June 24, 2024

By Matt Wiederrecht, Head of Capstone’s Special Situations Team

*As we reach the year’s midpoint, Capstone is revisiting our sector 2024 predictions and looking ahead to the second half of 2024.

With the Democrats now holding the reins, the Federal Communications Commission (FCC) has moved at a breakneck pace in the first half of 2024, as Capstone predicted, to double down on its agenda, including reinstating net neutrality rules. Still, investors and telecom companies face larger, underappreciated concerns – namely, that the FCC will impose price regulations on the broadband sector.

As the presidential election approaches, the fate of some of the industry’s largest transactions—notably the $3.1 billion Intelsat and SES merger and UScellular’s assets sale—hangs in the balance. The looming election will inject an additional layer of intrigue into the unfolding policy narrative for both companies and investors.

As the presidential election approaches, the fate of some of the industry’s largest transactions—notably the $3.1 billion Intelsat and SES merger and UScellular’s assets sale—hangs in the balance.

In a recent Q&A, Capstone’s lead telecommunications analyst Matt Wiederrecht shares what the remainder of 2024 holds for telecom policy.

What underappreciated expectations did you have coming into 2024 that are playing out?

I expected the FCC to move aggressively to push through Democratic policy priorities, which has happened throughout the first half of the year. The most recent major rulemaking from the FCC reimposed net neutrality rules and classified broadband as a common carrier under Title II of the Communications Act. Title II allows for utility-style regulation of broadband providers, which includes regulation of business practices, and the FCC has gained authority to ban the blocking, throttling, and paid prioritization of traffic.

Title II also gives the FCC the authority to regulate broadband pricing, which the FCC has chosen not to do so far. But it could change its mind at any time. The risk of a future FCC imposing price regulation upon the sector is one of investors’ top concerns, and it’s the primary reason why internet service providers (ISPs) have objected to net neutrality for years.

 What are the big questions you are paying attention to for the balance of 2024?

We expect the FCC to be relatively quiet for the balance of the year with respect to rulemakings. However, there are a couple of very large transactions that have been announced recently that require regulatory approval from the FCC and other regulators to close. The process for reviewing these transactions will start in 2024, but a final decision from regulators is unlikely before early to mid-2025.

The first is the merger between Intelsat and SES, two satellite companies that primarily serve customers in North America and Europe that are seeking to combine so they can better compete against emerging, well-financed competitors like Starlink and Amazon’s Project Kuiper. The second transaction is UScellular’s sale of its wireless business and some spectrum licenses to T-Mobile and the eventual sale of UScellular’s remaining spectrum licenses and portfolio of towers to either strategic or financial buyers as the company seeks to wind down its wireless business and sell itself off piecemeal to the highest bidders.

Are there any areas that may face a challenging policy environment going into H2 2024?

One area investors should be very mindful of is the delay in states getting approval for their Broadband Equity, Access, and Deployment (BEAD) grant programs from the National Telecommunications and Information Administration (NTIA). NTIA approval for state grant programs is a requirement before states can move forward on executing their grant programs and distributing funds to ISPs, to fund network deployments in unserved and underserved communities.

One area investors should be very mindful of is the delay in states getting approval for their Broadband Equity, Access, and Deployment (BEAD) grant programs from the National Telecommunications and Information Administration (NTIA).

These delay would result in funds not flowing at scale toward network deployments until well into 2025 and for states that are laggards, perhaps even until early 2026. Only ten states had their BEAD grant programs approved as of early June, and states have up to one year to execute on their grant programs and allocate the funding to ISPs once their grant programs are approved.

How will the upcoming elections influence policy and regulation in the telecom space?

The outcome of the election will lead to a binary outcome at the FCC since the president selects the FCC chairperson, who controls both the staff and the voting agenda. Eventually, the president would also likely have majority voting control over the FCC, meaning the president’s political party would dictate the course of policy. ​​​​​​

Should Biden win, we expect the FCC to pivot toward enforcement actions related to the digital discrimination rulemaking approved back in November of 2023 and continue to push policies that promote competition and price transparency. Should Trump win, the FCC would completely reverse course and repeal most of the major rulemaking approved under Biden. Democrats would also be far more skeptical toward mergers in the telecommunications and media space while Republicans would be far more accommodating and allow for deals like the Intelsat/SES merger and UScellular/T-Mobile transaction to be approved.

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