Ergen Positions Echostar To Compete in FSS Market

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  Space News Business

Ergen Positions Echostar To Compete in FSS Market

By PETER B. de SELDING
Space News Staff Writer
posted: 06 March 2008
09:54 am ET


WASHINGTON —
Charles W. Ergen’s repeated threat to compete with the established satellite fleet operators in North America — SES Americom, Intelsat and Telesat Canada — now appears to have taken real
form with the creation of EchoStar Corp., which was spun off from the Dish Network satellite-television provider in January.

The new EchoStar will have immediate access to three satellites that are mainly unused by Dish Network. In addition, the company also has
a foothold in Asia with the CMBStar satellite for mobile video set to launch
in China later this year, assuming Asian regulatory hurdles are cleared.

EchoStar
will have $1 billion in cash donated by Dish Network, and an established business of selling satellite television set-top boxes for customers of Dish and
Canada’s ExpressVu.

In a Feb. 27 filing to the U.S. Securities and Exchange Commission (SEC), EchoStar clearly announced its intentions to go after the three dominant satellite-fleet operators, starting with the three satellites — EchoStar 9 at 121 degrees west, AMC-15 at
105 degrees and AMC-16 at 85 degrees west — for which Dish Network has little use. All three have Ka-band capacity in addition to Ku- and C-band transponders.

“We are also parties to contracts for the construction of three additional Ka- and/or Ku-band satellites to be completed between 2009 and 2011,” EchoStar said in its SEC filing. It remains unclear whether all of these are fully committed contracts.

EchoStar
also is vying for U.S. regulatory approval to build satellites for what is referred to as “reverse-band applications” using the 17/24 gigahertz frequencies, where it has filed for the use of five orbital slots over North America.

In case there was any doubt about EchoStar Corp.’s new business ambition, the company said this: “
We compete against larger, well-established fixed satellite services companies such as Intelsat, SES Americom and Telesat Canada.” To complete the picture, Ergen hired Dean A. Olmstead, a former president of SES Americom and advisor to Loral Space and Communications, Telesat’s owner, to oversee EchoStar Corp.’s growth.

Despite all this, none of the established fixed satellite services providers appear to be taking the new competitor seriously, at least for now. Here is how the chief financial officers of Intelsat, SES Americom and Telesat responded at the Satellite 2008 conference held here Feb. 25-28: “We view this pretty much as a non-event,” said Jeffrey P. Freimark of Washington-based Intelsat.

“We see no real change,” said Mark Rigolle of Luxembourg-based SES, which owns SES Americom. “Not all of [EchoStar Corp.’s] satellites are in one area,” making it difficult to establish an orbital neighborhood for satellite television.

“We’ll have to wait and see,” said Ted Ignacy of Ottawa-based Telesat Canada. “It depends on who is selling those transponders and how aggressive they are going to be.”

One investment banker, conceding bias because he is an EchoStar investor betting on the company’s growth, said the established companies “are in denial, or what? I don’t see Ergen hiring Olmstead just to churn out set-top boxes for Dish Network.”

For SES, the prospect of Ergen’s new EchoStar as a competitive challenge with Olmstead as point man
 takes on an entirely different and more personal dimension.
SES is leasing to EchoStar two of the three satellites that EchoStar plans to use to attack SES.

An industry official said that when SES leased the AMC-15 and AMC-16 satellites to EchoStar before the EchoStarspinoff, it insisted only that EchoStar not resell the capacity to Telesat, Intelsat or another direct SES competitor. In what now looks like an oversight, SES did not oblige EchoStar to steer clear of marketing the capacity to existing SES customers such as the U.S. government or U.S. businesses.

EchoStar
now will be using a former SES executive, and SES satellites, to compete with SES in the Americas.

At an informal press briefing Feb. 25, SES Chairman Romain Bausch conceded that Ergen — who is by far SES’s biggest customer — likely will need to expand the EchoStar Corp. business or sell it.

“My feeling is that these [EchoStar] satellites will become part of the consolidation process,” Bausch said. “Either Charlie will acquire other assets or will sell off the existing assets. The problem he has is: Where are these satellites? They are at either end of the arc over North America.”

Thomas W. Watts, managing director of investment bank SG Cowen, said Ergen would need to wait two years before undertaking certain types of deals or risk losing the tax-free status of the EchoStarspinoff.

EchoStar
Corp. took title to the eight satellites — six owned, two leased — used by the former combined EchoStar/Dish group and is leasing the capacity to Dish Network. Another satellite, AMC-14, has been leased to EchoStar by SES and is scheduled for launch in the coming weeks, but Dish Network is scheduled to use all of its capacity for the satellite-television business.

In its SEC filing, EchoStar Corp. said
the newly formed company derives 93.9 percent of its fixed satellite services revenue
 from leasing capacity to Dish Network. The remaining 6.1 percent was equivalent to just $20.6 million in 2007.

“Our ability to expand revenues in the FSS business will likely require that we displace incumbent suppliers,” the company said. “Market opportunities exist to … provide digital video distribution, satellite-delivered IP, corporate communications and government services to a broader customer base.”