(Bloomberg Opinion) -- There’s been a lot of drama lately in the wireless world concerning 5G and something called C-band. To most people, all the news headlines have probably looked like a foreign language. But allow me to translate for you, because it’s a fascinating situation that has sparked a transnational fight over some $50 billion, while presenting advocates of President Donald Trump’s “America First” policy with a catch-22. The outcome may have far-reaching implications for the U.S. in the global race to 5G, and it certainly does for a pair of beaten-down European stocks.
At the root of the drama is spectrum, the invisible airwaves sought after by U.S. wireless carriers — Verizon, AT&T, T-Mobile, Sprint — and others to construct ultra-fast 5G data networks, the kind that will enable a smartphone to download a movie in mere seconds and support driverless car technology. The Federal Communications Commission has been working to free up spectrum being used by other institutions so that it can be auctioned off to the 5G builders and repurposed for their networks, a high priority for the Trump administration.
But there have been some hiccups along the way. Take one case, in which scientists from the National Oceanic and Atmospheric Administration (NOAA) and the National Aeronautics and Space Administration (NASA) raised concerns that a particular slice of spectrum auctioned by the FCC could interfere with weather sensors and limit their ability to forecast hurricanes. That’s quite a quandary.
The recent spectrum controversy, a separate matter from the hurricane one, has involved a swath referred to as the C-band. In the 3.7 to 4.2 gigahertz frequency range, these midband airwaves are highly desirable for 5G because they can both carry large amounts of data and travel long distances (some spectrum can only do one or the other). Here’s where it gets complicated: Most of the C-band is controlled by two Luxembourg-based companies, Intelsat SA and SES SA, which use it to beam TV shows to U.S. households from their satellite fleets. Telesat of Ottawa also owns some of the C-band rights. These three foreign companies make up what’s called the C-Band Alliance (CBA).
The good news it that the CBA members are willing sellers, and the auction could raise $50 billion or more, according to an estimate by New Street Research. It would be one of the biggest spectrum auctions ever. But who gets the money: the CBA, or the U.S. Treasury? These are U.S. assets, after all.
The CBA had been pushing for a private auction run by, of course, the CBA, arguing that it would make the process much faster. For those who see America’s buildout of 5G as an important geopolitical race against China, time is of the essence. FCC Chair Ajit Pai — who is already a controversial figure for repealing net neutrality and for backing the potentially harmful merger of T-Mobile and Sprint — originally seemed to be leaning toward the CBA plan. His Republican colleague, Commissioner Michael O’Rielly, was in strong support of it: “In the grand scheme of things, if it is a contest between speed and the government trying to extract a significant piece of the transaction through a lengthy process, I’ll take the speedy resolution,” O’Rielly said at a conference in September.
But in the CBA auction scenario, only a portion of the proceeds would go to the U.S., while the rest would be pocketed by the CBA. That sounded like nails on a chalkboard to at least one member of Congress: “They’re thinking about giving our spectrum to three foreign companies and letting them keep the $60 billion,” Republican Senator John Kennedy of Louisiana said during an impassioned speech on the Senate floor last month. “Talk about swampy,” he said, adding that the funds should go to the American taxpayer. But to put America first, is it better to hold a quicker auction or a more lucrative one?
Kennedy has led the charge against the CBA’s plan (seemingly a charge of one because, hey, it’s hard getting folks excited about radio waves), pushing instead for a public auction run by the FCC. Though he may have a point, it was somewhat diluted by his supplemental remark that proceeds from the auction “would solve all of the president’s [border] wall problems.”
Perhaps a coincidence, after Kennedy stumped at a Trump rally in his home state last week in support of Republican gubernatorial candidate Eddie Rispone, the FCC changed its tune. On Monday, Pai Tweeted that he supports a public auction, citing that it would “afford all parties a fair opportunity to compete for this 5G spectrum,” limiting the litigation risk that a private auction may have presented.
This is bad news mostly for the CBA crew. The U.S. wireless carriers would obviously like to get their hands on this spectrum sooner rather than later and have a bigger say over the process (Verizon especially, given that it’s focused so far on finicky millimeter wave spectrum). But for the heavily indebted Intelsat, it’s a far bigger inconvenience. The company’s stock has plummeted more than 50% this week, while SES dropped 24%.
There’s more to come on this matter, but so far the supposed race to 5G looks more like an exhausting obstacle course.
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Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.
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