Licensing Contest Wll Not Deter BCE’s Telesat IPO Plans

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  Space News Business

Licensing Contest Wll Not Deter BCE’s Telesat IPO Plans

By PETER B. de SELDING
Space News Staff Writer
posted: 10 August 2006
11:20 am ET


Telesat Canada’s owner, BCE Inc., is committed to selling up to 49 percent of the company through an initial stock offering this year and will not slow that process in light of the Canadian government’s decision to license up to 29 new satellite orbital positions, BCE officials said.

Montreal-based BCE expects to raise 1 billion Canadian dollars ($884 million) with a Telesat stock offering, which will be preceded by a recapitalization of Telesat in which BCE will load Telesat with an undetermined amount of debt. The proceeds of the stock offering will be returned to BCE.

Telesat is the world’s fifth-largest fixed satellite services fleet operator in terms of 2005 revenues, according to Space News’ annual rankings.

BCE Inc. Chief Executive Michael J. Sabia said the decision by Industry Canada, the Canadian regulatory authority, to organize what is known in the industry as a “beauty contest” — an auction in which there are license applications submitted, but no bidding — will not delay the Telesat transaction.

In this particular case Industry Canada plans to award licenses for up to 29 orbital slots and Industry Canada says it will be “the largest spectrum licensing initiative ever undertaken in Canada.”

Telesat is one of the companies that have expressed interest in the contest. Depending on its competitive position relative to other satellite providers when the procedure is completed in early 2007, Telesat’s value could move up or down.

But Sabia said the licensing process might stimulate fresh interest in the Telesat IPO.

“We continue to be on track,” Sabia said in an Aug. 2 conference call on BCE’s second-quarter financial performance. “We don’t think that Industry Canada’s call for applications for orbital positions is something that has a particular impact on the process that we have in mind. If anything, it would probably [create] opportunities there.”

Telesat Canada continues to grow and its performance so far this year is distorted by comparisons to 2005, Siim Vanaselja, chief financial officer of Montreal-based BCE, said during the conference call.

For the six months ending June 30, Telesat Canada reported sales of 237.5 million Canadian dollars, down 3 percent from a year ago. The company in early 2005 reported revenue from a one-time sale of an interactive distance learning project for which Telesat is providing both hardware installation and maintenance as well as satellite links. The revenue from the sale was 20 million Canadian dollars.

If this revenue is removed from the 2005 figures, the first half of 2006 would show a revenue increase of 5.5 percent, according to Telesat figures published Aug. 2.

Net profit for the first six months of 2006 was 64.6 million Canadian dollars, up 41 percent. Operating cash flow was also sharply up, posting a 28-percent increase during the period in part because of payments made by the distance-learning network customer.

A public stock offering is not the only route BCE could take with Telesat. While Sabia did not raise the possibility that Telesat could be sold to a private investor, other industry officials have said BCE would entertain such a possibility. In its 2005 annual report, BCE said “other transactions and opportunities may emerge that for business reasons BCE Inc. considers to be more attractive.”

Industry Canada plans to issue licenses for up to 29 orbital slots stretching from 72 degrees west to 138 degrees west longitude to provided Ku- and Ka-band communications for high-definition television and other services.

Assuring coverage of Canada’s northern territory is a key goal. Industry Canada has set a deadline of Aug. 15 for satellite communications users to register their interest in the licensing process. Full applications for the slots are due Nov. 15, with licenses to be issued in the first half of 2007.

None of the orbital positions will be auctioned. Applicants will be judged on whether they meet four criteria, including providing maximum benefits to Canadians. For slots at which two competing bids are received, Industry Canada will make the final decision based on which company’s project best serves the Canadian population. Winners must agree to spend 2 percent of their annual revenues from the satellites using the slots to promote broadband access in underserved Canadian communities.

Industry Canada said it already has received expressions of interest from Telesat Canada; Ciel Satellite Communications Inc., a start-up operator backed by SES Global of Luxembourg; Bell ExpressVu, a BCE subsidiary; and satellite-fleet operator Eutelsat S.A. of Paris.

Eutelsat spokeswoman Vanessa O’Connor said the company would have no comment on how it will establish itself in the Canadian market to be eligible for the Canadian orbital slots.

The selected bidders must comply with Canada’s regulations covering common telecommunications carriers, meaning they must be Canadian-owned and operated. SES Global helped create Ciel for the express purpose of occupying an available Canadian orbital position, which Ciel will use principally to sell capacity to U.S. satellite-television provider EchoStar Communications Corp.

Industry Canada said in its July 15 public notice that “where it is demonstrated that there will be sufficient capacity to satisfy Canadian requirements, the [government] may also consider applications to serve markets outside Canada.”

Comments: pdeselding@compuserve.com