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Intelsat Rift With SES Goes All ‘Hunger Games’ Before FCC Vote

Susan Decker and Todd Shields
·4 min read

(Bloomberg) -- Intelsat SA and SES SA , which had been allies in plans to give up satellite airwaves, broke into a feud a week before the U.S. Federal Communications Commission is scheduled to vote on a plan to compensate the companies.

Intelsat said in a filing with the agency that it believes it should get a greater share of payments than the FCC has proposed. SES responded by calling it an “egregious attempt” that was “both disappointing and legally indefensible.”

The dispute has “all gone a bit ‘Hunger Games,”’ Jefferies analyst Giles Thorne said in a note to clients, as “one-time colleagues turn on each other.”

Intelsat rose as much as 19% in New York trading after reporting fourth-quarter sales that exceeded analyst expectations.

The satellite companies have proposed giving up part of the airwaves they use to beam TV and radio programs to stations, and to continue serving customers on airwaves they retain. The swath at issue is known as the C-band, and regulators are eager to free it to carry traffic for fast new 5G networks.

The FCC has announced a plan that would provide $9.7 billion in compensation to Intelsat, SES and other companies if they hit deadlines for leaving the airwaves quickly, and another $3.3 billion to $5.2 billion to pay for costs of making the switch.

The agency is scheduled to vote on the plan Feb. 28. The FCC can change a proposal until the agency votes on it, and modifications at times are made in the final hours beforehand.

“We believe this rift between the two most important companies could potentially allow the FCC to play the companies off of each other in negotiating the contents of the final order,” said Height Capital Markets analyst Chase White wrote in a client note.

While White said it could mean a “less favorable outcome” for Intelsat, he nonetheless called the company’s FCC filing “most likely benign.”

Jefferies’ Thorne linked the disagreement between Intelsat and SES to opposition from Senator John Kennedy, a Louisiana Republican who called the payout too high.

The argument highlights how the exact amount and timing of the money they will get is still uncertain, John Davies, an analyst with Bloomberg Intelligence, said in a note.

Under the FCC’s plan, Intelsat could receive as much as $4.85 billion, while SES would get about $4 billion.

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 next-generation of wireless technology that promises to transform everything from robotic surgery to autonomous vehicles.

The FCC has assigned a 50% share to Intelsat, but the Luxembourg-based company said it should get between 60% to 67% based on its “contribution to clearing C-band services to the contiguous 48 states.” Intelsat also said that the C-Band Alliance -- the lobbying group formed by the satellite companies, won’t be needed under the FCC plan, so it, SES and Ottawa-based Telesat Canada should be treated as individual companies.SES disagreed and called Intelsat’s filing an “eleventh-hour attempt to renounce its commitments made to other CBA members and the Commission.”

“SES believes that there remains an important role for the C-Band Alliance, and that the CBA’s collaborative clearing plan is the most efficient path to clear the spectrum,” the company said in a statement. “That said, SES is prepared to act on its own in the clearing process if necessary, while protecting its customers.”

SES said it had no comment beyond its statement. Responding to the SES criticism, Intelsat said its filing with the FCC “speaks for itself.”

It “demonstrates that we are working to ensure that the final order achieves the best possible outcome for our customers, our company and the American public,” Intelsat said in a statement. “The changes that we are suggesting would allow us to quickly clear spectrum to support 5G deployments in the U.S., creating new high tech jobs and unleashing the economic benefits that will accrue to our country.”

This isn’t the first wedge between members of the alliance. Paris-based Eutelsat Communications SA dropped out of the group in January.

David Tepper’s Appaloosa hedge fund took an activist stake of 7.4% in Intelsat and has called for the company to reject the FCC’s plan.

--With assistance from Cristin Flanagan, Joshua Fineman and Jonathan Reid.

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net;Todd Shields in Washington at tshields3@bloomberg.net

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

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