Intelsat S.A. (I)

Recent Price Weakness Provides Attractive Entry Point As FCC Proceeding Gains Momentum


We are long shares of Intelsat and SES. Please click here to read full disclosures.

Since our last article on Intelsat, newsflow has continued to trend positively and point to major positive catalysts over the course of 2019, yet Intelsat shares have tumbled from the mid $20s to the mid teens. In this article, we provide updates to our thesis and timeline; for background, please also see our original report and 2018 update.

Commissioner Support

The Federal Communications Commission oversees spectrum policy, so it’s important to understand the thinking of current FCC commissioners. Spectrum policy is a complex, esoteric subject and Congress and other political participants tend to not meddle with the FCC’s policy goals. The FCC, a 5-person commission, is typically governed by 3 commissioners from one party, and currently it’s the three Republican commissioners of Ajit Pai, Michael O’Rielly and Brendan Carr who direct FCC policy. So to get a sense of how the C band reallocation will occur, simply listen to what the Republican commissioners are saying.

On April 4, Commissioner O’Rielly spoke about the C band proceeding in a speech:

While placing 3.5 GHz into the hands of industry is a huge step forward, it is just not enough spectrum, by itself, to support 5G. The Commission must move with all due haste to conclude its proceeding to open the C-block spectrum for additional wireless use. The existing C-Band satellite downlink spectrum – or 3.7 to 4.2 GHz band – provides the best mid-band spectrum play for 5G wireless services. Not only is it the largest swath of mid-band spectrum available, but it is adjacent to the 3.5 GHz band and the current satellite licensees are willing to part with some of it. I have led the charge to open this band for terrestrial use, and it remains one of my highest priorities for this year at the Commission. 

As many of you have heard me say, the question is no longer whether there will be wireless operations in the C-band, but what is the appropriate mechanism for reallocation and determining how quickly it can occur. When the Commission started this proceeding, I announced some very simple principles that would need to be met. Besides accommodating the current incumbent users, the plan needs to repurpose a sufficient amount of spectrum – at least 200 to 300 megahertz – for private sector wireless use and has to happen quickly. How quickly? Yesterday would have been nice, but, under no circumstances, can the Commission adopt a process that takes five or more years to get this spectrum into the marketplace. Indeed, the Commission needs to come to a resolution and adopt an order in the coming months to ensure that we keep pace with the global community in the mid bands.

O’Rielly says that the commission needs to adopt an order in the coming months. If Pai agrees, it will happen. Spectrum policy, at least in the vast majority of instances, is not decided by Congress, or the courts, or by any other chamber of the government – it’s determined by the FCC, and commissioners continue to indicate that they favor the C-Band Alliance’s market-based proposal, an order may be enacted in the coming months, and the SatCo’s keeping all of the proceeds is not a concern.

Read full update