Brad Quick | CNBC
The Federal Communications Commission (FCC) announced on Monday that it will publicly auction off a valuable telecommunications fortune, in a move that investors consider a blow to US satellite communications provider Intelsat.
Intelsat's shares fell more than 40% in heavy trading volume after FCC chairman Ajit Pai said in a tweet that his agency "must free up significant spectrum" for 5G telecommunications. The FCC told CNBC that it expects an auction to take place "by the end of 2020."
"I've come to realize that the best way to promote these principles is through a public auction at the C-band's 280 megahertz," Pai said. "I am confident that they will quickly conduct a public auction that gives everyone a fair chance to compete."
C-band spectrum is an important telecommunication wavelength as the FCC regulators. Four satellite operators, including Intelsat, provide C-band services in the United States to approximately 120 million households. The FCC wants to reuse the C band spectrum for 5G and an auction is expected to raise tens of billions of dollars. But at a public auction, the proceeds would go to the government, an alternative the satellite operators – organized as the C-Band Alliance – have opposed.
"The basic question here is that there is the ideal and the practical. Everyone realizes that the best use of this spectrum is for 5G services – but what is the most economical and fastest way to do that?" Chris Quilty, chairman of the Quilty Analytics satellite financial services company, told CNBC. Quilty previously led Raymond James's coverage of satellite communications and the broader space industry for 20 years.
The C-Band Alliance has operated at a private auction. The group on Friday submitted a proposal to the FCC where satellite operators would keep a portion of the revenue while paying taxes on sales, as well as contributing at least $ 8 billion to the US Treasury and possible assistance to fund a rural 5G network.
"The private auction would generate billions in revenue for Intelsat and the other C-band operators," Quilty said. "The potential revenues from C-band gave Intelsat a way to write down, which otherwise has avoided the company in the last ten years."
Intelsat had a market value of about $ 1.8 billion before trading began on Monday. Even before the latest case, Intel's share had fallen more than 10% for three consecutive trading days as the tide shifted toward the C-Band Alliance. FCC's announcement of a public auction means that satellite companies may not recoup the value of their C-Band investments, such as the expensive satellites.
"What we are likely to see happen, which is the worst case scenario, is that satellite operators have every incentive to pull their heels and take this to the courts, as they are no longer compensated for this spectrum," Quilty said. "People assume they will still get something but they won't get the $ 8 billion to $ 10 billion case they expected."