Wall Street Analysis

By Tom Watts, SG Cowen Securities

The FCC last week adopted a new process for licensing satellite services. Companies now seeking new satellite licenses will have to post a bond for up to $7.5 million. Exceptions would exist for satellite TV and satellite radio. The rationale is to discourage those who either would actually try to obtain a license only to keep the slot out of the hands of a competitor or those who might hoard the valuable spectrum instead of using it. The move also is part of a broader effort to streamline the satellite licensing process and to cut waiting time to as little as six months compared to the years it often takes now.

The FCC’s action responds to a furor that developed more than a decade ago over so-called paper satellites. The industry asked for reforms throughout the mid- and late-1990s. At the time, the FCC did little. Now the FCC is taking action during an industry slump when demand for slots is lax.

The bond would have to be posted within 30 days of a company receiving the license. The bond would be forfeited if a license were revoked if milestones were missed for building and launching a satellite.

The FCC took additional steps, besides requiring the bond, to streamline the licensing process. The FCC will consider applications for geostationary systems typically used for television, communications and weather on a first come, first served basis. For those licenses, the agency will consider applications for specific spectrum and orbit locations in the order in which they were filed. For non-geostationary systems, the FCC will review all applications submitted by a set deadline and split the spectrum among qualified users. Companies using non-geostationary satellites include satellite mobile phone operators Iridium and Globalstar. The latter company remains under Chapter 11 bankruptcy protection.

The question is whether the FCC is a day late and a dollar short. Or is it 10 years late and millions short? The gold rush is over. The demand for these slots is not what it was. Perhaps this is the only way the FCC can tackle tough issues – long after anyone cares.

Tom Watts is a managing director and satellite analyst at SG Cowen Securities. He can be reached by phone at 212/278-4260 or by e-mail at [email protected]. Readers should assume that SG Cowen Securities Corp. and/or its affiliates intend to offer services in investment banking to the above referenced companies within the next three months, and to seek compensation for such services.