The esoteric world of spectrum management and valuation made an atypical public splash yesterday, highlighted by a 40% drop in the share price of a major international satellite carrier, Intelesat, on the New York Stock Exchange.  See https://www.cnbc.com/2019/11/18/intelsat-stock-drops-as-fcc-will-auction-satellite-spectrum-for-5g.html.  Buy-side Wall Street investors responded to an announcement from FCC Chairman Ajit Pai that the U.S. would auction off C-band satellite spectrum, used by both private and government satellite operators, to accommodate ever growing terrestrial wireless spectrum demand.  See https://docs.fcc.gov/public/attachments/DOC-360855A8.pdf This announcement cast grave doubt on prospects for a private auction conducted by the three major carriers, none of whom have U.S. corporate citizenship. See https://c-bandalliance.com/about/.

            How does the valuation of a major international satellite operator substantially evaporate in one day?  There’s a simple answer and a more complicated and nuanced one, both of which I’ll offer. 

            The simple answer: A substantial portion of the value attributable to Intelsat and other satellite carriers lies in their near property-like use of radio spectrum and orbital parking places.  Like broadcasters, satellite carriers, licensed by the FCC, only pay a nominal fee for licenses to operate their facilities.  They have a “renewal expectancy” for both the orbital slots where their satellites hover, 22,300 miles above the equator, and for the frequencies used to uplink and downlink content as well as to manage satellites.  The prospect of an FCC auction substantially reduces the payout Intelsat, SES, Telesat and other C-band satellite carriers can expect to receive when they volunteer to make do with less spectrum to accommodate the ever-growing demand for terrestrial wireless services.

            The complicated answer delves into matters of spectrum propagation and value, the payoff from lobbying U.S. congressional decisionmakers, FCC jurisdiction and the non-U.S. corporate citizenship of the major C-Band satellite carriers.  Radio spectrum can have virtually no value or lots, depending on the use that can be made of it.  C-band spectrum, around 3-6 GigaHertz, offers desirable, “beach-front” access for terrestrial fifth generation (“5G”) services.   Signals at these frequencies and transmit across longer distances than the millimeter wave spectrum operating in double-digit GigaHertz frequency bands.  While U.S. wireless carriers have great expectations for 5G spectrum above 10 GigaHertz, current trials evidence serious limitations including shortened battery life, overheating and far less geographic reach than anticipated.  For example, Verizon has made a public relations splash in offering 5G service to several football stadiums, but reliable service is not available throughout.  C-band spectrum offers far greater geographical covers using existing, low cost technology, readily adaptable for 5G services.

            If 200-500 MegaHertz of C-band spectrum could be reallocated to 5G services, auction proceeds could exceed $60 billion. See  https://spacenews.com/satellite-c-band-is-worth-billions-but-how-many/.  A significant portion of Intelsat’s capitalization, an in turn its share price, accrues from the rights to occupy satellite orbital slots and to use spectrum, on an exclusive basis with protection from interfering uses.

            The C-Band Alliance has spent over $500,000 in a short amount of time trying to convince congressional decision makers that a private auction would expedite the clearing of spectrum for speedy reallocation to 5G terrestrial services.  Additionally, the Alliance made the questionable assertion that the U.S. could reclaim or enhance global 5G supremacy by allowing it to jumpstart the “repacking” of C-band spectrum. 

            Perhaps implicit in this pitch was a faulty assumption that the U.S. could only achieve expedited C-band spectrum availability if the carriers themselves had “skin in the game” and big—make that VERY BIG—financial incentives to play along.  The C-Band Alliance stakeholder may have mistakenly assumed that without their voluntary participation, the U.S. government, including the FCC, would have a difficult time dislodging three foreign carriers from their lock on spectrum.

            I believe the Alliance has misperceived the speed with which the FCC can amend satellite landing rights and operating licenses issued to foreign carriers.  No one disputes the sovereign right of a nation to determine whether and how a foreign telecommunications carrier can land submarine cables on U.S. soil, or operate earth stations that transmit and receive signals from a geostationary satellite, licensed by the FCC.  The Alliance may have banked on the assumption that the FCC could act only at the conclusion of a lengthy, already issued license period.  With the incentive of a self-administered private auction, the Alliance carriers gladly would agree to expedited spectrum clearing and repacking.  Without such a financial windfall, these carriers would litigate their right to retain the status quo for the duration of their existing licenses.

            The Alliance underestimates the lawful flexibility of the FCC to amend its rules, regulations, spectrum allocations and issued licenses.  Of course, the FCC would have to comply with administrative rules providing due process rights, even for alien licensees with corporate homes in Bermuda, Canada and Luxembourg.  It’s quite possible that a private auction would proceed faster than the FCC’s methodical process.  But with $60 billion at stake, and only a maximum one-third cut for the U.S. offered by the Alliance (see https://spacenews.com/c-band-alliance-says-it-would-send-billions-to-u-s-treasury-under-private-spectrum-auction/, FCC Chairman Pai made a smart decision.