TR Daily SES, Intelsat Bicker Over Proposed C-Band Accelerated Relocation Payments
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Friday, February 21, 2020

SES, Intelsat Bicker Over Proposed C-Band Accelerated Relocation Payments

SES Americom, Inc. and Intelsat US LLC have widened a disagreement over the level of accelerated relocation payments that Intelsat should get for clearing C-band spectrum more quickly for terrestrial 5G band use. Intelsat also told the FCC today that the draft C-band order it plans to consider at next Friday’s meeting would be vulnerable to legal challenges on a number of fronts unless the agency modifies the item, and SES suggested the same problem if Intelsat’s accelerated relocation payment share is increased.

Meanwhile, a flood of other ex parte filings have poured into the Commission as the agency’s sunshine prohibition on communications concerning meeting items took effect today (see separate story).

In an ex parte filing late yesterday in GN docket 18-122, SES expanded upon a brief statement released earlier in the day that called Intelsat’s request for a greater share of the proposed $9.7 billion in accelerated relocation payments “indefensible” and accused Intelsat of attempting “to renounce its commitments to other CBA [C-Band Alliance] members and the Commission over the course of this proceeding” (TR Daily, Feb. 20).

In a redacted version of its filing, SES also argued that it should get the same percentage of the proposed $9.7 billion pot as Intelsat – 50%.

In a filing on Wednesday, Intelsat argued that instead of getting 50% of the total, it should receive between 60% and 67%. Intelsat also asked for other relief and suggested that the CBA would be dissolved (TR Daily, Feb. 19).

“The CBA developed detailed plans for clearing the C-band and put them on the record. The Commission reflected many of the CBA’s clearing proposals in the draft Report and Order. The CBA has remained engaged with the FCC in developing these proposals — including following Chairman [Ajit] Pai’s announcement of a public auction — right up to the issuance of the draft on February 7, 2020,” SES said yesterday. “Since then, and in breach of its contractual commitments, Intelsat now seeks to deny the role of the CBA going forward. It is ironic that, in the very filing in which it seeks to deny the ongoing relevance of the CBA, Intelsat relies on the CBA’s filings and plans as evidence of the timing and cost of clearing.”

SES added that it “rejects the assertion by Intelsat that ‘there will be no C-Band Alliance going forward.’ SES believes that there remains an important role for the CBA, and that the CBA’s collaborative clearing plan is the most efficient path to clear the spectrum. Intelsat has no right to unilaterally disband the CBA, and SES will hold Intelsat responsible under its commitments. That said, SES is prepared to act on its own in the clearing process if necessary, while protecting its customers.

“In any event, the CBA members agreed to the appropriate incentives for clearing the C-band spectrum, and this agreement represents the fairest and most accurate determination of how the acceleration proceeds should be allocated between the satellite operators,” SES continued. “SES objects to Intelsat’s unjustified demands for more money. If the Commission were to accept Intelsat’s inchoate claims of financial distress and agree to eleventh-hour threats of holdout or bankruptcy, the agency would be acting arbitrarily and capriciously in the face of clear record evidence that SES, if anything, deserves a greater share than what the draft Report and Order provides. Pivoting down this path would imperil everything the Commission has worked so hard to achieve.”

Under the draft order, SES would get 41% of the proposed $9.7 billion in accelerated relocation payments compared to 50% for Intelsat. SES argued that the two operators should get the same percentage, citing a report commissioned by the CBA in 2019 from RSM US LLP, an accounting firm. SES attached the report to its unredacted filing.

“But if the Commission were to look beyond the RSM report, other key indicators demonstrate why SES will have a ‘proportionately larger effect on the success of the transition process’ relative to the other eligible space station operators,” SES said. “These metrics, which demonstrate that SES should receive approximately half of the accelerated relocation payments, defeat Intelsat’s attempt to obtain two-thirds of the accelerated relocation payments.” The factors include the number of satellites to be ordered, the number of feeds to be equipped with filters, the number of antennas to be installed, and the number of decommissioned TT&C [telemetry, tracking, and control]/gateway sites, SES said.

“In short, if ‘the contribution that each eligible space station operator makes’ represents the lodestar for distributing accelerated relocation payments among eligible satellite operators, then SES is entitled to more than the amount set forth in the draft Report and Order,” the company said. “While some may believe it is necessary to take proposed payments from SES in order to placate disgruntled, financially-troubled companies, Chairman Pai has unequivocally made clear that ‘the balance sheets of private companies are not [his] concern.’ Chairman Pai’s statement remains just as true today as it was then.”

In a filing today responding to SES, Intelsat noted that the CBA was established in 2018 with the purpose of lobbying for a private auction of a portion of the C-band, an approach that the FCC plans to reject in favor of an FCC-run sale.

Intelsat called SES’s filing yesterday “startling and incorrect,” adding that it was relying “on a defunct voluntary agreement and confidential audit report to advocate for a greater allocation of incentive payments. This is unfounded, and the willful misuse of confidential information and deliberate mischaracterization of such report before a federal agency, is indefensible.”

“Given the FCC’s decision not to pursue a private market-based approach, and instead to structure the clearing of the C-band through mandates, incentives, and reimbursements directed at each satellite operator in its individual capacity, SES’s invocation of a private agreement that was predicated on a completely different structure is legally irrelevant and factually unsupported,” Intelsat added. “In any event, even the confidential document that SES improperly submitted, the RSM report, does not support its contentions. Rather, in forming the C-Band Alliance in the context of a private market based solution, SES and Intelsat contemplated sharing evenly in any proceeds that were collected from the secondary market agreements the CBA itself would privately negotiate with bidders, based on an auction CBA itself would run, after accounting for the interests of other parties. The very face of the RSM report belies the notion that it reflects market share, clearing costs, or anything other than a private agreement predicated on a series of events that has not come to pass. Page 2 of the RSM document demonstrates that the only market share being assessed is of satellite companies other than SES and Intelsat.”

Intelsat also said that information from RSM’s “underlying audit” could confirm that Intelsat is due at least 60% of the accelerated relocation payments. It said it was willing to share that data with the Commission.

Meanwhile, Intelsat also raised issues in another filing today related to the FCC’s authority that it said must be addressed.

The operator said that “the Draft Order in its current form fails to reflect a rational balancing of the interests of significant stakeholders in the proceeding, and therefore suffers from several flaws that Intelsat respectfully submits the Commission must carefully consider and rectify before adopting and issuing a final order.”

Intelsat complained that “the Draft Order relies on section 316 of the Communications Act, 47 U.S.C. §316, to require incumbent FSS providers to relinquish their licenses to well more than half of their assigned spectrum in the C-band, and to repack their operations into just the upper 200 MHz of that band — cutting licensees’ operational authority in half (indeed, more than half), stripping away rights worth tens of billions of dollars, and imposing relocation costs that the Draft Order itself estimates at between $3.3 billion and $5.2 billion,” Intelsat complained. “Intelsat respectfully submits that insofar as the Draft Order proposes to deprive incumbent FSS providers, without their consent, of their existing right to use the lower 300 MHz of the C-band, it exceeds the Commission’s authority under section 316. … As the Draft Order recognizes, section 316 only authorizes the Commission to ‘modify’ existing licenses, not to make ‘fundamental changes’ to those licenses.”

Intelsat also argued that “the Commission’s lack of statutory authority under section 316 to mandate the fundamental changes proposed in the Draft Order is confirmed by the constitutional problems those changes would raise. … Requiring the incumbent FSS providers to involuntarily relinquish their license to more than 60% of the C-band without adequate recompense would violate the Takings Clause’s guarantee of just compensation for any government taking. … As it stands, the Draft Order proposes to deprive incumbent FSS providers without their consent of rights worth tens of billions of dollars, and to impose relocation costs amounting to billions of dollars more. The partial compensation that the Draft Order contemplates, in the form of reimbursement for ‘reasonable costs’ of relocation and incentive payments for accelerated relocation, does not provide the ‘just compensation’ that the Fifth Amendment requires.”

Intelsat also suggested “that various aspects of the Draft Order as currently framed are arbitrary and capricious or otherwise unlawful under the Administrative Procedure Act (‘APA’). … Insofar as the Draft Order exceeds the Commission’s authority under section 316 and violates the Takings Clause for the reasons described above, it must be set aside under the APA. … Moreover, given the Commission’s carefully circumscribed power to orchestrate voluntary relinquishment for reauction, see 47 U.S.C. §309(j)(8)(G), the Commission’s assertion of a far broader authority to mandate the relinquishment of licenses to facilitate a reauction in which the FCC will benefit financially is arbitrary and capricious.”

In a separate filing today, Intelsat complained about technical provisions of the draft order. The company said that “1) denial of access to all 500 MHz of C-band post-clearing at four TT&C/gateway sites would result in the loss of critical incumbent services received in the contiguous United States from ocean-region satellites; 2) proposed technical rules would fail to adequately protect critical Telemetry, Tracking and Control (‘TT&C’) operations; and 3) proposed out-of-band emission (‘[O]OBE’) and in-band emission (‘IBE’) levels likely would result in Fixed-Satellite Service (‘FSS’) operations receiving harmful interference from Flexible Use operations post-clearing. Each of these individually pose serious practical and technical feasibility problems and must be carefully and thoughtfully addressed in any final FCC order addressing repurposing of C-band spectrum.”

Meanwhile, Eutelsat S.A., which withdrew from the CBA last year, said that while it “does not agree with Intelsat’s incentive allocation methodology, it does agree that Intelsat should receive a greater proportion of satellite operator incentive payments (approximately 62.5%) given the remaining useful lifetime of its C-band satellites and the significant effort associated with band clearing and relocating relevant satellite capacity to comparable facilities.” It said SES should get 22% of the accelerated relocation payments.

Eutelsat added, “SES has submitted a response to the New Intelsat Allocation Proposal. Among other things, SES asks the Commission to reinstate a private arrangement for the allocation of proceeds among C-Band Alliance (‘CBA’) members associated with a failed proposal for a private sale of spectrum that is no longer relevant. Eutelsat believes that it would be wholly unsupportable and contrary to the public interest to allocate satellite operator acceleration incentives pursuant to a back-room deal among CBA members that was based on a totally different paradigm (including the market-based sale of spectrum rights and covering all incumbent relocation costs from the proceeds). In the context of the current public auction approach, the Commission must allocate satellite operator incentives in accordance with applicable incumbent relocation precedent.”

In a separate submission, Eutelsat said that the draft order fails to adequately consider the following issues: (1) “allocating acceleration payments among satellite operators participating in the relocation with reference to the proportion of C-band satellite capacity rendered unusable for protected FSS downlink services for its remaining useful lifetime, in order to strengthen the legal basis for the allocation under Teledesic;” (2) “[p]ermitting FSS access to the 3.7-4.0 GHz band on an unprotected, non-interference basis after the transition to terrestrial 5G services;” (3) “[e]nsuring that only an independent entity with no conflicts of interest may be eligible to serve as the C-band Transition Coordinator;” and (4) “[a]dequately accommodating the interests of all earth station operators, including independent C-band gateway licensees, in the transitioning the 3.7-4.0 GHz band.”

“Proper application of the Emerging Technologies framework requires that satellite operator acceleration payments are allocated in proportion to the remaining useful lifetime of lost C-band satellite capacity that will be replaced with comparable facilities in order to facilitate the deployment of terrestrial 5G services,” Eutelsat argued. “And considering the extent of CONUS coverage adjusts the allocation for the percentage of U.S. customers that can be served by each C-band satellite. This capacity-based approach, which prevents overcompensation and is necessary under the Emerging Technologies framework, is an accurate, easily articulated, and objective method for allocating acceleration payments among eligible satellite operators.”

Eutelsat said that under its proposed framework, it would receive nearly $1.47 billion in accelerated relocation payments rather than the $467.9 million proposed by the Commission.

In another filing, SES asked the FCC to “further clarify how the C-band clearing process will be implemented[.]”

For example, SES said that the Commission should clarify the definition of “clearing” and “who is responsible for clearing” and that it “should clearly state what the eligible satellite operators’ duties are vis-à-vis their customers, affiliated earth stations, and the Relocation Coordinator. There is currently a dearth of clarity on which party is responsible for which element of the transition process.”

SES also asked the FCC to establish “a deadline by which the FCC is required to provide feedback on Transition Plans” and “a brief shot clock on the FCC or Clearinghouse’s verification process.”

In another filing, Verizon Communications, Inc. urged the Commission to modify the draft order in a number of ways. For example, the carrier said that the agency should clarify that overlay licensees can offer service as long as their operations protect incumbents and that licensees can negotiate early-clearing agreements with incumbents. In addition, there should not be a requirement that incumbents secure the lowest costs for relocation expenses, said Verizon, which also asked the Commission to accelerate clearing by moving up certain deadlines. Verizon also noted that it supports the draft order’s spectrum aggregation determination to review spectrum holdings on a case-by-case basis, and it expressed support for changes to an auction public notice in AU docket 20-25 to simplify bidding and improve the assignment phase of the sale.

Verizon also commented on “penalty issues raised recently by NAB and Intelsat. They suggest modifying the penalties the Draft Order imposes on satellite operators that fail to meet either of the Accelerated Relocation Deadlines. Both propose replacing the complete loss of the accelerated relocation payment with a ‘sliding scale’ of payments that gradually decrease over time. And Intelsat also asks for a three-month ‘grace period,’ that would grant a satellite operator that fails to meet a deadline three additional months to complete clearing, without any penalty at all.

“Some flexibility on penalties makes sense to prevent an overly draconian approach from inadvertently undermining the incentive or ability for incumbents to engage in the accelerated clearing process,” Verizon added. “But the premise for overlay licensees’ obligation to make accelerated relocation payments is that the spectrum is in fact cleared by the deadlines. The amount of penalties must be meaningful and how they will be applied must thus be clear. A satellite operator’s failure to meet any accelerated relocation deadline should result in an immediate loss of a substantial portion of the accelerated relocation payment, with additional reductions for each month that clearing is not completed. If clearing is not fully completed within six months of the deadline, the satellite operator would not have earned, and should not receive, incentive payments for acceleration. The Commission should reject longer periods and any grace period, both of which would undermine the value that licensees pay for in accelerated clearing.”

In a separate filing, Verizon recommended out-of-band emissions (OOBE) rules for user equipment operating in the repurposed C-band. The carrier said that “the OOBE limits proposed by the FCC in ¶311 of the Draft Order are generally – but not entirely – consistent with the 3GPP standards for OOBE, and this discrepancy could prevent 3GPP compliant user equipment that operates on wide bandwidth channels from being certified for use in the United States. We recommended that the FCC adopt an OOBE limit consistent with the 3GPP standards for user equipment that would limit out-of-band-emissions to: (i) the greater of -13 dBm/350 kHz or -13 dBm/1% of the channel bandwidth within ±5 MHz of the channel edge; and (ii) -13 dBm/MHz at frequencies more than 5 MHz from the channel edge.”

Meanwhile, Verizon also submitted an Analysis Group, Inc. study that estimated the economic benefit of clearing the C-band early.

“Clearing C-Band spectrum for 5G under the accelerated timeline proposed by the FCC would unlock positive economic value by accelerating the completion of 5G infrastructure buildout using the full 280 MHz nationwide by September 2028 – four years faster relative to the alternative, mandatory clearing deadline, under which 5G network buildout is not expected to be complete before September 2032,” the analysis said. “Our earlier work, updated to 2019 dollars and revised to reflect the timelines proposed by the FCC, suggests that infrastructure spending on the buildout of 280 MHz of mid-band spectrum for 5G would contribute $179 billion to U.S. GDP and create 868 thousand new jobs, through completion of the buildout in September 2032. We estimate the incremental economic impact of accelerated clearing resulting in completion of the buildout in September 2028 to be as much as $54 billion in additional GDP and 261 thousand jobs created.”

Also, United States Cellular Corp. reiterated its call for spectrum aggregation limits. “Such limits are particularly necessary given the continuing shortage of mid-band spectrum coming to market in quantities sufficient to meet competitive demand,” it said. “Specifically, the Commission should adopt an overall spectrum aggregation limit of 100 MHz of the total spectrum that will be made available in the auction.” It also endorsed an AT&T, Inc. proposal for making sure that auction bidders get spectrum by the Phase I and II clearing deadlines.

For its part, Charter Communications, Inc., “proposed that the Commission clarify the draft Order to minimize the potential for harmful interference at the band edge between terrestrial operations in the 3.7-3.98 GHz band (‘C-Band’) and Citizens Broadband Radio Service (‘CBRS’) operations. To this end, we suggested that the FCC require CBRS operators and C-Band licensees to coordinate and to synchronize time division duplexing operations above and below the 3.7 GHz band edge. Relatedly, we asked that the Commission expand any technical stakeholder group that will address interference issues to include this synchronization issue and to include representatives of adjacent band operators and spectrum access systems. This is especially important because the wireless ecosystem for CBRS is now commercially viable.”

“The Commission should ensure that relocation reimbursement and incentives are available to address the unique needs of independent gateway earth station operators and valued added resellers, and that C-band gateways and remote terminals have access to sufficient downlink spectrum – even on an unprotected basis in the 3.7-4.0 GHz band,” ITC Global, Inc., said in a filing.

In a research note today, Blair Levin, an adviser for New Street Research LLP, said that “Intelsat is now on its own, with no allies in support of its [accelerated relocation payment] allocation proposal, and with the CBA effectively defunct. Intelsat must be operating on the bet that the threat of bankruptcy and/or litigation is sufficient to convince Pai — who we think has the other two Republican votes solidly locked up — to grant some relief. As we discuss, we think relief in the form of a greater allocation to Intelsat or an increase in the aggregate incentive payment is unlikely, but there are a number of details in the current draft, including on the issues raised in the [Intelsat investor] Appaloosa letter to the Intelsat board, where we do think Pai has the negotiating flexibility to grant some relief. In particular, we think there may be a modification of the framework for penalties related to transition deadlines. Such relief, however, may come with Pai also strengthening the ability of broadcasters and others to have input into whether and when the transition has been successfully completed.”

Mr. Levin continued, “But as with our earlier view that miscalculations about the motives and capabilities of others could lead to problematic consequences, the filing has raised again the risk of bankruptcy, litigation that could undermine the transition, and the transition process itself being undercut by the unwillingness of Intelsat, or its former allies, to participate on the terms that the FCC has set forth.”

Mr. Levin also noted, “In addition to trying to capture revenues at the expense of other satellite operators, Intelsat advocates for other changes in the payment and transition plan, including reallocating a proportion of incentive payments between Phase I and Phase II, eliminating the contingent obligation to repay Phase I payments if Phase II is not performed on a timely basis, creating a new framework for the penalties if the transition is not performed on a timely basis, moving back the deadlines for performance, accelerating the decision dates of other stakeholders, and clarifying that financing costs are reimbursable (referred to jointly as Payment and Transition Plan Changes). In addition, Intelsat notes that the CBA alliance is now defunct, in terms of its transition role going forward, and that the interference standards in the draft order [will] result in interference with Fixed Satellite Services when the transition is completed, thereby creating harmful interference with those video delivery services.”- Paul Kirby, [email protected]

MainStory: FCC FederalNews SpectrumAllocation WirelessDeployment Satellites

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