Who will spend the FCC cash?

Between now and the end of 2023, the Federal Communications Commission (FCC) will pay out almost USD 10 billion (EUR 8.8 billion) in ‘accelerated clearance payments’. The FCC cash rewards the world’s four largest satellite operators for freeing up some of their C-band spectrum over the US.

The question now is whether this windfall cash will be spent, or simply used to pay down borrowings and strengthen balance sheets? Could the cash be translated into an acquisition or merger? Or might – at least some – be spent rewarding long-suffering shareholders who have seen their dividends squeezed over the past few years.

The FCC payments:

  • Intelsat USD 4.87 billion
  • SES USD 3.97 billion
  • Eutelsat USD 507 million
  • Telesat USD 344 million

Eutelsat, it could be argued, has already spent its windfall cash in a 23 % investment in OneWeb, the mega-constellation that’s backed by India’s Bharti Group. Eutelsat’s stake in OneWeb has cost it USD 715 million

Bloomberg, in its comment on the prospects, reminds investors that SES last year looked closely at an investment or purchase of London-based satellite operator Inmarsat. SES were beaten by California-based Viasat which bought Inmarsat for USD 4 billion. But the failed deal is indicative that there’s a willingness to make a similar move provided it makes financial sense.

Bloomberg suggests that with Intelsat about to exit its Chapter 11 bankruptcy reconstruction it could also be considered ‘in play’. As Bloomberg states: “The Chapter 11 process means its biggest creditors will become its owners and they could be keen for a swift exit, including potential deals with a rival like SES.”

Investment bank Kepler Cheuvreux’s analyst David Cerdan is quoted by Bloomberg as saying the most obvious combination is a merger between SES and Eutelsat. However, he cautions that the national investments, by Luxembourg in SES and France in Eutelsat, could make a merger difficult. But he also suggests that such a merger could see significant cost savings and a boost to profits of some 30 per cent.

Telesat of Canada is busy building its own Low Earth orbiting broadband fleet and thus its USD 344 million would just be useful in paying a few invoices.

SES, as well as keeping an eye open on potential M&A activity, is also committed to returning some cash to investors down the line.