Brad Quick | CNBC
The Federal Communications Commission (FCC) announced Monday that it will publicly auction off a valuable telecommunications wealth, in a move that investors viewed as a blow to US satellite communications provider Intelsat.
Shares of Intelsat fell more than 40% in heavy trading volume after FCC chairman Ajit Pai said in a tweet that his agency "must free up significant scope" for 5G telecommunications. The FCC told CNBC that it expects an auction to take place "by the end of 2020."
"I have concluded that the best way to promote these principles is through a 280-megahertz public auction of the C-band," Sa Pai. "I'm sure they will quickly conduct a public auction that will give everyone a fair chance to compete."
The C-band spectrum is an important telecommunication wavelength of the FCC regulators. Four satellite operators, including Intelsat, provide C-band services in the United States to approximately 1[ads1]20 million households. The FCC wants to reuse the 5G C-band spectrum, and an auction is expected to raise tens of billions of dollars. But a public auction would see the proceeds go to the government, an alternative satellite operators – organized as the C-Band Alliance – have counteracted.
"The basic problem here is that it is the ideal and the practical. Everyone recognizes the best use of this spectrum for 5G services – but what is the most economical and timely way to do that?" Chris Quilty, President for the satellite financial services firm Quilty Analytics, told CNBC. Quilty formerly led Raymond James & # 39; s coverage of satellite communications and the wider aerospace industry for 20 years.
The C-Band Alliance has been pushing for a private auction. The group on Friday submitted a proposal to the FCC where satellite operators would retain some of their revenue while paying taxes on sales, in addition to contributing at least $ 8 billion to the US Treasury and possibly helping to fund a nationwide 5G network.  "The private auction would generate billions of revenue for Intelsat and the other C-band operators," Quilty said. "The potential revenue from the C-band gave Intelsat a way to downsize, which has otherwise escaped the company over the last 10 years."
Intelsat had a market value of around $ 1.8 billion before trading commenced on Monday. Even before the latest fall, Intelsat's share had fallen more than 10% on 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 get back the value of their investment in C-Band, such as the expensive satellites.
"What we are likely to see happen, which is at worst, is that satellite operators have all the incentives to pull their heels and take this to the courts because they are no longer compensated for this spectrum," Quilty said. "People assume they're still going to get something, but they're not going to get the $ 8 billion to $ 10 billion waterfall they expected."