Appaloosa Sends Letter to Intelsat Board of Directors With Respect to FCC’s Recent C-band Spectrum Auction Proposal
February 18 2020 - 10:19AM
Business Wire
Urges Company to Withhold Acceptance of FCC
Order Pending Negotiation of an Agreement on Fair Commercial
Terms
Appaloosa LP, which beneficially owns approximately 7.4% of
Intelsat’s (NYSE: I) common stock, today sent a letter to
Intelsat’s Board of Directors urging the Company to withhold
acceptance of the Federal Communications Commission’s (FCC) Order
detailing the FCC’s approach to clearing C-band spectrum in an
upcoming auction until fair commercial terms can be negotiated.
The full text of the letter follows:
February 18, 2020
Ladies and Gentlemen –
We write regarding recent events surrounding the Federal
Communications Commission’s (FCC) plans to clear and auction C-band
spectrum currently licensed to Intelsat and other satellite
operators. We are disappointed, to say the least, with the Board’s
and management’s apparent acquiescence to the broad terms of the
FCC’s latest proposal, which was clearly motivated by political
considerations. The token compensation offered to Intelsat is an
affront when compared to the values achieved in auctions of
comparable spectrum across the globe over the past decade.
Setting aside the issue of valuation for the moment, we
nonetheless commend the Board for forestalling a final embrace of
the proposal, as its mechanical terms are manifestly unfair to
Intelsat. The FCC’s proposed Order imposes several onerous
provisions that inappropriately subsidize the prospective overlay
licensees, and by extension, the FCC. Among the most egregious of
these terms:
(1) The Order requires the satellite
operators to front billions of dollars of expenditures in order to
clear spectrum for the benefit of an FCC auction that is not
expected to begin until December 8th, 2020 -- and for which
reimbursement seemingly will not begin to occur until May 2021 at
the earliest.
(2) The Order’s split of Accelerated
Relocation Payments to Phases I & II of 25% and 75%,
respectively, unfairly “back-ends” the satellite operators’
compensation and is disproportionate to the amount of spectrum
cleared in the two phases (36% and 64%). Moreover, it is likely
that the most useful and valuable portions of spectrum cleared will
be in Phase I.
(3) The FCC’s requirement that an operator
post a letter of credit in order to receive a Phase I Accelerated
Relocation Payment subjects them to an all-or-none requirement to
clear its spectrum by September 2023 (the Phase II deadline). Thus,
failure to clear even a de minimis portion of the requisite
spectrum exposes the operators to massive financial loss and
provides a windfall to the overlay licensees on a potential
technicality.
Taken together, these terms impose upon Intelsat the full weight
of financial and execution risks related to a process that is
likely to yield benefits for the FCC and US Government many times
greater than those afforded the Company. For a highly leveraged
operator, such as Intelsat in particular, the cash required to
conduct that process imposes a hardship that could easily trigger
an insolvency before relocation can be accomplished.
IN SUCH CASE, THESE PROVISIONS APPEAR COUNTERPRODUCTIVE TO EVEN
THE FCC’s PURPOSES – NOT TO MENTION THE US GOVERNMENT’S GOAL OF
EXPEDITING THE CONSTRUCTION OF A LEADING EDGE 5G NETWORK.
Given these circumstances, Intelsat cannot bear the risks
associated with the current Order as it is structured. We urge you
to withhold acceptance pending negotiation of an agreement with the
FCC on fair commercial terms. Failing that, we believe the Board
has no choice but to resort to bankruptcy and litigation in order
to protect Intelsat’s valuable license rights from an illegal
modification.
Sincerely, Appaloosa LP David A. Tepper President
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200218005734/en/
Media Contacts Jonathan Gasthalter/Nathaniel Garnick
Gasthalter & Co. (212) 257-4170
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