Intelsat-PanAmSat Deal Expected To Free Up New Satellite Capacity

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Intelsat’s $6.4 billion purchase of PanAmSat, which is scheduled to become effective July 3, will permit the company to offer satellite broadband services in rural areas of the United States and free up capacity on existing Intelsat satellites as elements of the PanAmSat fleet take over, Intelsat told U.S. government regulators.

To secure U.S. government approval — the final go-ahead from the U.S. Federal Communications Commission (FCC) came June 19 — Intelsat agreed to keep certain of its operations an all-U.S. affair despite the fact that the company is not legally headquartered in the United States.

Intelsat’s legal and formal headquarters is in Bermuda, but its operational headquarters is in Washington. Intelsat has assured the U.S. government that there are no serious operations behind the Bermuda passport.

“The combined company will have all key operational functions — operational headquarters, network operating center and central TT&C [telemetry, tracking and control] functions — based in the United States,” Intelsat stated in a letter sent to the U.S. departments of Justice, Homeland Security and the FBI. The commitment restates an earlier guarantee the company made in 2004, when Intelsat was purchased by several private-equity investors.

The Intelsat commitments also include “taking all reasonable measures” to support U.S. law enforcement agencies “in conducting, in a secure and efficient manner, lawfully authorized electronic surveillance … taking into account the investigative needs of the agency and Intelsat’s commercial interests.” Intelsat further agreed to provide technical and engineering data related to its satellites and their operations to U.S. law enforcement. Intelsat says it has no intention of providing common-carrier switched services, and as such is “an unlikely target for requests to assist U.S. law enforcement agencies with electronic surveillance.”

Intelsat also agreed that its current U.S. subsidiary, Intelsat Global Services Corp., will be home to PanAmSat’s G2 Government Solutions division, which handles sales to the U.S. government, and that this subsidiary’s security committee will be protected from foreign influence. “No impermissible foreign ownership, control or influence is exercised over the business activities” of the division handling U.S. government business, Intelsat said.

The decision to merge the world’s second- and fourth-largest commercial satellite fleets in terms of revenues met with no serious opposition.

The merger will be the second in five years featuring a non-U.S. company’s purchase of a major U.S. satellite telecommunications supplier. Luxembourg-based SES Global in 2001 purchased its Americom division from General Electric in 2001.

The result is that the largest U.S.-headquartered commercial telecommunications satellite operator now is Loral Space and Communications of New York, which is one-tenth the size of the new Intelsat, and of SES Global.

Even initial rumors that Intelsat might be forced to divest part of its U.S. fleet to avoid being branded a dominant provider of services to cable networks soon disappeared. The FCC says in its June 19 approval that the U.S. market is diverse enough that the Intelsat-PanAmSat merger will not give the new company any dominant pricing power. Antitrust is a non-issue, the FCC concluded.

From a regulatory perspective, all 52 satellites in the two companies’ combined fleets will remain with the new company.

The FCC received 18 comments on the merger, and none of them expressed any serious opposition to the deal.

The most serious concerns expressed were those of the ITSO, the International Telecommunications Satellite Organization, the public-service remnant of Intelsat’s days as an intergovernmental agency before its privatization in 2001.

The ITSO worries that Intelsat might abandon its public service obligations, notably its guarantee of providing satellite links to certain poor nations at below-market rates for several years, if the company were to face bankruptcy.

The FCC did not dismiss the ITSO appeal altogether, but said the matter is best addressed as part of a separate petition independent of the Intelsat-PanAmSat merger.

Intelsat has not disclosed in detail what synergies it expects from combining the two companies, and what, if any, operations will remain at PanAmSat’s Wilton, Conn., headquarters. PanAmSat employed some 600 people as of Jan. 1.

But in its documentation sent to the FCC, Intelsat has offered an initial look at what it will do post-merger. A satellite broadband initiative in the rural United States is a more likely investment with PanAmSat on board, Intelsat has said. Intelsat already is a shareholder in WildBlue Communications of Denver, which is introducing a consumer-broadband service using Ka-band frequencies on a Telesat Canada satellite. Intelsat is also an investor in the Orbit broadband system operating over Ku-band frequencies in the Middle East.

In another example of the company’s future strategy, Intelsat said in its merger application to the U.S. government that adding PanAmSat satellites will free up capacity on certain Intelsat spacecraft that now lies unused.

The company said services in Southern Africa are an example. Because of contractual obligations, Intelsat cannot use available capacity on the steerable beams aboard the IS 704 and IS 802 satellites to their full capacity. Once PanAmSat’s PAS-12 satellite, formerly named EuropeStar, is part of the company, traffic could be off-loaded to permit the two Intelsat satellites to reorient their beams to hunt for business in the region.