LONDON — Wall Street investment bankers, already in a foul mood because their own companies are in financial turmoil, on March 18 issued a warning to start-up mobile satellite services providers ICO Global, TerreStar and Mobile Satellite Ventures: The days of high stock valuations based on the promise of future networks using combined satellite and terrestrial radio spectrum are over.
In remarks here during the Mobile Satellite Spring Forum organized by Euroconsult, investment bankers said start-up mobile satellite companies will need to stand or fall on their own core businesses.
They said it is far from certain that the hunger for bandwidth to build out high-speed cellular networks in the United States will force cable-television companies, Internet service providers or cellular-network operators to make big investments in the mobile satellite services companies in possession of spectrum.
In the past four years, the valuations given to blocs of radio spectrum during U.S. government auctions has led some investors to assume that these same valuations could be applied to start-up mobile satellite companies, which have been given their spectrum free of charge on the condition that they maintain satellite systems for coverage of areas where terrestrial links remain uneconomical.
“People looked at [the spectrum-auction results] and their eyes popped out of their heads” when they saw how much spectrum was embedded in the satellite companies, said James Murray, managing director at Morgan Stanley. “Spectrum became white-hot. Hedge funds and other investors were doing just quick back-of-the-envelope math, and they have ended up getting burned.”
The U.S. government has granted mobile satellite operators the right to use their satellite spectrum for ground-based communications networks called Ancillary Terrestrial Components (ATCs).
But despite several U.S. auctions, the long-expected investment of would-be network operators in ATCs through the mobile satellite companies has not occurred.
Prospective investors such as AT&T, Verizon or Google—all assumed to be interested in ATC-related investment—have remained on the sidelines.
“You have to wonder,” Murray said. “People aren’t behaving as if they are in desperate need of that kind of spectrum.”
Murray did not rule out an eventual ATC investment by satellite-television providers EchoStar or DirecTV, or by some other investor. But in the meantime, he said, “Conventional wisdom has shifted.” The mobile satellite services industry, he said, “will have to stand on its own two legs when it comes to valuation. They can’t be predicated only on the sale of their spectrum.”
Giovanni Sebastiani, managing director in the communications group of Lehman Brothers, said many investors had counted on a massive Google participation in the recent auction of the so-called 700-megahertz spectrum overseen by the U.S. Federal Communications Commission. Google was not among the winners, who were identified March 20.
Sebastiani said the recent developments in the United States on ATCs raise questions about whether similar systems in Europe will receive financing. The European Union is managing a competition for the use of S-band spectrum to be used by satellite-service providers for an ATC system that in Europe is called a Complementary Ground Component.
“The S-band allocation in Europe could be an eye-opener,” Sebastiani said. “It is unclear how many European investors will jump in.”
Weem Steenbakkers, head of the satellite desk at ING, said the financial markets’ harsher look at ATCs, and at satellite ventures generally, does not extend to companies with established, profitable businesses. For the startups, however, “some of the issues may be more problematic” as they seek additional funds to complete their initial satellite systems.
