Satellite Firms Unimpressed With Pai's $9.7B Pitch for C-Band Spectrum

The US government is offering close to $10 billion to get a group of mostly European and Canadian satellite companies to free up valuable midband spectrum for US 5G networks.

But the companies so far are offering relatively apathetic responses to that eye-watering offer.

"We look forward to reviewing the draft order," members of the C-Band Alliance (CBA) said in a terse statement. The CBA represents three of the biggest satellite companies that are currently using the spectrum.

At issue is the C-Band, 500MHz worth of spectrum used by satellite companies including Intelsat, SES, Telesat and Eutelsat to transmit video and radio content to US cable operators and others. The FCC is working to move those satellite companies off of 280MHz of C-Band spectrum so that it can be auctioned for 5G. Companies like Verizon and T-Mobile are keen for that all to happen because they view C-Band spectrum as ideal for their nascent, high-speed 5G networks.

Pai's pitch
In a widely anticipated speech today, FCC Chairman Ajit Pai proposed allocating $9.7 billion in "accelerated relocation payments" for the satellite companies. That money would come from the companies bidding for C-Band spectrum in an auction, and it would be distributed to the satellite companies currently using the C-Band so they would get off of it quickly.

That money would be in addition to the $3 billion to $5 billion that Pai is offering to pay the satellite companies to cover the costs of clearing 280MHz of C-Band spectrum earmarked for 5G.

Pai said the $9.7 billion is intended to encourage the satellite companies to vacate a portion of the band quickly. He said it would only be paid if companies moved their operations in major US cities by 2021. "Why are any accelerated relocation payments necessary? The answer is pretty simple: speed," he said.

Nonetheless, some US legislators are balking at the notion of foreign companies profiting from the sale of US spectrum to US companies. "My duty, and the FCC's duty, is to the American taxpayers. The C-Band spectrum belongs to them, and the 5G opportunities it represents are also theirs," Sen John Kennedy said in a statement. Sen. Kennedy has been a vocal player on the topic of the C-Band. "Unfortunately, the sum Chairman Pai suggested giving to foreign satellite companies is much too high."

Indeed, investors in the C-Band incumbents were clearly hoping for a major payout. Shares of Intelsat swung wildly before Pai's speech today following reports that the company was considering bankruptcy if it did not receive enough cash from the FCC. A subsequent report said Intelsat and other satellite companies had reached some kind of agreement with the FCC pertaining to the C-Band.

Pai sought to distance his efforts from such issues. "I don't favor accelerated relocation payments because they are in the private interest of satellite companies. The balance sheets of private companies are not my concern," he said.

"We look forward to reviewing the draft order, once issued, to place Chairman Pai's comments in full context," Intelsat CEO Steve Spengler said in a statement. "We note with appreciation the hard work of all stakeholders to get to this juncture."

One outstanding issue, and one that is likely causing the satellite companies to withhold their opinion of Pai's proposal, is exactly how that $9.7 billion will be distributed among Intelsat, SES, Telesat, Eutelsat and the other, smaller satellite companies currently using the C-Band. FCC officials said that calculation would be released tomorrow in Pai's official draft order.

Concluded Pai: "Some may say $9.7 billion is too high. Some may say it's too low. I say it's just right."

US wireless providers weigh in
A number of major wireless network operators -- companies widely expected to bid on C-Band spectrum licenses for 5G -- voiced tentative support for Pai's proposal.

"We are encouraged that the FCC is taking the next critical step toward making this valuable mid-band spectrum available for mobile flexible use, while at the same time recognizing the critical need to have an orderly and timely transition in place to protect the content programming ecosystem currently relying on C-Band," AT&T said in a statement. "We look forward to reviewing the details of the draft order and working with all stakeholders to ensure that both the auction and the transition are a success."

"Chairman Pai's historic announcement sets forth a bold vision for bringing much needed mid-band spectrum to auction this year. Most importantly, his plan ensures that this critical spectrum is not only auctioned quickly, but cleared on an accelerated basis," Verizon CEO Hans Vestberg said in a statement distributed to reporters. "This speedy transition will undoubtedly ensure that the US will preserve its global leadership in 5G and will produce hundreds of billions of dollars in economic benefits for the country."

The full, five-member FCC commission is scheduled to make an official vote on Pai's C-Band proposal during the agency's next open meeting, scheduled for Feb. 28.

If Pai's proposal is approved, the C-Band auction for 5G would start Dec. 8.

Industry-watchers are in wait-and-see mode.

"The devil is still in the details and how the proceeds will be split, so we will look carefully at the detailed agenda item tomorrow," wrote the Wall Street analysts at research firm Raymond James in a note issued to investors immediately after Pai's speech. "But we assume the threat of litigation, with or without a bankruptcy component, is off the table given the Chairman's action today."

"We now return to the myriad of issues that still need to be resolved, including the splits between satellite operators, eligibility for relocation expenses, who administers the transition, spectrum caps, and many others that we expect to see tomorrow," wrote the analysts at Wall Street firm New Street Research. "We further expect that Pai's proposals will likely garner majority support. We don't expect those debates to move markets in the way that the incentive payment issue has, but they could impact the likelihood of litigation and potential political pushback."

Coveted turf
The C-Band topic is critical to 5G companies like Verizon and T-Mobile because most of their existing spectrum resources are dedicated to their 4G LTE operations. The C-Band represents the first time in modern history that the FCC will reallocate a large amount of midband spectrum for licensed operations.

5G proponents have argued that, unlike lowband or highband spectrum, midband spectrum is ideal for 5G because signals in such spectrum can both carry lots of data and travel far geographic distances. Midband spectrum is currently being used in China, South Korea and elsewhere for initial 5G networks. And based on recent midband spectrum auctions in Taiwan and Italy, demand among US wireless network operators for such spectrum could break records.

— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano