SES Likes EchoStar Purchase of Hughes but Questions Intelsat-Telesat Linkup
WASHINGTON — Satellite fleet operator purchase of Germantown, Md.-based Hughes is expected to receive regulatory approval in the coming months.
Industry officials said Luxembourg-based SES has staked regulatory claim to multiple satellite orbital positions in the Ku- and Ka-band broadcast frequencies around the world at which it has placed no satellites. Under current regulatory rules, a company is able to retain access to these slots for years before it must launch a satellite or surrender its claim.
Some of these unoccupied orbital slots might appeal to the combined EchoStar-Hughes. It remains unclear which of the slots SES has regulatory access to would appeal to EchoStar-Hughes, but like several large satellite fleet operators SES has made regulatory reservations for orbital positions that it may never fill.
On the downside of the equation, SES has said EchoStar’s 10-year leases of the full capacity on the AMC-15 and AMC-16 satellites serving the Americas expire in 2014 and 2015, respectively, and that one of these is likely to be ended instead of being renewed.
EchoStar has a small satellite fleet of its own and, when SES leases are included, has had difficulty filling this capacity. SES officials have said EchoStar nonetheless is likely to extend one of the two leases aboard the SES satellites, and to ask that a replacement satellite be built to assure long-term supply.
But if SES sees opportunity in the EchoStar acquisition of Hughes, it sees a competitive threat if Intelsat wins the current private auction of satellite fleet operator Telesat of Canada.
Measured by 2010 revenue, Luxembourg- and Washington-based Intelsat is the world’s largest satellite fleet operator, with SES a close second. In third position is the fast-growingof Paris, followed by Ottawa-based Telesat.
While the industry consensus view is that Telesat, whose owners have put the company on the sales block, will end up in the hands of a group of private-equity investors, Intelsat has been active in the bidding.
Industry officials say Intelsat’s strategy in a Telesat purchase would be to lower its own debt, which is now equivalent to more than eight times the company’s gross profit. Telesat, which has been reducing its leverage, has total debt that is currently about 4.4 times its earnings before interest, taxes, depreciation and amortization, or EBITDA.
Adding Telesat would afford Intelsat a natural deleveraging in addition to bringing under its roof a healthy and profitable satellite business.
SES Chief Executive Romain Bausch said Intelsat appears to be seeking Telesat as a purely financial transaction, and not a strategic one. But he said SES would raise issues for regulators in the event Intelsat bests the private-equity group in the Telesat bidding.
When it merged with PanAmSat in 2006, Intelsat buttressed its case to U.S. regulators by saying that Telesat would remain, along with SES, as a competitor, assuring that consumers would continue to have a choice after the merger. If Intelsat now proposes to buy Telesat, Bausch said, it would have to find an argument explaining why its previous reasoning is no longer valid.
Bausch said SES would not necessarily file a formal protest with regulators, but would reserve its option to do so pending an analysis of an Intelsat-Telesat tie-up.
SES remains interested in purchasing Telesat’s international fleet, but not its principal money-making assets, which are the satellites covering North America. SES already has a sufficient presence in North America, especially given the fact that this market is growing less quickly than markets elsewhere in the world.
SES had asked Telesat’s owners, Loral Space and Communications of New York and Canadian pension-fund manager PSP Investments, to consider selling Telesat’s international fleet separately, but was rebuffed. Once that happened, Bausch said, SES’s interest in Telesat as a possible acquisition evaporated.