks.
Farrar and the former FCC official said the price range floated by the C-Band Alliance suggests a private auction could raise $32 billion to around $60 billion, though both analysts believe the final amount will be towards the lower end of that range. JP Morgan analysts project the spectrum will sell for around 30 cents per megahertz, which would would value the total auction at around $28 billion.
Proponents of a public auction had criticized the C-Band Alliance’s pledge to make a “voluntary” but previously unquantified contribution to the U.S. treasury from selling the spectrum. The C-Band Alliance anticipates using some of the proceeds to cover the $2.5 billion to $3 billion cost of new satellites, spectrum filters and other expenses needed to ensure continuity of service after clearing 300 megahertz of C-band. The companies would pay taxes on the proceeds, contribute a portion to the treasury, and said they are in talks with Congress on a proposal to fund a rural 5G broadband network, potentially using a “combination of spectrum and capital contributions.” The companies would also pocket some of the proceeds.
Under a public auction, the U.S. government would collect all sale proceeds. It’s unclear whether and how a public auction would reimburse satellite operators for infrastructure that would need to be replaced once the spectrum is transferred to wireless providers.
Analysts say the C-Band Alliance’s proposal, which received a favorable reception from the FCC, is suddenly facing stiff headwinds ahead of the FCC’s anticipated December decision.
“It’s surprising that this has become so fierce in the last five yards,” analyst Chris Quilty of Quilty Analytics said.
Sen. John Kennedy (R-La.), who chairs the Senate subcommittee that oversees the FCC, and favors a public auction, sent a letter to President Donald Trump in July criticizing the C-Band Alliance. Farrar said that if efforts to draw Trump’s attention to C-band succeed, satellite operators could lose more ground.
“The politics may just end up bypassing anything the [C-Band Alliance] is trying to achieve at this time,” Farrar said. “In particular, if Trump expresses a view, then that’s likely to carry more weight than anything the CBA can propose.”
The C-Band Alliance has long argued that its plan is the fastest way to free up the spectrum — an attribute that has resonated with the FCC. Quilty said public auctions often take seven to 12 years to complete. The C-Band Alliance argues it can complete an auction and free up the spectrum in three years.
Kennedy and other members of Congress have cited the risk of litigation against a private auction as another reason the government should run it, but Quilty cautioned that the C-Band Alliance could sue just the same.
“If you really want to get this spectrum and you try to cram a public auction down Intelsat and SES’s throats, they can drag this thing out for a decade,” he said. “There are over 100 TV and radio stations and over 120 million households that are using this spectrum. Congress cannot expropriate this spectrum. It’s legally licensed to the satellite operators.”
The C-Band Alliance said it would commence an auction in the first three months of 2020 if the FCC issues an order in December, as currently anticipated. The group proposes selling 280 of the 500 megahertz of C-band they use today, and keeping the last 20 megahertz empty to serve as a protective barrier halting 5G signals from drowning out fainter, nearby satellite signals.