LONDON — I nvestment bankers looking at the mobile satellite services (MSS) sector appeared to have two sets of opinions: There are too many companies offering too much satellite capacity for such a small overall market, but the upside potential for any one of the players may justify today’s high stock-market valuations and easy lending terms.
By some estimates, as much as $9 billion will be invested by MSS companies in new satellite and ground hardware between 2005 and 2012. This figure includes the estimated $1.2 billion planned by Globalstar for its second-generation satellite-telephone constellation, but does not include the more than $2 billion that Iridium Satellite LLC is likely to need for its second-generation fleet of satellites.
Investment already committed or begun by Inmarsat, ICO Global, Thuraya, TerreStar Networks, MSV, Orbcomm and Globalstar have repopulated a business that was badly shaken in the late 1990s, a period that witnessed bankruptcies and the loss of billions of dollars
“Luckily, memories aren’t that long. Equity markets have gotten to like MSS,” said Charles Harman, managing director of JPMorgan Casenove, explaining why an industry that failed so badly less than a decade ago is now able to win stock-market and debt-market support.
Some of these companies, including Inmarsat and Globalstar — both publicly traded — have been given a higher valuation by investors than more conventional, and more stable, fixed satellite services business run by SES Global of Luxembourg and Eutelsat Communications of Paris.
“We believe these premiums [given to MSS operators] are too high, but they show a belief in the market,” said Philippe-Olivier Rousseau, managing director at BNP Paribas.
Today’s mobile satellite business globally generates about $1.2 billion in annual revenue, nearly triple the business done in 2000, according to an assessment by Euroconsult of Paris, which organized the Mobile Satellite 2007 conference here March 20.
Inmarsat of London accounts for 41 percent of this business as measured by 2006 revenues. Thuraya of the United Arab Emirates, which provides regional satellite-telephone service, has an estimated 24 percent market share. Iridium has 18 percent, Globalstar 12 percent. MSV and Orbcomm share the remaining 5 percent.
With TerreStar, ICO Global and a reorganized MSV already building large satellites, analysts said, the attractiveness of MSS to debt and equity markets can be explained only by the potential of free access to radio spectrum, particularly in the United States.
Most of today’s MSS companies hope to leverage their current assets by providing wireless spectrum for emergency services, homeland security and two-way data and voice links using the same spectrum beamed by their satellites. For such services to function in the many places a satellite signal will not reach, they will need to invest billions of dollars to deploy a network of ground-based signal amplifiers called Ancillary Terrestrial Components, or ATCs. But the spectrum itself is free so long as the terrestrial infrastructure is operated with a satellite to fill in rural gaps in ATC coverage.
MSS companies on their own cannot afford to do this, but direct-broadcast satellite providers looking to add a wireless component to their business, or cellular-network operators seeking additional spectrum, are believed to be possible investors. It is the hope that one or more of these deep-pocket companies will invest in an MSS company that has kept valuations high, investment analysts said.
The promise was kept alive by the 2006 auction of wireless spectrum in the United States, which some analysts conclude justified the high value given to some MSS companies.
Aysha Zaman, vice president of media research at Dresdner Kleinwort, said that even after the auction, U.S. wireless operators remain spectrum-poor relative to their European counterparts.
The two big U.S. satellite-television companies, DirecTV Group and EchoStar Communications Corp., dropped out of the auction despite having formed a joint venture to bid for the spectrum.
Harman suggested that MSS operators should consider waiting until the last minute to invest in new satellite hardware and spend their resources on leveraging their potential value as an ATC partner.
“They shouldn’t be leveraging the ATC value by putting up new hardware,” Harman said. “It will lead to phenomenal overcapacity. With so much spare capacity, pricing pressure arrives and makes it more and more difficult to justify the hardware investment.”
It is unclear how such a policy could be made compatible with U.S. Federal Communications Commission milestone deadlines for building satellites. Investing in the satellite infrastructure is a precondition for rights to the ATC spectrum.
Zaman said a market of $1.2 billion in annual revenues does not justify the investment now occurring among MSS providers “unless they make ATC fly, but there again there are questions. This industry has a history of spectacular failures and it looks like we may be repeating history.”
