The proposed $3.1 billion merger between SES and Intelsat could pave the way for the combined company to release more valuable midband C-band spectrum for 5G operators like Verizon, AT&T and T-Mobile.
According to one analyst, the proposed $3.1 billion merger between two satellite companies could have significant implications for T-Mobile, Verizon and AT&T. That’s because SES and Intelsat could free up additional midband C-band spectrum for 5G as part of their combination.
There is precedent for such a move: The FCC’s blockbuster, $81 billion C-band spectrum auction, which ended in 2021, was largely based on spectrum freed up by SES and Intelsat. Verizon, T-Mobile and AT&T each acquired billions of dollars of spectrum in that auction. The C-band currently forms the core of Verizon’s midband 5G buildout, as well as its ongoing fixed wireless efforts.
“The [SES-Intelsat] merger raises the question of whether the consolidation of the two companies can lead to a similar consolidation and reallocation of some, likely much smaller but still material, amount of [C-band] spectrum,” wrote Blair Levin, a policy adviser to New Street Research and a former high-level FCC official, in a note to investors Monday.
SES and Intelsat have suggested they could “monetize” up to 100MHz of C-band spectrum through their proposed merger. That would be significantly less than the 280MHz released in the FCC’s C-band auction in 2021.
Weighing the value
Nonetheless, such spectrum could still be viewed as very valuable considering the US government doesn’t have any other midband spectrum ready for auction. T-Mobile and Verizon could be particularly interested in that kind of spectrum as they look to expand their fixed wireless operations. After all, the amount of spectrum an operator owns directly contributes to the amount of network capacity it has.
“We also think the three major wireless carriers, indifferent to who they write the check to, might work with the merging companies to facilitate a faster and larger reallocation of spectrum, particularly considering the paucity of spectrum currently in the spectrum pipeline,” Levin wrote.
However, Levin cautioned that any possible release of C-band spectrum by the merged SES and Intelsat could be complicated by a number of factors. First, the companies currently use the spectrum for the delivery of TV signals, and they would have to figure out a way to continue to do that with less spectrum. Or they could potentially wait until “linear television has been more completely replaced with streaming,” according to Levin.
Uncle Sam’s cut
Another potentially bigger issue is possible US government intervention. “If the dollar amount going to the companies were small enough, we don’t think the government would care,” Levin wrote. “But if the number gets large enough, the government will care and seek the lion’s share for itself, as it did before.”
Indeed, SES and Intelsat were among the satellite companies that formed the C-band Alliance in 2018. The alliance proposed to conduct its own private auction of a portion of the C-band (3.4 – 4.2GHz) for 5G.
That proposal didn’t sit well with certain US lawmakers, who argued that foreign companies should not profit from the sale of spectrum in the US to domestic 5G operators. In response, former FCC Chairman Ajit Pai proposed the FCC itself conduct the C-band auction.
But the agency also dangled the potential for around $10 billion in “incentive” payments that would be paid by winning auction bidders to incumbents like Intelsat and SES to encourage them to quickly vacate the band. Last year, Intelsat and SES each registered almost $4 billion in such payments, primarily from Verizon.
Wheeling and dealing
It’s clear that the current leadership of SES and Intelsat are aware of their C-band opportunity. “SES will issue contingent value rights in respect of a portion of any potential future monetization of the combined collective usage rights for up to 100MHz of C-band spectrum,” the companies wrote in their merger announcement in April.
The companies explained that the terms of their merger call for Intelsat shareholders to receive 42.5% of any spectrum-sale proceeds up to 7.5 years after the closing of their merger.
As for that closing, Levin wrote that there’s a good chance that regulators will approve the deal, even though it combines two of the world’s biggest geostationary Earth orbiting (GEO) satellite operators. “Certainly, the satellite services market has become much more competitive in recent years and the competitive intensity appears poised to grow,” he wrote.
Specifically, he argued that the $3.1 billion deal isn’t worth much, and that low-Earth orbit (LEO) satellite operators like OneWeb and SpaceX have created a significant amount of fresh competition in the global satellite services market, thus easing any potential antitrust concerns around SES and Intelsat.
Both SES and Intelsat are registered in Luxembourg, although Intelsat’s administrative headquarters are in Virginia. SES is based in the European country.
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