FCC cites competitive fiber and LEO offerings in approving the SES/Intelsat merger
Among the major transactions that the Federal Communications Commission recently approved is the $3.1 billion purchase of Intelsat by rival satellite operator SES.
The FCC’s order on the merger encapsulates the competitive pressures facing traditional satellite operators: With the proliferation of terrestrial fiber networks and streaming rather than linear broadcasting, their content distribution services are seeing less demand and declining revenues. Meanwhile, they are also being squeezed by faster, higher-capacity Low Earth Orbit (LEO) players like Starlink.
SES and Intelsat are roughly the same size in terms of revenues, with SES earning $2.2 billion in revenues during its fiscal 2024, and Intelsat earning $2 billion in revenues during the same fiscal year. SES operates a fleet of 43 geostationary orbit (GEO) satellites and 26 satellites in medium Earth orbit (MEO), while Intelsat has a fleet of 57 GEO satellites. Both companies operate their satellite networks primarily using the C-, Ku- and Ka-bands.
The companies argued to the FCC that the merger would mean an optimized multi-orbit network and would free up more of their financial resources to invest in new network capacity, technology and services.
The FCC acknowledged that the rapid changes in the satellite landscape: “We find that the satellite industry is a dynamic one, that is being transformed both by the rapid entry and expansion of [non-geostationary orbit or NGSO] constellations—which are increasing satellite capacity dramatically—and by the increasing ubiquity of fiber networks that provide reliable and high-capacity competitive alternatives to satellite services.”
However, commenters on the transaction pointed out concerns about the combined company controlling the vast majority of satellite media distribution in the United States and said that alternative bands are not equivalent to C-Band transmission of programming content — and that while most areas do have access to alternative transmission paths such as fiber, rural areas may not, and fiber can be costlier and less reliable.
Nonetheless, the FCC found that while the two companies distribute more than 95% of all video programming that comes over C-Band satellite service to the United States, there are “important substitutes” like other spectrum bands and fiber, that are likely to be more broadly adopted in coming years. If SES/Intelsat raises prices, their customers could switch, the agency concluded.
The FCC also did its own analysis involving calculating the distance from earth stations to the nearest broadband provider with gigabit download speeds and found that “nearly 65% of C-band earth stations are located within 200 meters of a fabric location where gigabit broadband is available, and nearly 94% of earth stations are located within 1 mile of such a location,” making switching to fiber feasible.
In terms of the FCC’s now-mandated ability to find and auction new spectrum, including an additional 100 megahertz of C-Band spectrum, the agency also found as part of the transaction review that SES and Intelsat “have substantial excess North American C-band capacity” and noted that “SES has said that it would be possible to reallocate an additional 100 megahertz or more of C-band spectrum.”
In other areas of SES and Intelsat busines operations, the FCC found that there was unlikely to be competitive harm to in-flight connectivity services, cellular backhaul and government services because of the likelihood that LEO providers will ultimately capture much of the business in those sectors and that SES and Intelsat’s “share of total satellite capacity is dwarfed by the capacity of LEO providers.” SES and Intelsat cited numbers that project that LEO operators are expected to account for about 80% of the cellular backhaul and trunking service revenues by 2032. The FCC accepted the companies’ argument that their combination will enable them to more aggressively compete against Starlink and other LEO providers.
SES and Intelsat claim that the transaction will enable them to achieve cost savings of more than $1.6 billion in three years, and the companies highlighted “ground equipment and platforms, network orchestration, seamless integration, and their MEO network as potential investment and innovation targets.”
