Intelsat rejects $1.8 billion SES claim for C-band clearing payments

Space

WASHINGTON — Intelsat rejected a $1.8 billion claim filed by SES regarding the breakup of the C-Band Alliance, arguing instead that SES’s action cost Intelsat more than $1.6 billion in potential C-band clearing payments.

SES filed the claim in July in U.S. Bankruptcy Court for the Eastern District of Virginia, where Intelsat filed for Chapter 11 bankruptcy in May. SES argued that Intelsat violated the agreement among the members of the C-Band Alliance in February, when it lobbied the Federal Communications Commission for a larger share of the payments it is offering to satellite operators for clearing a portion of C-band spectrum for terrestrial 5G services.

The FCC order for the C-band clearing process provided Intelsat with $4.87 billion in accelerated relocation payments if it can clear its spectrum by December 2023, and $3.97 billion to SES. In its claim, SES said it was seeking $450 million in payments that would ensure a 50-50 split between the two companies, as well as compensatory and punitive damages. It did not fully itemize the overall $1.8 billion claim, however.

Intelsat, in a filing with the court late Oct. 19, dismissed that claim. It argued that the C-Band Alliance was established by the operators to handle a market-based auction of the spectrum as originally proposed, one where the operators would be working directly with terrestrial operators to transition the spectrum.

However, the FCC opted for a “public auction” that it would manage, rather than the C-Band Alliance. SES proposed amending the agreement forming the C-Band Alliance to allow it to have a role in a public auction, but Intelsat said in the filing that it rejected that proposal.

Intelsat argued that the FCC’s decision ended any role for the C-Band Alliance, and it was thus free to negotiate directly with the commission. “The private, market-based approach contemplated by the [C-Band Alliance], and reflected in the Agreement, is thus simply dead on arrival, replaced by regulatory fiat,” it stated in the filing. “Put simply, the Agreement does not govern the monies at issue.”

Intelsat said it believes SES came up with the $1.8 billion amount in its claim by taking the $450 million compensatory claim and tripling it. However, the company believes such punitive damages are not applicable here for several reasons, including both limitations on liability in the original agreement and its interpretations of laws in New York, which govern the agreement.

In that filing, Intelsat also alleges that SES improperly shared with the FCC a report prepared for the C-Band Alliance by an accounting firm, RSM US LLP, intended to calculate market share for two other satellite operators, Eutelsat and Telesat, that have smaller stakes in the U.S. C-band market.

That report was developed by RSM using 2017 C-band revenue figures confidentially provided by each operator, and intended for use by the C-Band Alliance. However, SES provided that report to the FCC in February without the permission of other operators. “SES misrepresented the report to the FCC as accurately reflecting the market share of the satellite operators,” the company stated.

The FCC cited that report in its final order for the C-band public auction and calculation of potential payments to each operator. Intelsat argued those calculations underestimated the payments Intelsat was eligible for based on the company’s own assessment of its C-band market share.

Had the FCC used Intelsat’s data, the company believes it would have been eligible for up to $6.5 billion of the $9.7 billion in clearing payments, rather than the $4.87 billion in the FCC order. The difference, it stated, “is directly attributable to SES’s breach of its express confidentiality obligations through improper disclosure of the RSM report to the FCC.”

Intelsat, in its filing, called on the court to “equitably subordinate,” or lower the priority of SES’s claim compared to other creditors, because of those actions, if the court decided to uphold any the claim.

SES did not respond to questions about the Intelsat filing.

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