Mobile Satellite Ventures (MSV) Chief Executive Alexander H. Good sought to counter what appears to be the prevailing Wall Street sentiment about the company’s hybrid satellite-terrestrial system, saying the company is more bullish than ever on the idea, even if stock-market investors are not.
In a May 15 conference call and a May 18 interview, Good said MSV and the other companies planning to use satellites linked to a network of Ancillary Terrestrial Components (ATCs) will need to ride out the current skepticism, which he said is fed in part by two U.S. government auctions of radio spectrum.
The U.S. Federal Communications Commission in 2006 conducted an auction of what it called Advanced Wireless Spectrum. The agency is planning an auction of spectrum in the 700-megahertz bandwidth region later this year.
Reston, Va.-based MSV, which is the principal asset of SkyTerra Communications Inc., is counting on the auctions
in sales of spectrum in relatively small geographic parcels. MSV and the other mobile satellite services companies with ATC-network ambitions are able to offer nationwide coverage because they are building satellites.
Good said that in the 2006 auction, “it was the larger blocs that covered the most spectrum that sold at a premium. I think there’s a reason for that.”
The satellite companies contend that the availability of spectrum in the auctions has affected their ability to attract potential partners who might be interested in the spectrum the satellite companies have to offer.
The financial markets bought into this scenario for awhile but, judging from SkyTerra’s stock price, at least some investors have been disappointed that
MSV has not been purchased at a sizable premium by a cellular-network operator, a direct-broadcast television operator or some other strategic partner. SkyTerra stock, which suffers from a lack of liquidity and exposure on the Over-The-Counter market, has lost half its value in the past year.
Good said the share-price drop, which has wiped out $650 million in market capitalization, has resulted from just $30 million in trading in SkyTerra shares.
“Any value related to any ATC opportunity [has been] all but removed from the share price,” Good said. “I am not unmindful of the fact that some investors anticipated a relatively short-term deal with a strategic partner” on ATC development.
Neither MSV nor the other mobile satellite service companies eyeing the same ATC opportunity can finance an ATC network on their own. MSV has estimated that deploying ATC stations in the United States would cost between $500 million and $2.6 billion.
The company has enough capital expenditure on its plate as it is. MSV has two satellites under construction at Boeing Satellite Systems International in El Segundo, Calif., and has yet to negotiate with Boeing the termination of a third satellite that had been ordered but has since been scrubbed.
The first of these two identical L-band satellites, each with a 22-meter-diameter antenna being built by Harris Corp., is scheduled for launch in late 2009 following a contract announced May 15 with of McLean, Va.
MSV has estimated that it will cost $500 million to build, launch and insure that first satellite – and operate the new system – until it reaches the financial break-even point.
MSV agreed to pay $89 million for the 2009 launch of the first satellite aboard a Russian Proton M vehicle, with an option for a second launch for $93 million.
On the same day, MSV announced a contract with Sea Launch Co. of Long Beach, Calif., for a 2010 launch of MSV-2 on a Zenit 3 SL vehicle in 2010. That contract is valued at $86 million.
“We had a pretty competitive bidding environment and we think we got a fair deal,” Good said.
The launch prices, plus the recent drop in satellite-insurance premiums, are two of the factors that lead MSV to believe it will be able to spend slightly less than it had forecast on its two satellites.
The company had estimated that it would spend $1.1 billion to build, launch and insure the two satellites. MSV is two legal entities – one Canadian, one U.S.-registered. Canadian and U.S. regulators have approved the satellites’ launches in a setup that resembles the U.S. and Canadian MSAT-1 and MSAT-2 L-band satellites, which continue to operate.
MSV and SkyTerra reported revenues of $8.1 million for the three months ending March 31 and said it had 200,000 mobile voice and data terminals in service, mainly for U.S. local and federal government agencies.
MSV has asked U.S. regulators to consider that the Canadian and U.S. satellites will serve as mutual backup, removing the regulatory obligation to build a ground spare satellite. A favorable regulatory ruling would save MSV about $250 million.
MSV Chief Financial Officer Scott Macleod said the company has enough cash to last until
mid-2008 under current spending plans. As of March 31, the company owed $570 million to Boeing for satellite construction, with $205 million of that sum due by the end of this year.