PARIS — The value of S- and L-band spectrum licenses for a future hybrid satellite-terrestrial two-way broadband service sparked sharp debate at the 10th World Summit for Satellite Financing, organized by Euroconsult here Sept. 4-7.
Investors in the United States have made spectrum valuations the basis for their estimates of what mobile satellite services companies including TerreStar Networks, ICO, Mobile Satellite Ventures,and ultimately could be worth.
There appeared to be a clear split between U.S. and European financial analysts, with the U.S. investment bankers generally more bullish than the Europeans on the sector’s outlook.
Analysts and satellite operators agreed that the key issue will be whether a direct-broadcast satellite television company, a telephone network or some other deep-pockets player ultimately will finance the investment in ground hardware needed to deploy the hybrid service. This hardware is known as the ancillary terrestrial component, or ATC.
The U.S. Federal Communications Commission (FCC) has agreed to permit mobile satellite services licensees to deploy ATCs without having to pay for the necessary spectrum. FTC officials fear that no mobile satellite company would survive if it had to pay for the spectrum.
A year ago, Wall Street seemed certain that an ATC deal involving a partnership with, or the purchase of, a mobile satellite operator was around the corner.
No such deal has materialized , however, which is why some analysts assumed that the two U.S. satellite-television companies, DirecTV and EchoStar, would fight to the end to win spectrum at the recent FCC auction of Advanced Wireless Services. But the two companies, which formed a joint venture for the auction, eventually dropped out of the bidding.
The DirecTV-EchoStar decision has rekindled speculation about the value of hybrid networks featuring ATCs.
Osvaldo A. Ramos, managing director of Lehman Brothers’ Global Communications Group, said the two companies’ exit from the auction would make them key candidates to invest in a satellite-terrestrial ATC project. But Ramos conceded that more than a year has passed with no move in that direction. “ATC remains a big question in the markets now,” he said. “Some thought something would happen in 2006, now maybe in 2007.”
Andrew Sukawaty, chief executive of Inmarsat of London, which is weighing an ATC license application in the United States and which already has a new generation of L-band satellites available, said he remains neutral on whether a big ATC deal will occur at all.
“People are talking about having to spend $4 billion to roll out ATC in the top 100 U.S. markets,” Sukawaty said. “It’s more likely to be $7 billion to $8 billion.”
Paul Howard, managing director of Casenove of London, said the ATC vision might have gone too far in the valuations of some mobile satellite companies.
“In the United States, hedge funds look at implied value [of ATC spectrum], and they are not worrying about the core business of the mobile satellite companies,” Howard said. “ATC is binary: It is either worth an awful lot or not very much.”
Inside the ATC debate is a more technical argument over whether the mobile satellite companies operating in the L-band, or those proposing to operate in the S-band, have the best technical solution.
Giuliano Berretta, chief executive ofof Paris, whose company is considering an S-band satellite investment, said: “I don’t see too big a difference. S-band helps concentrate the satellite’s beam because it’s a higher frequency. So for beam-forming to cover individual countries in Europe, S-band would be better.”
Romain Bausch, chief executive of satellite-fleet operatorGlobal of Luxembourg, said L-band is superior to S-band for signal penetration into buildings, and also features lower capital costs. “We estimate that there would be a 15- to 20-percent savings in capital cost with L-band compared to S-band,” Bausch said.
Roger Rusch, president of the TelAstra Inc. satellite engineering consultancy in Palos Verdes, Calif., said the ATC debate is reminiscent of the satellite-telephone sector in the mid-1990s, when billions of dollars were lost in uneconomic satellite constellations.
In an analysis published Sept. 13, TelAstra refers to “the ATC fantasy” and says assigning high value to mobile satellite companies based on their spectrum licenses “is pure nonsense.”
TelAstra says the recent FCC auction has demonstrated that the value of spectrum has dropped by 80 percent in the past year.
“In December there were projections that the auction would bring in $35 billion,” the TelAstra report says. “When the auction started, the FCC predicted $20 billion. That dropped to $15 billion. The final outcome will be less than $14 billion.”