New European Satellite Radio Chief Open to Merger or Joint Venture

PARIS — The new chief executive of European satellite-radio startup Ondas Media says he is open to a merger or a joint venture with competitor WorldSpace Inc.

Jacinto Palacios, former chief executive of satellite-fleet operator Hispasat of Spain, said he agreed to take the helm of Madrid-based Ondas only after being assured that the company has sufficient financial resources to continue system design work at least until the end of the year.

In an April 13 interview, Palacios said he has reviewed Ondas’ business plan and concluded that three satellites in highly elliptical orbit — similar to the design used by Sirius Satellite Radio of the United States — is the correct architecture given the northern latitudes a European satellite-radio service would need to serve.

WorldSpace Inc. of Silver Spring, Md., also is designing a European satellite-radio business around its AfriStar-1 satellite, which since October 1998 has been in geostationary orbit over the equator at 21 degrees east longitude.

WorldSpace has a license in Italy to deploy a network of terrestrial signal boosters to permit the service to operate in areas beyond line-of-sight view of the Afristar-1 spacecraft. But WorldSpace, which has operations in Asia and is trying to develop a business from scratch in India, the Middle East and China, continues to struggle financially.

In an April 17 filing with the U.S. Securities and Exchange Commission (SEC), WorldSpace says it will not be able to debut its service in Italy until 2008. The company, which is still trying to arrange the financial support needed to acquire and deploy the terrestrial repeaters, had been expected to debut the service this year.

WorldSpace reported that as of Dec. 31 it had 199,000 subscribers, most of them in India, less some 13,000 whose subscriptions expired Jan. 1. The company reported an operating loss in 2006 of $182 million on revenues of $15.6 million.

WorldSpace began operations in 1990 and since then has reported aggregate losses of $2.3 billion. The company conducted an initial public offering of stock on the U.S. Nasdaq exchange in 2005 that netted some $220 million. But its ongoing obligations to debtors, plus its guarantee that 10 percent of its annual gross earnings through 2015 must be paid to investor Stonehouse Capital, have forced WorldSpace to consider other ways of staying afloat as it concentrates on India.

WorldSpace in early 2006 received U.S. regulatory approval to launch a replacement for its AfriStar-1 satellite, a decision that Ondas is protesting. AfriStar-2, which has been completed for several years and is in storage, would aid WorldSpace’s plans to deploy satellite radio throughout Europe.

WorldSpace has estimated that refurbishing AfriStar-2 would cost $40 million, with another $70 million needed to launch it. The company is paying prime contractor Thales Alenia Space about $1 million per year to store AfriStar-2.

Palacios said Ondas, which as yet has been unable to raise sufficient financing to contract for the construction of its three satellites, might be able to find common cause with WorldSpace through some sort of partnership.

“If at some point that could be worthwhile, then it’s something I would consider,” Palacios said. “As of now, I am working on the assumption that I can sign a contract for our satellites this year. To put three satellites like this into the air will cost around 1.5 billion euros ($2.03 billion) — which is not a large number for private-equity investors these days.”

Palacios said the potential of a satellite-radio service in Europe remain as attractive as ever. But he said the company would seek to start business by offering existing radio broadcasters a way to extend the market reach of their programming through a satellite system. Ondas, he said, will not spend much on original content, at least not at the start.

“I accepted this challenge because the business case looks good,” Palacios said. “There are more than 7 million trucks that cross borders in Europe every day, and a large number of tour buses also moving through the region. This is a core group of customers, and it doesn’t count the individual drivers who lose their radio signals once they get 50 kilometers beyond a city.”