Quick Thoughts On Congressional Risk To Intelsat

In our Intelsat (Buy; TP: $54; +131%) initiation report from earlier this week (LINK), we highlighted the nature of the Congressional risk to the CBA and its members. While our view has been that an actual law is unlikely, Congressional headline risk remains high. The latest “encouragement” from Senator Kennedy (R-LA) in a draft bill markup is in-line with this view: it has no legal impact on the process, but indicates that some in Congress are still looking closely at the matter. We expect continued headline risk going forward, but Congressional action remains unlikely.

Language Is Non-Binding, Softer Than Expected

The most important thing to note from the actual language of Sen. Kennedy’s “encouragement” (see below) is that it is non-binding, even if the bill to which it is attached becomes law. The language is also a bit softer than expected, given Sen. Kennedy’s prior comments on the C-Band[1]“Luxembourg shouldn’t reap huge profits at the expense of Louisianans” : it simply notes concern with the lack of FCC and public input, lack of guarantee of proceeds to the US government, and encourages an FCC auction that is “fair, open, and transparent”. It’s not entirely clear that a $10BN contribution of proceeds to the US government (our base case as laid out on Slide 54 HERE) via a traditional FCC auction process would not satisfy these requirements.

“[On C-Band:] The Committee encourages the FCC to prioritize resources toward exploring opportunities for spectrum to help accelerate the deployment of 5G to rural communities. The mid-band spectrum, specifically the C-band, is particularly well-suited for 5G services. However, the Committee remains concerned by proposals that entail limited FCC oversight and public input, and contain no guarantee that taxpayers and the U.S. Treasury benefit from revenues generated by the sale of 5G licenses. The airwaves are a public resource, and the Federal Government has a responsibility to exercise appropriate oversight of its allocation. Therefore, the Committee encourages the FCC to conduct a public auction of the C-band spectrum that is fair, open, and transparent”

Congressional Interest In Seemingly Free Money Remains High, But Don’t Expect A Law

Given the amount of money involved, we would expect to see more headlines in the coming months from House Democrats, and potentially a handful of other Republicans like Sen. Kennedy, on this issue. However, it’s also clear that the CBA is now willing to make a contribution to the government, which we think would total $10BN, a significant sum; in addition, the CBA proposal has benefits for the national strategic interest as it relates to faster 5G deployment, and has the support from major political players like Verizon, AT&T, and the broadcasters (which has been apparent at the FCC, if not the Hill). Given these crosswinds, we think actual Congressional action in the form of a law remains unlikely, though Congressional signaling could have an impact on the FCC’s positioning.

1. “Luxembourg shouldn’t reap huge profits at the expense of Louisianans”