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FCC Chairman Calls for Public Auction of C-Band Airwaves

Todd Shields and Allison McNeely

(Bloomberg) -- Intelsat SA had its worst two-day rout and SES SA plunged as investors assessed the satellite providers’ prospects after a key regulator rejected their plan to raise billions of dollars by selling airwaves in a private auction.

Federal Communications Commission Chairman Ajit Pai instead called for a public auction, something that could reduce the companies’ share of the proceeds.

The satellite providers want to sell some of the airwaves they now use to deliver video to TV stations to raise cash. The companies have concluded they no longer need all the spectrum they have acquired over the years.

Meanwhile, the frequencies are coveted by fast-growing mobile providers eager to build the next generation of wireless, 5G networks.

Intelsat and SES called Pai’s plan “a significant departure” that “does not address the critical involvement of the incumbent satellite operators.” They said they would work with the FCC to seek an alternative.

Heavily indebted Intelsat fell more than 50% over two days to trade for a time below $6 on Tuesday; it had traded above $37 last year as the FCC considered the companies’ proposed airwaves sale.

Intelsat needs money to pay down its debt of more than $14 billion. Intelsat shares fell as much as 31% Tuesday on Tuesday and were off 18% at $6.62 at 11:51 a.m. in New York trading. They dropped 40% on Monday.

SES also needs to cut debt ahead of a jump in capital spending expected in 2021, according to Bloomberg Intelligence. SES stock fell 23% in Paris, while its EU500m 2027 notes fell the most since pricing in late October. SES 5-year senior credit default swaps widened 19 basis points to 90 basis points, the most since 2009.

Pai said the sale should free airwaves for 5G wireless use, do so quickly and generate revenue for the U.S. government. He didn’t say if any proceeds would be earmarked for the companies. The FCC could vote to adopt the plan early next year.

“I’ve concluded that the best way to advance these principles is through a public auction,” Pai said in a tweet.

Pai’s announcement sent a ripple through the telecommunications industry. Pai’s move could be seen as “bad news” for Verizon Communications Inc., which urgently needs spectrum and might have benefited from a faster, private sale the satellite companies had proposed, Bloomberg Intelligence analyst John Butler said in a note Tuesday.

Verizon Executive Vice President Craig Silliman said in a statement that it’s “critical that the FCC move quickly.”

The satellite providers’ plan provoked opposition among lawmakers who expressed concern about European companies profiting from the sale of U.S. airwaves, including Senator John Kennedy, a Louisiana Republican who said he called President Donald Trump to raise an alarm. Trump called Pai on Oct. 30 and while the issue was discussed, the president didn’t direct the agency on what to do, said an FCC official who spoke on condition of anonymity.

Kennedy told reporters that Pai was “putting both the American taxpayer and our 5G effort first” with Monday’s announcement.

Also Monday, leading Republicans introduced legislation requiring a C-band sale to begin by the end of next year, with taxpayers getting at least 50% of the airwaves’ market value.

FCC officials declined to discuss what portion of sales the satellite companies might get under a public auction. They said the agency intends to begin the sale in 2020.

JPMorgan said in a note that it appears “the private auction process is officially dead, but there is still no consensus of how to get to a public auction.”

An array of Intelsat notes sank on the news, with some 2025 maturities hitting their lowest level in more than a year and a 2024 bond setting an all-time low.

Intelsat bonds plunged to new lows across its maturities as uncertainty continued to weigh on the debt. Its 7.75% bonds due June 2021 fell 11.5 cents on the dollar to 73.5 cents and its 8.125% notes due June 2023 dropped 9 cents on the dollar to 52.75%. Both sets of bonds yield more than 30%.

On Nov. 15, the C-Band Alliance group made up of Intelsat, SES and Ottawa-based Telesat offered to voluntarily pay the U.S. Treasury 30% to 75% of the take from a private sale.

The airwaves in question are in the 3.7 gigahertz-to-4.2 gigahertz area of spectrum, known as the C-band. Intelsat and SES dominate that patch of airwaves, which are considered well-suited for 5G networks.

Proponents say the frequencies are needed to help the U.S. beat China in a so-called race to 5G. The alliance that includes Intelsat and SES said its proposal would be quicker than an FCC-run auction.

--With assistance from Susan Decker.

To contact the reporters on this story: Todd Shields in Washington at tshields3@bloomberg.net;Allison McNeely in New York at amcneely@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net, Elizabeth Wasserman

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