C-Band Alliance pegs satellite spectrum clearing costs at $3.3 billion

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WASHINGTON — The C-Band Alliance said it will cost Intelsat, SES and Telesat $3.3 billion to clear 300 megahertz of C-band spectrum for U.S. 5G wireless networks without leaving satellite-dependent television broadcasters in a lurch. 

The C-Band Alliance released the new cost figure earlier this week just ahead of a bipartisan group of U.S. senators introducing legislation that would cap how much the satellite industry could receive under the C-band auction the Federal Communications Commission hopes to initiate by the end of the year.

The C-Band Alliance, which Intelsat, SES, Eutelsat and Telesat formed in 2018 to convince the FCC to let them sell some of their satellite spectrum to bandwidth-hungry 5G network operators and keep the proceeds, are still hoping to have these and other transition costs covered despite the FCC’s November decision to run a public spectrum auction instead. 

Former C-Band Alliance member Eutelsat, which quit the group in September, is making a standalone effort to ensure the cost of its spectrum losses are covered. The company told the FCC Jan. 27 that it believes the total cost will be $3.5 billion, slightly higher than the C-Band Alliance estimate. 

Buying new satellites accounts for roughly half the C-Band Alliance’s latest estimate for what it would cost its members to clear 300 megahertz of spectrum to make way for 5G networks. Intelsat, SES and Telesat say they would need to launch eight to 10 new satellites combined to continue service after the spectrum is repurposed, making many of their current satellites less usable. 

The C-Band Alliance submitted research to the FCC Jan. 27 from financial advisory firms NERA Economic Consulting and Evercore that estimated the auction value of the 300 megahertz of spectrum at between $43 billion and $77 billion. 

Under the C-Band Alliance’s since-rejected private auction proposal, Instelat, SES and Telesat stood to reap billions of dollars in proceeds even after making a voluntary contribution to the U.S. treasury.

Now the companies are seeking to ensure, at minimum, their transition costs are covered.

“[W]e simply do not have the flexibility to proceed unless we are offered the opportunity to share fairly and appropriately in the value being created through our tremendous past and future efforts,” C-Band Alliance Chief Executive Bill Tolpegin wrote in a Jan. 27 letter to the FCC. “We continue to believe such sharing is most easily expressed through a formula directly tied to the actual realized proceeds of any C-band auction.”

Congressional options take shape

The C-Band Alliance is seeking to have these costs covered through “accelerated clearing payments” from companies that bid for C-band spectrum from the FCC. Tolpegin said such payments would not count as auction proceeds since their purpose would be to “remove, in an expedited fashion, existing encumbrances on the licenses being auctioned.” 

How much the C-Band Alliance ultimately receives could be decided in part by legislation currently moving through Congress. 

On Jan. 28, Sens. John Kennedy (R-La.), Brian Schatz (D-Hawaii) and Maria Cantwell (D-Wash.) introduced the Spectrum Management And Reallocation for Taxpayers (or SMART) Act,  that would cap spectrum clearing reimbursements at $6 billion. That amount, while higher than the C-Band Alliance’s cost estimate, would be available to licensed C-band earth station operators as well as satellite operators. Kennedy’s SMART Act would also limit incentive payments to $1 billion out of the $6 billion it would make available for clearing costs. 

Dianne VanBeber, vice president of investor relations at Intelsat, said the C-Band Alliance is underwhelmed by the SMART Act’s $1 billion maximum allowance on incentive payments. 

“We do not consider it sufficient,” she said Jan. 29 by email. “Our ask is to be treated fairly. We think there should be a path to reaching a fair outcome — nothing more, nothing less — for the U.S. taxpayers and the satellite operators creating the value by clearing the spectrum.”

Raymond James analyst Ric Prentiss wrote Jan. 29 that weak incentive offers could delay the spectrum transfer and possibly spark a legal battle. 

“We do not feel that the SMART legislation will garner the support required on the Hill to be enacted and $1 [billion] of incentive payments is far too diminutive to get the Satellite Operators to undertake the clearing process or not seriously consider litigation,” Prentiss wrote in a research note. 

Prentiss notes that a separate bill, The 5G Spectrum Act of 2019 (S. 2881), introduced by Senate Commerce Committee Chairman Roger Wicker (R-Miss.) in November, would give satellite operators “an incentive to clear the band in a timely fashion and allows the U.S. Government to participate.”

Wicker’s bill would require at least 50% of any C-band proceeds go to the U.S. treasury, but would place no cap on what satellite operators could receive. The bill cleared the Senate Commerce Committee in December and gained a fourth Republican co-sponsor Jan. 28. No Democrats have signed onto Wicker’s bill.

Verizon and T-Mobile recently told the FCC they don’t contest the agency’s authority to require winning bidders in the forthcoming C-band auction to make payments to incumbent licensees — which, in this case, are the satellite operators currently assigned the spectrum rights. T-Mobile, however, said the C-Band Alliance’s criteria for accelerated clearing payments “does not appear sound from either a legal or policy perspective.”

Verizon said Jan. 24 that the FCC “should adopt an auction framework that provides for incentive payments to satellite operators in return for clearing of the spectrum on the 18-36 month timetable that they have proposed.”

C-band clearing costs explained

The C-Band Alliance estimates its members need to spend $1.6 billion on replacement satellites — purchases that its largest members Intelsat and SES would lead. That figure would cover manufacturing, launch, insurance and ground equipment, the C-Band Alliance said. Telesat, which has a smaller fleet, would then lease capacity from Intelsat and SES as needed. 

The C-Band Alliance originally said it needed eight replacement satellites, but that plan was based on an auction occuring by June 2020. With the auction now expected toward the end of the year, Intelsat and SES may have to revise their fleet replenishment plans, the C-Band Alliance said. 

Consolidating C-band ground infrastructure from 14 teleports to four will cost $300 million, as will new ground infrastructure for customers, including antennas and an estimated 100,000 filters to keep old antennas working without 5G interference. 

To pack television and radio broadcasters accustomed to 500 megahertz of C-band into just 200 megahertz, the C-Band Alliance said it will need to accelerate the adoption of advanced signal compression technology. That compression and modulation equipment will likely cost $500 million, the C-Band Alliance said. 

That loss of spectrum would result in a knock-on revenue loss of $500 million from having less capacity to sell. The C-Band Alliance argues this also should be compensated, and includes this amount in its $3.3 billion sum. 

Satellite news-gathering trucks and other specialized services will need their own modified equipment as well, such as “highly integrated filters,” which the C-Band Alliance estimates will cost its members $100 million to provide.