SkyTerra Purchases Remaining Shares of Mobile Satellite Ventures

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  Space News Business

SkyTerra Purchases Remaining Shares of Mobile Satellite Ventures

By PETER B. de SELDING
Space News Staff Writer
posted: 17 January 2007
02:24 pm ET



PARIS – Less than a month after selling Telesat Canada, its satellite-fleet operator, Telesat Canada, BCE Inc. of Montreal has sold its minority stake in Mobile Satellite Ventures LP (MSV), a company that is building a two-satellite network for mobile video and data communications in North America. The shares were sold to MSV majority owner SkyTerra Communications, the companies announced Jan. 8.

 

BCE officials at one point had hoped the MSV stake would be worth upwards of $1 billion as the value of MSV’s parent company, SkyTerra Communications Inc. of
New York
, skyrocketed on the
U.S.
Over the Counter market.

 

In addition to its majority ownership of MSV, which is planning an L-band mobile satellite system, SkyTerra also has a minority ownership interest in TerreStar Networks Inc., which is planning a similar system, but in S-band.

 

But SkyTerra’s stock has plummeted in the past 12 months, in part because of investor concerns that deploying next-generation mobile satellite networks will cost billions of dollars that no one is willing to pay. Investors and Wall Street analysts had hoped that a cellular-network operator or a satellite-television company would step in to make that investment, but none has so far.

 

From a high of around $45 per share, SkyTerra stock recently has been trading at around $11 and fell to below $9.50 Jan. 9 as investors digested the BCE news, which will result in SkyTerra’s issuing 22.5 million new shares to be transferred to BCE and a dilution of the company’s equity for existing shareholders.

 

SkyTerra’s new chief executive, Alexander H. Good, who is also chief executive of MSV, said the consolidation of MSV’s ownership at SkyTerra will provide MSV with “improved liquidity, access to capital, and a more attractive platform for partners.”

 

MSV signed a large satellite-construction contract with Boeing Satellite Systems International of El Segundo, Calif., in January 2006 for three satellites – two over North America and one over South America.

 

MSV, headquartered in
Reston
,
Va.
, suspended work on the South American satellite in late 2006, a decision that will result in the forfeiture of its U.S. Federal Communications Commission (FCC) license and also of $2.25 million in FCC bond payments.

 

In a December report to its bondholders, MSV said it will owe at least $25 million to Boeing if it does not reinstate the South American satellite contract by Nov. 8., 2007. But a decision to build this third MSV satellite would cost a total of $540 million – assuming it is able to secure a new FCC license.

 

MSV, which operates two aging satellites for
U.S.
and Canadian mobile satellite services, also in L-band, is facing a sharp ramp-up in capital expenses in 2007. Despite an agreement with Boeing allowing a stretch-out of satellite construction payments, MSV will owe the satellite manufacturer some $267 million in 2007, nearly triple the payments made in 2006.

 

MSV estimates that its two-satellite Boeing contract will cost $812.6 million, a figure that does not include a ground spare that it is obliged to build under its current FCC license. MSV has announced it will petition the FCC to waive that requirement inasmuch as the two North American satellites can back each other up. A ground spare could cost around $250 million, MSV has said in its reports to bondholders. When launch and insurance costs are added in, the cost of deploying the first two MSV satellites climbs to $1.1 billion, according to MSV.

 

In its year-end report, MSV repeats its earlier estimates that building a network of ground-based satellite-signal boosters to assure high-speed links that are out of the direct line of sight of the satellites will cost between $20 million and $60 million to equip each of the top 50 North American markets. The total ground infrastructure bill would be between $500 million and $2.6 billion, depending on how many markets are served, and what service levels are provided in each of them. For the nine months ending Sept. 30, MSV reported revenue of $26.4 million.