TR Daily SES Criticizes Intelsat’s Push for Higher Relocation Payment
Thursday, February 20, 2020

SES Criticizes Intelsat’s Push for Higher Relocation Payment

SES S.A. today criticized Intelsat S.A. for asking the FCC to give it a greater share of the $9.7 billion in accelerated relocation payments proposed in a draft order that the FCC plans to consider at its Feb. 28 meeting.

In an ex parte filing yesterday in GN docket 18-122, Intelsat US LLC asked the FCC to up its share of the $9.7 billion proposed in accelerated relocation payments from 50% to between 60% and 67%. Intelsat also asked the FCC to modify the order so it treats Intelsat, SES, and Telesat Canada as separate companies rather than only focusing on the C-Band Alliance, of which they are members (TR Daily, Feb. 19).

In a statement today, SES said it “reaffirms its steadfast support for the Commission’s objectives to ensure global leadership in 5G, and it stands ready, willing, and able to play a central role in the expedited clearing of a portion of the C-band. SES believes that there remains an important role for the C-Band Alliance (CBA), and that the CBA’s collaborative clearing plan is the most efficient path to clear the spectrum. That said, SES is prepared to act on its own in the clearing process if necessary, while protecting its customers.”

SES added that it “is disappointed by Intelsat’s eleventh-hour attempt to renounce its commitments made to other CBA members and the Commission over the course of this proceeding, in aid of a transparent and egregious attempt to capture a greater share of the proposed accelerated relocation payments. Having worked collaboratively for a long period of time on this project, this sudden and recent change in direction by Intelsat is both disappointing and legally indefensible. SES will hold Intelsat responsible under its commitments.”

During a call on Intelsat’s fourth-quarter and full-year 2019 financial results today, Intelsat Chief Executive Officer Stephen Spengler was asked by a Wall Street analyst to comment on SES’s statement, including whether Intelsat believes that it has acted counter to the agreement of the CBA’s members. Mr. Spengler declined to comment.

In response to a question about whether the CBA would be dissolved after the FCC order is released, Mr. Spengler said that it made sense for CBA members to weigh in separately on issues related to the draft FCC item, adding that there will be “ample opportunities for the operators to cooperate” on implementation of the order.

In a news release, he stressed that the company’s “near-term focus is on improving the draft order proposed by the FCC, obtaining changes that would allow us to quickly clear spectrum to support 5G deployments in the U.S. while protecting the video services on which nearly 120 million American homes rely.” The company added that it also wants to preserve “all our rights.”

“We believe those … proposed changes are essential to produce a final order that is implementable and has an acceptable level of business risk,” Dianne VanBeber, Intelsat’s vice president-investor relations, said during today’s call.

Intelsat executives declined to answer several specific questions about the FCC’s C-band proceeding, including whether Congress is likely to step in, saying that the company would comment after it has had a chance to review the FCC’s final order.

Mr. Spengler also declined to comment on an exhibit that Intelsat wants to be treated as confidential. In a filing with the FCC yesterday, the operator said, “Some aspects of the information presented in the Draft Order requires a more expansive understanding of the actual C-band revenues of satellite licensees in the contiguous 48 states, and Intelsat seeks to provide the Commission with this additional important detail, while also ensuring that the sensitive commercial nature of this information is appropriately afforded confidential treatment.”

In a research note today, New Street Research LLP analysts reiterated that “in order to provide meaningful value for the equity, Intelsat must either get more than 50% of the $9.7BN in overall incentive payments, or increase the incentive payment pool from $9.7BN. While the payoff from their latest FCC filing may be significant ($1-1.6BN in value would add $7-12 / sh. in value), we view the odds of the proposal going through as low. Intelsat’s appetite to walk out and increase the downside for their counterparties (whether SES or the FCC) remains unclear, and as such, it is not clear that they have the negotiating leverage to increase their incentive payment.”

Meanwhile, other parties continued to ask the FCC to modify the draft order in various ways.

For example, in an ex parte filing in GN docket 18-122, Cox Communications, Inc., said that it “supports many of the proposed actions described in the Draft Order, particularly the Commission’s commitment to reimbursing all reasonable relocation costs and the appointment of an FCC-approved Relocation Payment Clearinghouse to oversee relocation payments. Cox strongly encourages the Commission to further refine the Draft Order’s discussion of compensable earth station relocation costs with respect to (i) the calculation of lump sum amounts for earth station operators and (ii) the expense categories and estimates to be used for calculating average earth station relocation costs.”

Cox said the FCC should (1) “[d]irect the Wireless Telecommunications Bureau (‘Bureau’) to establish separate relocation cost averages for earth stations operated by multichannel video programming distributors (‘MVPDs’) and non-MVPDs, to reflect the substantial disparity in expected relocation costs between these two registrant groups;” and (2) “[d]irect the Bureau to develop a detailed index of potential reimbursement categories and cost estimates for use in calculating the average earth station relocation costs for both MVPD and non-MVPD incumbent earth station operators.”

Among other things, AT&T, Inc., in a filing said that “C-band FSS customers, including earth station owners, Programmers, and other users, require a guarantee of turnkey migration to the expected end state and a more explicit understanding of — and role in — the transition.” In addition, the carrier said, the FCC should require a multi-stakeholder technical working group “to complete its work in a timely fashion.”

“Although the multi-stakeholder process may be a good mechanism for all parties to reach a consensus view on such technical issues, this group must finish its work well in advance of the auction — and define rigorous protocols, including measurement protocols — for potential bidders to adequately value the rights for which they will bid,” AT&T added. “Presuming the Auction 107 ‘short form’ deadline [will] be in mid- to late-August, it is imperative for a successful auction that the stakeholder group complete its work by the end of July.”

In a separate joint filing in GN docket 18-122 and AU docket 20-25, AT&T, Verizon Communications, Inc., United States Cellular Corp., and Bluegrass Cellular said that a draft public notice proposing rules and procedures for the C-band auction, which is also scheduled for consideration at the FCC’s Feb. 28 meeting, “is generally consistent with the auction design principles that these parties previously agreed should guide the auction of this critical mid-band spectrum. However, we suggest two discrete modifications to the proposed auction design. The Commission should propose the following modifications to the categories of generic block and to the assignment phase.”

First, the carriers said the Commission “should establish two categories of generic blocks in the 46 Partial Economic Areas (PEAs) that are subject to accelerated clearing by September 30, 2021 (Phase I PEAs), and a third generic category in all other PEA[s]. Specifically, the five subblocks that make up 3700-3800 MHz (A1-A5) in the Phase I PEAs should be designated as Category A. The remaining nine blocks in those PEAs should be made available as Category BC. In all other PEAs, the Commission should use a single category, Category AC. The suggested refinements to the categories of generic licenses will better allow bidders to express their preferences, simplify bidding, promote price discovery, and facilitate bidders’ ability to execute switch bids.”

Second, the parties said the Commission “should conduct the mechanics (grouping and sequencing) of the assignment phase much as it has in past auctions and proposes to do in the Draft Comment PN. However, to facilitate the rapid and efficient deployment of spectrum for new services, the Commission should conduct two assignment phases in the markets where clearing could occur by the Phase 1 deadline. The first phase would assign frequencies for use during the early clearing period until September 30, 2023. The second phase would assign ‘final’ frequencies across all PEAs, which will better promote contiguity and efficient network design in the long term. In all other markets, there would only be one assignment phase.”

In another submission, Speedcast Communications, Inc., a provider of remote communications services, cautioned that “repacking of existing earth station operations will be costly and, in many cases, may require spectral or physical relocation of the facilities. The Commission must ensure that incumbent earth station licensees, particularly independent C-band gateway operators, are not shortchanged in this process but instead are fully compensated and made whole.”

“Unlike certain end-user terminals or video distribution and earth stations, the extensive work to reconfigure and/or relocate independent C-band gateway earth stations cannot be easily conducted by satellite operators,” Speedcast added. “Rather, because value-added resellers and similarly situated earth station operators work with multiple satellite providers that do not have visibility into relevant commercial and operational nuances, these Commission licensees must undertake the challenging work of C-band transition themselves. As a result, this small subset of earth station licensees should be eligible for both reasonable relocation costs and incentives for accelerated clearing of their earth station facilities.”

In another filing reporting on a meeting with FCC staff, aviation and aerospace interests said that “the power limits and emission levels set out in the Draft R&O in this proceeding and a ‘spectral separation’ of 220 megahertz between the radio altimeter band (4200-4400 MHz) and the top of the proposed flexible-use band (at 3980 MHz) unfortunately will not offer appropriate protection of the embedded base of radio altimeters.”

“The Commission’s adopted Report and Order must make clear not only that Federal Aviation Administration (‘FAA’)-certified radio altimeters must operate without harmful interference, but that flexible-use licensees in the 3700-3980 MHz band (1) will be responsible for preventing harmful interference to radio altimeters and (2) resolve any interference that does occur,” the filing added.

In addition, the FCC’s order “should provide that the Commission, through OET and WTB, will immediately convene a multi-stakeholder group to provide a forum for industry to work expeditiously and cooperatively to advance the assessment of the potential for interference – by both flexible mobile base stations and handsets – to the embedded base of tens of thousands of FAA-certified radio altimeters; develop efficient, technical solutions; and propose regulatory measures to implement such solutions. Among other things, the stakeholders should conduct an integrity impact assessment to determine the interference tolerance level at which the required system integrity of altimeters is maintained in the presence of the range of prospective deployment flexible-use operations. The FAA and National Telecommunications and Information Administration should be invited, as appropriate, to participate throughout the stakeholder group process.” —Paul Kirby, [email protected]

MainStory: FCC FederalNews SpectrumAllocation WirelessDeployment Satellites

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