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Intelsat Shares Tank on FCC Call for Public Spectrum Auction

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Intelsat S.A.’s I shares declined sharply yesterday as the Federal Communications Commission (“FCC”) lent its support for the purported move by the Congress to hold public auction for its C-band spectrum. The stock has tanked 56.6% in the past two days as investors resorted to panic selling.

Intelsat, along with some other satellite providers, had decided to sell some of the airwaves in the 3.7 gigahertz-to-4.2 gigahertz area of spectrum – widely known as the C-band – in a private auction to raise cash and repay debt. The airwaves acquired over the years were mostly used by these firms to deliver videos to TV stations and were considered as surplus resources. Moreover, the coveted spectrum was much in demand by telecom carriers for the deployment of 5G networks and offered a huge opportunity to rake in large sums of money.

However, several U.S. senators introduced a bill titled the ‘5G Spectrum Act’ that mandated the public auctioning of the C-band to start no later than year-end 2020, and sharing at least half of the proceeds with the FCC. With the FCC Chairman Ajit Pai publicly supporting this view, shares went on a tailspin as the companies were set to lose significant chunk of legitimate money.

Although Intelsat and other satellite providers have pledged to work with the FCC for an alternative plan, prospects of a litigation against the regulatory authority remain in the cards. This is likely to further delay the process of auctioning of essential spectrum bands for faster deployment of 5G technology by the telecom providers and compromise the competitive edge of the United States in the 5G race against China and South Korea.

The developments could have a ripple effect on the industry as 5G phone sales are expected to double by 2021, per estimates by Qualcomm Incorporated QCOM. The chipmaker anticipates global 5G smartphone sales to increase to 450 million handsets in 2021 and further to 750 million in 2022 from 175-225 million in 2020.

Meanwhile, Intelsat is focusing on five operational priorities to stabilize its core business, improve competitive position, optimize asset value and return to growth. Firstly, the company aims to leverage all assets within its global network for maximum return. Intelsat further intends to scale its managed services across enterprise, maritime, business jet commercial and aeronautical government opportunities and build powerful distribution channels to amplify its direct marketing efforts.

The company expects to lead the industry in seamless implementation of satellite-based telecommunications solutions with state-of-the-art infrastructure. Intelsat also aims to invest in and develop standards-based terminals and ground hardware, innovative and software-defined technology, and participate in 3GPP and other broad telecom sector standards development. In addition, Intelsat intends to maintain a disciplined stance on cash flow management and enhance productivity of its deployed capital. Last but not the least, the company expects to optimize its spectrum rights to maintain sector leadership and provide regulatory and operational guidance based on market experience.

Intelsat currently has a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the industry are Gogo Inc. GOGO and Verizon Communications Inc. VZ, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1(Strong Buy)stocks here.

Gogo delivered an average positive earnings surprise of 39.1% in the trailing four quarters, beating estimates on each occasion.

Verizon has long-term earnings growth expectation of 4.2%. It delivered an average positive earnings surprise of 2.2% in the trailing four quarters, beating estimates on each occasion.

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