PARIS — Intelsat officials defended their $210 million cash purchase of the ProtoStar 1 satellite, which is already in orbit, urging investors to see the deal in light of the bandwidth shortage in Africa and the launch vehicle delays that have kept the Intelsat IS-14 satellite grounded and cost the company in lost revenue this year.
In a Nov. 9 conference call, officials with Bermuda- and Washington-based Intelsat declined to say how fast they expect to fill ProtoStar-1, to be named Intelsat 25 and moved into an Atlantic Ocean region orbital slot by early 2010. But they said the price they paid at the ProtoStar auction, which was far higher than expected, was well worth it given the satellite’s revenue-generating potential.
“We always have risk-adjusted IRR [internal rate of return] targets, and this has a lesser risk because it’s already in orbit,” Intelsat Chief Executive David McGlade said. “It’s a good-quality satellite, and we knew what we could do with it. … We looked at what we need to do in North and Central Africa and knew it would fill the bill. I promise you, [Intelsat] would never have approved going [as high as] we did if we did not hit our internal threshold. It’s all about value creation, and we would have walked away if it wasn’t there.”
McGlade said the ProtoStar 1 auction attracted 11 competitors, several of which went into the later rounds of bidding and one that “might have paid even more than we did. I think it shows the value of this satellite. Of course [the $210 million price] was more than people had expected.”
Industry officials said Paris-based Eutelsat had kept with Intelsat until the end of the bidding, dropping out at a price of around $207 million. Eutelsat officials have declined to comment.
McGlade said ProtoStar 1, launched in 2008, has the enormous advantage of being already in orbit, unlike the Intelsat 14 satellite the company has been trying to launch since early this year. Intelsat 14 was scheduled to launch Nov. 14 aboard a Lockheed Martin Atlas 5 rocket.
With Intelsat 14 not available, Intelsat’s revenue for the first nine months of 2009 suffered by an amount the company declined to specify. “It did have a material impact” on third-quarter revenue, McGlade said.
Intelsat 14 is scheduled to operate at 45 degrees west longitude and to provide C- and Ku-band capacity to the Americas, Europe and Africa. The satellite also carries an experimental communications payload for the U.S. Department of Defense.
Intelsat’s overall fleet of about 50 satellites was 85 percent full as of Sept. 30, and in some high-traffic areas, such as Africa and the Middle East, the company is unable to serve current demand. Intelsat has 11 satellites under construction or awaiting launch and expects its capital spending to be between $625 million and $675 million in 2009. This figure does not include the ProtoStar 1 purchase.
The Intelsat 15 satellite is scheduled for launch in late November aboard a Russian-Ukrainian Land Launch vehicle operated from the BaikonurCosmodrome in Kazakhstan, a launch that Intelsat and Sea Launch Co. of Long Beach, Calif., successfully separated from Sea Launch’s ongoing Chapter 11 bankruptcy proceedings. The arrangement permitted Intelsat to reduce, to $43 million, the amount of launch contract deposits it has remaining with Sea Launch, which markets the Land Launch system in addition to its own vehicle.
Intelsat, whose spending is partly restricted by its debt covenants, reported a net loss of $94.3 million on revenue of $618 million for the three months ending Sept. 30. Revenue was up 3 percent from the same period a year earlier. The company’s media business is suffering from soft demand in North America, where McGlade said broadcasters are focusing on opportunities outside the United States.
Intelsat said its backlog as of Sept. 30 stood at $9.5 billion, unchanged from mid-2009. Its adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, was 79 percent of revenue.
