Peter Pitsch, C-Band Alliance. Credit: U.S. House of Representatives video
PARIS — Bending to pressure, the C-Band Alliance (CBA) of four satellite operators doing business in the United States agreed to donate to the U.S. Treasury an unspecified amount of the proceeds from their proposed spectrum auction.
In July 16 testimony to the U.S. House Energy subcommittee on communications and technology, CBA’s Executive Vice President for Advocacy and Government Relations, Peter Pitsch, committed to a “significant, voluntary contribution” to the U.S. general treasury.
Pitsch said the U.S. Federal Communications Commission (FCC), which the CBA says will oversee the proposed auction of 180 MHz of C-band spectrum, could make such a future payment a condition of approving the auction.
Beyond saying that CBA believes it is legal for private parties to make unsolicited donations to the U.S. Treasury, Pitsch did not disclose how CBA would calculate the proposed payment.
Industry estimates are that the auction could yield gross revenue of between $10 billion and $30 billion.
The prospect of the four operators, none of them U.S.-headquartered, reaping billions in revenue from 5G terrestrial network providers through an auction of 180 MHz of U.S.-controlled spectrum has been cited as key CBA flaw by opponents of the plan. The CBA members are Intelsat, SES, Eutelsat and Telesat.
Asked to amplify on Pitsch’s remarks, the CBA on July 18 said:
“We are willing to discuss a contribution with the appropriate government authorities at the right time. Upon acceptance of the material components of our proposal, we would address the economic aspects of a contribution. As we said before, we will not let a resolvable issue get in the way of moving forward with our proposal.”
The CBA offer removes, in principle, the taxpayer-compensation issue as a weapon used by many of its opponents since the four operators first proposed a privately managed auction as a way to cede spectrum needed for 5G rollout while protecting current satellite C-band users.
CBA has also made written commitments to owners of receive-only C-band satellite Earth stations saying the costs of relocating or modifying their facilities would be borne by the CBA.
In his testimony, Pitsch reiterated a principal CBA argument, that the proposed auction would be the quickest, easiest way to make mid-band spectrum into the hands of 5G networks. Spectrum could be cleared within 36 months of an FCC decision, with the first 60 MHz available in major markets within 18 months.
The FCC has said transaction speed has a high value in assessing proposed spectrum-clearing auction methods.
FCC Chairman Ajit Pai has said the commission is likely to decide the issue in the autumn.
Compensation for ‘prior investment and opportunity costs’
In his July 16 testimony, Pitsch said the auction’s proceeds would allow CBA members to “secure compensation for their prior investment and opportunity costs, in addition to compensation for their reconfiguration and relocation costs, based on objective and verifiable measures such as 2017 C-band satellite service revenues.”
Two of the four CBA members, Intelsat and SES, account for some 92% of the current C-band satellite business in the continental United States. Eutelsat and Telesat Canada divide the rest.
But despite their minority position, Eutelsat and Telesat are indispensable to CBA, which must present a united front to the FCC because each of the operators has rights to the entire 500 MHz of C-band spectrum now reserved for satellite services.
Should even the smallest CBA member choose to quit the alliance, the prospect of a “holdout” would immensely complicate CBA’s life.
That would suggest that CBA, which has never disclosed how it would divide the proceeds among the four members beyond a pro rata distribution based on past revenue, may need to further incentivize Telesat and Eutelsat.
Asked whether these companies’ “prior investment and opportunity costs” mean Telesat and Eutelsat will get a higher percentage share of the proceeds than their past revenue would warrant, CBA said in its July 18 response to questions:
“The CBA not disclosed that [the split among the four members]. First we need an FCC decision. Then, we need an auction. We can’t anticipate the results now. We are discussing our proposal with the FCC, and there are still many moving parts. What is certain is that under our proposal to clear 200 out of 500 MHz, 40% of the satellite capacity becomes unusable.
“We have said the investment in realizing our proposal — developing filters, testing, labs, logistics, installations, the order and launch of new satellites – all this will amount to up to $2 billion. Then there is the acquisition cost at the time when we bought the U.S. entities that were holding the US licenses — in case of SES it was [GE] Americom, for which we paid billions. As far as incentivizing small market share members is concerned, let’s be clear about who that would be: The four satellite operators servicing the U.S. with C-band are in the CBA.”
The Small Satellite Operators group rejects the C-Band Coalition’s metric — 2017 U.S. C-band revenue — in favor of a model that accounts for potential future revenue impact of the loss of spectrum rights. Under this model, operators with aging fleets would suffer less than those that have incurred more-recent capex. Credit: Small Satellite Operators FCC filing
Four other satellite operators have received licenses to operate C-band satellites in the U.S. market — ABS, Empresa Argentina, Hispasat and Embratel Star One.
Acting together under the Small Satellite Operators (SSO) in FCC filings, these companies have said that the same “opportunity costs” that CBA proposes to include in distributing the proceeds among CBA members should extend to them as well.
The Small Satellite Operators argument, made as recently as July 3 to the FCC, is that past revenue cannot be used as a measure to apportion harm. Instead, they use some of CBA’s own reasoning to argue that it’s the loss of future spectrum rights, and not past revenue, that counts.
“In no way to a satellite operator’s spectrum rights depend on the amount of its past revenue,” the SSO members said in an FCC filing. “All eight [satellite operators] will suffer the loss of spectrum access.”
The SSO said all of its members “had plans to market or were actively marketing services using C-band spectrum in the United States,” but concedes that under its argument this should not matter much.
The left side is the distribution of proceeds to satellite operators under the C-Band Coalition proposal. On the right, the Small Satellite Operators’ proposed distribution, based on each operator’s active C-band satellite capacity and the age of each satellite. Credit: Small Satellite Operators FCC filing
The SSO group wants its four members to share in the proceeds as part of what it calls a Distribution and Scoring Model. Here’s how it would work:
Gross auction proceeds would first be used to compensate Earth station operators for their costs, plus a fixed incentive to get them to act quickly.
Then the U.S. Treasury would get its cut, a fixed percentage of the remaining proceeds.
The satellite operators would take their share from the remaining portion.
One-third of the proceeds would be equally distributed among all eight satellite operators with valid U.S. FCC C-band operating licenses.
The remaining two-thirds would be allocated to the eight operators as a function of the age and number of satellites that each of them has in service. The older the satellite — the nearer it is to retirement — the less compensation would be paid.
The SSO group says 62 C-band satellites are in operation with U.S. coverage.
In a July 18 FCC filing, CBA dismissed the SSO argument, principally because its members have no C-band business in the United States and therefore nothing to lose.
Moreover, CBA said the SSO group’s satellites’ beams in many cases do not reach the continental United States, and others have extreme look angles that make services “highly impracticable.”
“It is hardly surprising that the SSOs have been unable to obtain a single U.S. customer or earn a single cent of U.S. revenue despite having held U.S. market access authorizations for years — and in one case, over a decade,” CBA said.