A start-up company planning to provide satellite radio service in Europe hopes to make 2006 its breakthrough year as it seeks to raise an additional 100 million euros ($120 million) and conclude a contract for the construction of four satellites.
Ondas Media S.A. of Madrid is pushing forward with its plans, and recently secured an investment by the Luxembourg branch of Delphi Corp. of the United States, despite a recent U.S. regulatory decision granting an Ondas competitor rights to an orbital slot with coverage over Europe.
In a decision that Ondas had sought to block, the U.S. Federal Communications Commission (FCC) approved Jan. 3 WorldSpace Inc.’s request to launch a satellite into the 21 degrees east longitude position in geostationary orbit where it will be able to provide radio service to Europe and Africa.
The WorldSpace satellite, called AfriStar-2, will be placed next to the AfriStar-1 satellite already at that position. AfriStar-1, launched in October 1998, has defective solar arrays and needs to be replaced by 2007. Silver Spring, Md.-based WorldSpace has a spare satellite ready to launch, but it would need to be refurbished. The company also is concentrating on establishing itself in India and China, with Europe a lesser priority.
“I like having a competitor that has to concentrate on India,” Chief Executive Officer Celso Azevedo said in a Jan. 25 interview. “We always assumed we would have a competitor. And at any rate, the FCC story is not over yet.” He declined to elaborate.
With financial advisors ING and Alegro Capital of London, Ondas in December secured a cash investment by car-radio manufacturer Delphi Corp.’s Luxembourg subsidiary. Delphi’s corporate parent, based in Troy, Mich., is currently in Chapter 11 bankruptcy, with a New York court overseeing the company’s restructuring. Azevedo said the Chapter 11 proceedings have no bearing on the Luxembourg subsidiary’s investment.
Azevedo declined to disclose details of Ondas’ financial backing beyond saying the company raised “several million euros” in two rounds of financing in 2004.
The bigger test comes this year, when the company will seek a 100-million-euro tranche to permit conclusion of a contract later this year for four satellites.
Several companies have announced an interest in developing satellite radio in Europe, encouraged by the success of Sirius Satellite Radio and XM Satellite Radio in the United States. Sirius and XM combined have about 9 million subscribers and their separate forecasts predict they will have a combined total of 15 million by the end of 2006.
Earlier efforts to mimic the U.S. success in Europe have been stalled by the regulatory hurdles.
Sirius Satellite Chief Executive Mel Karmazin, in remarks Jan. 9 at a Citigroup financial conference in Phoenix, Ariz., said Europe lacks a single agency like the FCC, which encouraged satellite radio development in the United States.
“We’re intrigued about it,” Karmazin said of a Sirius extension to Europe, which would require new satellites. “But we’re concerned about the individual governments you would need to deal with in order to make it happen. The FCC … had a national interest in seeing satellite radio happen in the U.S. We’re not seeing that same interest in other parts of the world.”
Similarly, satellite-fleet operator SES Global of Luxembourg — a former employer of Azevedo — has dismissed a potential investment in satellite radio in Europe, saying the hurdles — regulatory, language and geographic — are too high.
Ondas and its backers dispute this. Like Sirius Satellite Radio, Ondas plans to use a highly elliptical orbit — not a geostationary orbit — for its four orbiting satellites, including an in-orbit spare.
The elliptical orbit is needed to be able to reach northern European latitudes that would be difficult to reach with a mobile service based on a satellite in geostationary orbit over the equator.
On the regulatory side, Azevedo said Ondas has the backing of the Spanish government for frequencies allocated to Spain by international regulators in 1992. The company still faces the time-consuming task of securing landing rights in every European nation in which it wants to operate.
Financing is an issue as well. Building, launching and insuring four satellites to provide 150 channels of radio in at least five languages would cost well over $400 million, a figure Azevedo did not dispute.
But he noted that WorldSpace, which had just 53,000 subscribers and heavy losses after more than five years of operations as of mid-2005, successfully raised more than $200 million in a mid-2005 U.S. initial public offering of stock.
“The market is now very good, even if some say it’s not rational,” Azevedo said of Ondas’ prospects for raising the necessary funds.
Worldspace announced Jan. 25 that it finished 2005 with 115,000 subscribers.