Private-Equity Ownership, Ka-Band Topped list for 2004
PARIS — Whether the purchase by private-equity investors of several big satellite-fleet operators is good or bad for the industry’s long-term health was Topic A in the commercial space industry in 2004.
Topic B was the apparently definitive arrival of Ka-band satellites as a commercial platform to handle the huge bandwidth requirements of high-definition television.
Four of the world’s top 10 fixed satellite-service fleet operators —, PanAmSat, and New Skies Satellites — are now wholly or majority-owned by investment houses as financial, not strategic, investments. Mobile satellite services operator Ltd. of London also is in this category of profitable, stable satellite communications businesses purchased by privately held investment houses.
In Intelsat’s case, the final agreement is expected by Jan. 31 following a review by the investment consortium Zeus Holdings of the glitch aboard an Intelsat satellite that has permanently reduced the satellite’s capacity by more than 50 percent.
Naysayers, includingGlobal Chairman Romain Bausch, whose company is one of the few satellite-fleet operators whose ownership has not dramatically changed, say the new owners of SES’s competitors will sacrifice research and development, and capital expenditures t o boost short-term profit.
In fact, commercial satellite operators have reduced their capital spending in the past two years, with several exceptions including Luxembourg-based SES Global and Telesat Canada of Ottawa. Euroconsult of Paris has concluded that capital expenditures, meaning the purchase of satellites, launch services and launch insurance, dropped to 20 percent of sales for the major satellite operators in 2003, down by 50 percent in some cases from 2000.
Satellite orders for the past three years have been sharply down. But the chief executives of the companies whose ownership has changed hands say this is a coincidence of timing, and not a result of a shift in strategy imposed by the purchasers.
Intelsat, PanAmSat, Inmarsat and New Skies have all completed their fleet replenishments and their managers had never hidden the fact that capital spending would decline for a couple of years. PanAmSat Chief Executive Joe Wright did not wait to be purchased by Kohlberg Kravis Roberts & Co. (KKR) in a $4.3 billion transaction to say he thought the industry had purchased more satellites than the market needed.
In SES Global’s case, the company’s SES Americom subsidiary is still in the midst of a long-planned renewal program and an expansion into new markets.
Perhaps a clearer example of the effects of a new owner will be given in January, when New Skies Satellites BV of The Hague, Netherlands, is expected to decide whether to cancel the nearly completed NSS-8 satellite, taking advantage of manufacturer Boeing Satellite Systems’ late delivery to demand a full refund.
New Skies Chief Executive Dan Goldberg said the company had not decided whether to terminate the contract. Other industry officials said New Skies’ owners, The Blackstone Group, are interested in merging New Skies with another satellite operator, in which case the company would prefer cash to a new satellite.
Recent financial transactions suggest that the value of commercial satellite fleets is increasing. For example, two SES Global shareholders with a combined 9 percent of the company’s equity unloaded their holdings in a single week, and the stock, traded on the Paris-based Euronext market, did not tank. After a brief dip, the stock rebounded.
And in November, two shareholders of Eutelsat S.A. holding a combined 26.7 percent of the Paris-based satellite operator sold their shares to private investment companies in deals that value Eutelsat at more than 3 billion euros ($3.9 billion) — between 50 percent and 70 percent higher than investors paid for Eutelsat stakes in 2002 and 2003.
Ka-band, meanwhile, long viewed as a portion of the radio spectrum that is little-used and thus prime territory for high-bandwidth applications seeking room to grow beyond the occasionally crowded Ku- and C-band neighborhoods, had a breakout year in 2004.
Telesat Canada’s Anik F2 satellite, to be used by WildBlue Communications Inc. of Denver and by Telesat Canada for two-way broadband links, became operational in mid-2004.
More significantly for the market, DirecTV Group of El Segundo, Calif., made a billion-dollar investment in Ka-band with a purchase of three large satellites from Boeing Satellite Systems, also of El Segundo. These satellites, plus two partially built Boeing satellites that had been intended for two-way broadband, will be devoted to DirecTV’s roll-out of high-definition television services in the United States.
Charlie Ergen, chief executive of DirecTV competitor EchoStar Communications Corp. of Littleton, Colo., told financial analysts that EchoStar may make a similar move to Ka-band, in which EchoStar has invested with SES Global on a more-limited basis.
More recently, Cablevision Systems Corp. of Bethpage, N.Y., through subsidiary Rainbow DBS Co. LLC, which operates the Voom satellite-television service, announced it had ordered five Ka-band satellites from Lockheed Martin Commercial Space Systems of Newtown, Pa. The financing for the purchase remains uncertain, but it demonstrates the broadening appeal of Ka-band as the United States, to be followed by Europe and Asia, adopts high-definition television.