Telesat Plans Complicated by Developments in Russia

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PARIS — The near-term revenue potential of satellite fleet operator Telesat of Canada appears to be bound up as much by what happens in Russia as by the evolution of the company’s core markets in North and South America as it awaits the long-delayed launch of a satellite aboard a Russian rocket and negotiates Ku-band frequency rights with a Russian satellite operator.

Ottawa-based Telesat, which is the world’s fourth-largest commercial fleet operator when measured by revenue, has already suffered a six-month delay in the launch of its Anik G1 satellite, which like other spacecraft has been in a holding pattern while Russian authorities work to resolve the third Proton rocket launch anomaly in two years. The latest launch anomaly occurred in December.

International Launch Services (ILS) of Reston, Va., which markets Proton internationally, and Proton builder Khrunichev Space Center of Moscow currently expect the rocket to return to flight by late March with the launch of the Satmex 8 satellite owned by Satmex of Mexico.

Telesat’s Anik G1 is next in line after Satmex 8. The satellite should provide an immediate revenue boost to Telesat insofar as much of its Ku-band payload has been leased to Canadian satellite-television broadcaster Shaw Direct for the satellite’s full 15-year life.

Telesat’s decision to place a novel X-band payload — normally reserved for military satellites — aboard Anik G1 paid off when Astrium Services of Europe, which already markets X-band capacity aboard the British Skynet satellites, agreed to lease the entire X-band capacity on Anik G1, also for 15 years.

In addition to the Shaw and Paradigm prelaunch orders, Anik G1 will double Telesat’s capacity in Latin America from its operating slot at 107.3 degrees west longitude, where it will join Telesat’s Anik F1 satellite. Latin America has been one of the world’s strongest markets for satellite bandwidth in recent years, even if prices for satellite capacity appear to have stabilized in recent months.

Telesat Chief Executive Daniel S. Goldberg said during a Feb. 21 conference call that Anik G1 should be in orbit before July, meaning it could start making revenue contributions by September if not sooner.

Telesat’s second Russia-related problem relates to the company’s planned replacement of the Telstar 12 satellite at 15 degrees west. Launched in 1999, Telstar 12 is nearing the end of its service life. Telesat plans to replace it, and company officials said during the conference call that they would contract for a replacement satellite “in the coming months.” Of the approximately $85 million in satellite-related capital expenses Telesat plans to incur in 2013, all but $32 million are for the initial payments for the Telstar 12 replacement.

The problem for Telesat is that Russian Satellite Communications Co. (RSCC) of Moscow, which is Russia’s biggest satellite fleet operator, has reserved Ku-band frequencies at 14 degrees west that, if fully utilized, would compromise the business case for replacing Telstar 12.

Multiple satellites in orbit face the same sort of threat, but most conflicts are resolved either by negotiations between the two operators — as Telesat did previously with Eutelsat of Paris for Telstar 12 — or by the fact that the competing operator never gets around to building the planned satellite.

In this case, Telesat has been unable to resolve its issues with RSCC, and the Russian company appears to be moving full-steam ahead with plans for its Express-AM8 satellite at 14 degrees west, just one degree away from Telstar 12. Express-AM8 will carry a mixed Ku- and C-band payload. Originally ordered in 2010, the satellite’s development was stalled and did not begin to move forward until mid-2011.

RSCC now says the satellite should be in orbit by 2014. RSCC has sold Express-AM8 capacity to Earthly Orbit Communications of Britain, which has agreed to lease three C-band and two Ku-band transponders; and to satellite capacity reseller Romantis Group of Germany for coverage of the Americas and South East Africa, according to Romantis.

Telesat and Loral Space and Communications of New York, which has a majority economic ownership of Telesat, but only minority voting interest, raised the RSCC issue in Feb. 21 and March 1 filings to the U.S. Securities and Exchange Commission (SEC).

“Telesat has had discussions with RSCC to resolve the issue but to date, those discussions have not been successful,” Loral said in its SEC filing. “Failure to reach an agreement with RSCC may result in restrictions on the use and operation of Telstar 12, which could materially restrict Telesat’s ability to earn revenue from Telstar 12. … The continued uncertainty over Telesat’s ability to reach an agreement with RSCC, or the failure to reach an agreement, could prejudice Telesat’s ability to replace Telstar 12 … or make a replacement satellite not economically viable.”

Following Loral’s November sale of its satellite manufacturing business, Space Systems/Loral of Palo Alto, Calif., to MDA Corp. of Canada, Loral’s future is more than ever tied to its ownership of Telesat. Loral and Telesat co-owner PSP Investments, which has majority voting rights and minority economic rights, tried to sell Telesat before abandoning the idea and proceeding with a dividend recapitalization of the satellite operator.

PSP, which is a Canadian pension fund, subsequently decided to take Telesat public through an initial public offering of stock, an idea that Loral resisted in part because of tax consequences for Loral’s shareholders. PSP subsequently withdrew those plans, although it is a right to renew them with or without Loral’s approval.