[Satellite News 10-15-08] The discussion between financial analysts and satellite executives at the ISIS Satellite Investment Symposium was dominated by talk of the recent financial crisis on Wall Street. Craig Moffett, managing director of Sanford Bernstein, urged his panel of mobile satellite service executives and members of the audience to readjust their business model. "We are heading into a nuclear winter of funding," said Moffett. "$1 trillion of funding has been wiped out. $15 trillion of lending capacity has disappeared. Any business plan that your companies had four weeks ago needs to be thrown out the window. Credit is going to be tight, and in order to gain stock share, smaller players need to spend on an excess of scale. In an environment with tight credit, smaller players die. There needs to be drastic change. How will you do it?" David Wilson, CEO of Spectrum Five, said that his company was seeking strategic partnerships and not investment partners, a tactic that many executives throughout the event would agree on as a strategy for securing capital. John Mattingly, senior vice president of Mobile Satellite Ventures (MSV), said that his company was at the end of their funding cycle and had already acquired the funding they needed from Harbinger Capital Partners in July. Moffett and other analysts agreed that satellite companies which have already secured the funding they needed would be safe for now. "Thank god this economic collapse did not happen before private equity firms made their wave of satellite investments in 2003 or 2004, otherwise the industry would be in a completely different predicament." Todd Mitchell, vice president of cable and satellite equity research for Kaufman Brothers joined Moffett in expressing the need for satellite companies to scale back future projects and focus on breaking even. The two urged satellite executives to weigh potential customer and subscriber acquisition against the cost of the projects. David Drucker, CEO of ATContact Communications said that that his company, which provides broadband Internet connectivity, is not worried about customer acquisition because its services are viewed more as a utility and a necessity. "There will always be growth in connectivity services," he said. "In rural areas and in factories and mines, you need Internet connection just like you need electric and water." Wilson said that the need for cellular backhaul and bandwidth can also be considered a necessity since it is quickly consumed by new technologies. Mark Dankberg, CEO of ViaSat gave a presentation on how valuable Internet bandwidth will be to the satellite industry, especially in rural, unserved areas. "When asked what they would do with a broadband Internet connection, the top activities rural customers responded with were downloading movies, streaming music and watch Internet television," he said. "In downloading movies alone, these customers need 1.5 gigabytes of bandwidth per month." On the subject of strategic partnerships and acquisitions, John Stone, a partner of Near Earth, asked the panel if Sirius and XM Satellite Radio needed to merge in order to survive. Mattingly said that the problem was not with the merged company's technology, but with their capital structure, a statement that one audience member took exception to and asked how applications like Pandora could kill the new combined company. Wilson added to discussion by returning to the issue of spectrum and backhaul. "Applications like Pandora can burn through a T1 connection in no time. Apple iPhone calls were being dropped just because of Pandora. So bandwidth and spectrum use continues to be an opportunity for satellite." Moffett stated his disbelief that Sirius XM cannot secure funding and is selling at less than $1 a share. "They are essentially a monopoly," said Moffett. "They do not have to compete with any other company when it comes to signing deals with auto manufacturers for installation. They have no competitors for NFL and Major League Baseball coverage. They have a superior product, but are unfundable and I think it is only going to get worse. They need a sustainable business model." Owen Kurtin, principal and founder of The Vinland Group, warned satellite companies that the U.S. government is headed into a new era of regulation. "With the political party shift in Congress and possibly the White House, we have to understand that mergers and acquisitions will be much more difficult under the magnifying glass. There will be much more regulation and the spirit of creating competition in the air," he said. Jimmy Schaeffler, Chairman of the ISIS symposium asked each panel member how they would invest $1 million of their clients money in the hostile stock market. Almost everyone threw out Dish Network's name and said that expectations were so low for the company that the stock is now a great value and has positive growth potential. However, Moffett warned of the uncertainty surrounding Dish Network's litigation with TiVo and the recent charge of contempt filed against Dish Network for refusing to shut down its DVR recorders after it was ordered to do so by the courts. Drucker added ViaSat to his list and said he was intrigued by what he believes is the company's solid manufacturing base. Mattingly had a different direction in mind. "With all of its new deals and hitting all of its milestones, I would definitely invest in Inmarsat."
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