Grin and Bear It: For Satellite Aspirants, Funding Is No Fun
By Robert Wold
The most useful advice heard during the day-long nightmare was “Never try to catch a falling knife.” It was that Meltdown Monday in March when free-falling NASDAQ stocks dropped like stones. The bear was hibernating and the bull was nowhere to be found.
It was time then for a watchword from that grand old warrior, Winston Churchill. Had he been present, he would have been fondling a scotch and counseling, “If you’re going through hell, keep going.” It was hell indeed, with most fingers pointing at technology stocks as the problem.
We satellite groupies cringe when Wall Street rudely shoves our birds into the “technology bubble.” Sure, we began as a technology egg but now we’re grown up, eclectic and ubiquitous, a giant in communications, and a premium transporter of news, sports, entertainment and Internet content. We’re much more than just a bent pipe.
Now, however, is not the time to debate DNA.
It would not erase the specter of financial problems faced by several contenders, especially new ones, in all three satellite arenas: low earth orbit (LEO), medium earth orbit (MEO) and the traditionally safe harbor of high geostationary earth orbit (GEO).
Bankruptcies such as those of Iridium (LEO) and ICO Global Communications (MEO) are images and losses not soon forgotten on Wall Street. Now it’s Globalstar (LEO), left behind in its starting blocks by cellular telephony, that’s beginning to flop on the dock.
Then there’s SkyBridge (LEO), still in its sweats, still seeking funds, and the “new” ICO (MEO) which has been acquired by investor Craig McCaw and pooled with the assets of Teledesic (LEO). It remains a mystery within an enigma.
Even GEO has the virus. Astrolink needs more funding and has delayed its startup by a year. WildBlue, citing weak market conditions has withdrawn from a $200 million initial public offering (IPO). And StarBand, which lost $82 million in its fiscal year that ended August 31, has also withdrawn from an IPO seeking $287.5 million. On the other hand, GEO’s Spaceway is an apparent “go” for 2002, looking solid in the hands of Hughes Electronics, a unit of General Motors.
Which brings us, thus, to the world of Ka- ….
Action At The Ka-Corral
The satellite communications industry is forever grateful for the work of the federal government’s National Aeronautics & Space Administration (NASA) which, not incidentally, accomplished things years ago for our then-nascent industry that became far more beneficial than most people realize.
Consider the Experimental Satellite Projects of 1960 to 1965–from Echo to Syncom. Folks look back at that work and say “Wow.” Albert Wheelon, who was president of the space and communications sector at Hughes Aircraft during the 1980s, says, “People think about space technology as a series of blinding flashes on the road to Damascus. Everyone thinks lightning comes down and suddenly it’s all clear. It isn’t that way. It’s just hard work. You keep making a little improvement every year.”
So it went for NASA, even after the private sector began running the satellite world. By the 1990s, NASA was insistent they should undertake at least one more grand study. Their subject was a previously unused high frequency band at 30/20 GHz, called the Ka-band.
They launched the Advanced Communications Technology Satellite (ACTS) mission in September 1993 and invited private industry to explore and experiment. For 81 months until June 2000, ACTS helped churn out the valuable insights that are incorporated in many new commercial programs, some of which are cited below.
Coincidental to the proving through ACTS of the viability of a two-way spotbeam system using Ka-band frequencies, our global society was admiring the growth of a remarkable new network of all networks called the Internet. It seemed only fitting that a marriage be planned, joining Ka-band with the Internet.
Once thought to be commercially unusable due to atmospheric interference, Ka-band is now the frequency of choice for three of the industry’s most aggressive new players, Spaceway, Astrolink and WildBlue, all in GEO.
The Need For Speed
Although the sale by General Motors (GM) of the satellite manufacturing arm of Hughes Electronics to Boeing Space and Communications was concluded last October, Hughes Network Systems (HNS), DirecTV and PanAmSat Communications remained under GM ownership as we went to press.
Via Satellite (September 2000), reported that GM invested $5.2 billion when it bought all the jewels of Hughes Aircraft Co. in 1985 and placed all of them under a new tent named Hughes Electronics (HE). GM has so far sold off some of these jewels for $13.25 billion. Next, DirecTV alone might fetch another $8 billion for GM, according to the Wall Street Journal, and then there will be two remaining gems, PanAmSat and HNS. The latter has been very successful in the VSAT segment of the satellite business.
Jack Shaw, the senior executive vice president of HE, began a speech to a large Los Angeles audience on January 30, 2001, by saying, “I’m excited to be here to talk about broadband, a subject that has dominated my thinking for more than 20 years. Broadband is the biggest advance in consumer and enterprise communication since the introduction of the transistor.
“The need for speed multiplies every year,” Shaw continued. “Market research firms say that, collectively, communications companies plan to spend $200 billion on broadband during the new President’s term.” He added, “From the Internet’s access of only about one percent of U.S. households just five years ago, it now reaches more than one third of all U.S. households. It took telephone and radio almost 40 years each to achieve one-third penetration, and it took TV and cable some 10 years.”
Shaw predicted, “Within two years, the number of active Internet users may nearly triple. We may be talking about a staggering 350 million people using the Web worldwide.”
So what about HNS and Spaceway? In March 1999, Hughes Electronics committed a $1.4 billion investment to build the first leg of Spaceway and “provide affordable, high-bandwidth and high-speed communications for broadband and multimedia applications.”
Unlike some of Spaceway’s aspiring competitors, HNS is apparently fully funded to begin operations in North America in 2002.
The satellite constellation’s first segment will feature three giant BSS 702 birds beaming across North America from 99 degreesW and 101 degreesW, plus one spare in orbit. The GEO Ka-band system will then roll-out regionally, around the globe, beginning in 2003. HNS, to date, has eight global orbital slots assigned by regulatory agencies.
Spaceway’s Internet Protocol (IP) network will provide high bandwidth on-demand and will support data, multimedia images, video and voice. It will have interactive digital communications services and high-speed Internet access. Spotbeams and an onboard processor, eliminating “bent-pipe” techniques, will allow inter-beam routing.
The system will include “powerful, low-cost, small, easy-to-install terminals with full mesh connectivity.” Downlink beams will be as fast as 400 Mbps and broadcast beams as fast as 100 Mbps. Inbound speeds to thousands of carriers per satellite will be up to 64 Mbps. Spaceway will court consumers as a companion to DirecTV, although its two-way Internet services will go to a separate 26 inch (.66 m) dish.
In June 1999, America Online (now AOL Time Warner) made a strategic alliance investment in HE of $1.5 billion to develop and market integrated digital entertainment and Internet services in North America through Spaceway. AOL’s investment is also intended to accelerate subscriber growth and revenues for DirecTV and its Internet-related companion, HNS’s DirecPC, as well as AOL-Plus services. AOL is also interested in global areas other than North America and is particularly keen to target Latin America, according to HE.
To further expand DirecTV’s bouquet of satellite TV and data services, HE committed $179 million in cash in December to acquire Telocity, a provider of digital subscriber line (DSL) services that travel on conventional telephone lines.
A Starring Role
Lockheed Martin Global Telecommunications (LMGT), which recently acquired Comsat, including 22 percent of Intelsat equity, is seeking success in Ka-band to enlarge its new role in providing communications services. Like Spaceway, Astrolink envisions a large market of small businesses for its global broadband services. Astrolink’s market forecasts are similar to those used by Spaceway, e.g., “the annual potential for all global broadband services is expected to grow to $200 billion by 2005, with space-based broadband services capturing 10 to 15 percent of that market.”
Astrolink LLC is a strategic venture based in Bethesda, MD, and founded in July 1999 by partners LMGT, a wholly owned unit of Lockheed Martin Corp.; Telespazio, a company of the Telecom Italia Group; and TRW Inc. The founding partners were joined in October 1999 by Liberty Media Group, controlled by investor John Malone.
In late 1999, Gary Howard, the executive vice president and COO of Liberty, said, “Global demand for high speed information delivery is increasing at a record pace. Astrolink provides a unique opportunity for Liberty to invest, with a strategic set of partners, in a global distribution network utilizing leading-edge technology to take advantage of this important trend that will shape the world economy in the new millennium.”
Equity commitments for Astrolink total $1.325 billion, for which Liberty holds 31.6 percent, LMGT has 31.2 percent, Telespazio, 18.6 percent, and TRW, 18.6 percent. According to Astrolink, the startup funding required is $3.6 billion, which indicates a current shortfall of $2.275 billion.
No new investors have come onboard for more than 15 months and, according to Astrolink spokesperson Arlene Taffera, startup dates have been delayed one year to 1Q-2003.
At a time, however, when industry analysts and consultants contend that investors are shying away from startup satellite companies, Astrolink (at press time) is searching for a new president who can bring home the equity bacon. Astrolink’s four-satellite GEO/Ka-band system is to be constructed by Lockheed Martin Commercial Space Systems in Sunnyvale, CA, based on LM’s large A2100 bus. The first four satellites are to be launched at six-month intervals, serving North and South America, Europe and the Middle East first, and then extending worldwide.
The satellites will each feature 58 spotbeams that transfer data, and Astrolink will be able to re-direct traffic among any of the beams. Depending on consumer demand, according to LM, the Astrolink constellation could increase to as many as nine A2100 satellites at five orbital locations.
Wild At Heart
Will we now see the “wild blue yonder?” Will WildBlue’s ad department license the rights to use the lyrics of the traditional Air Force fight song? Formerly known as Ka-Star and then iSKY, WildBlue Communications is a Denver-based entrepreneurial startup that’s more consumer-centric than any of its expected competitors. It targets “the estimated 32 million U.S. homes that will not have a DSL or cable modem alternative when WildBlue introduces service.”
WildBlue will market a full boat of Internet services to consumers, much as EchoStar markets its Dish TV direct broadcasting services, obtaining most of its revenue from subscription fees.
In fact, WildBlue and Dish will be bundled into a single antenna offering.
Like Spaceway and Astrolink, WildBlue believes in the virtues of fixed satellites (FSS), geostationary orbits and Ka-band frequencies. During the first quarter of 2002, the company plans to receive delivery of its own WildBlue 1 Ka-band satellite, based on the Loral FS-1300 bus and now under construction by Space Systems/ Loral. It will be launched by Arianespace to a GEO slot at 109.2 degreesW.
WildBlue 2’s satellite capacity, launched in 4Q-2002, will be onboard Telesat Canada’s Anik F2 satellite at 111.1 degreesW that will cover North America. In this BSS 702 satellite with 108 active transponders, 52 will be in Ka-band. Subject to Federal Communications Commission (FCC) approval, WildBlue says it has secured marketing rights to as much as 90 percent of Anik-F2’s Ka-band capacity. To cover Latin America, the WildBlue 3 satellite is planned for a late 2003 launch to 73 degreesW.
Founder David Drucker has a close association with EchoStar, the distributor of Dish programming. He was an attorney for EchoStar and, before that, was in-house attorney for United Cable under Gene Schneider. With EchoStar, WildBlue hopes to develop a single set-top box that will serve as both a satellite modem for WildBlue’s services and a set-top box for the Dish network.
Although WildBlue has withdrawn its proposed IPO for $200 million, the company has raised $239 million from private equity sales and $146 million from vendor financing. At June 30, 2000, its deficit was $11.1 million
The strategic investors at this point are Directcom Networks Inc., 22 percent; Liberty Media, also an investor in Astrolink, 20 percent; Echostar, 13 percent; Telesat Canada, seven percent; TRW, five percent; plus TV Guide, Arianespace and Space Systems/Loral.
In addition to his role as founder and chairman of WildBlue, David Drucker is also planning diversity: He’s expected to be the founder of a second Ka-band satellite system.
According to Satellite News, a recent filing at FCC disclosed that Drucker is seeking approval to construct a $3.5 billion MEO satellite system called “@Contact.” The system will reportedly operate in Ka-band frequencies and specialize in providing Internet broadband services. Drucker recently hired attorney Leo Mondale as the president, based in Washington, DC. Mondale had executive positions at Iridium and briefly with Arianespace.
One Dish Solution
StarBand Communications, headquartered in McLean, VA, became the first nationwide provider of high-speed, two-way Internet traffic to residential and SOHO (small of-fice/home office) customers. Its customer count in the continental United States had reached 25,000 subscribers by early March of this year.
Founded in early 2000, the company was first known as Gilat-To-Home Inc. The investors and strategic partners include Gilat Satellite Networks Ltd., 45 percent; Microsoft Corp., 19 percent; EchoStar Communications Corp., 19 percent; and ING Furman Selz Investments. Gilat is a major international provider of VSAT equipment and services. Its U.S. subsidiary is Spacenet Inc., the former GE Spacenet business.
StarBand’s strategic partners and founding investors acquired $126 million of equity. In October 2000, at about the same time as WildBlue’s filing, StarBand filed with the SEC for authorization to launch an IPO that would seek $287.5 million. On March 9, the company notified the SEC that it was withdrawing its application “in light of current market conditions.”
In its fiscal year ending last August 31, StarBand had a loss of $82.1 million.
With EchoStar, the company has a distribution agreement that includes bundling StarBand with Dish Network services. Microsoft helps sell StarBand’s services through 7,000 Radio Shack stores.
StarBand’s target market is very similar to WildBlue’s–primarily rural and suburban households with few or no high-speed Internet access alternatives. The company estimates that some 55 million households do not presently have access to Internet delivery via cable modem or DSL. Customers are charged a monthly subscription fee.
A total of 24 Ku-band satellite transponders have been leased by StarBand. They include 14 on Loral’s Telstar 7 at 129 degreesW and 10 on GE 4 at 101 degreesW. The company hopes to have access in the future to its own satellite, using both Ka- and Ku- bands.
StarBand is proud of its “one-dish” solution. Its elliptical antenna, 24 x 36 inches, can receive signals from three satellites, two that provide Dish content and the other, StarBand.
Cashing In On Capacity
Loral CyberStar is Loral’s data services business, a global information delivery company concentrating on multimedia and the provision of Internet access and services.
In effect, CyberStar is a reseller of global satellite capacity but its operations also include numerous value-added services related to satellite transmissions. By early 2001, CyberStar was regularly delivering U.S.-based Internet content to 173 Internet Service Providers (ISPs) and high-speed data traffic for some 200 customers.
The company’s history dates back to the beginning in 1982 of Orion Satellite Corp., which Loral acquired in 1998. The original Orion satellites are now Telstars 10, 11 and 12 in the Loral Skynet fleet. These satellites and more than 10 others–all members of the Loral Global Alliance–transport content via some 40 transponders for CyberStar’s customers.
By mid-1997, the $1.6 billion CyberStar system was heading toward a dedicated constellation of three GEO, Ka-band satellites beginning in 1999. On January 31 of 2001, however, Bernard Schwartz, Loral’s chairman and CEO, announced a cancellation of the Ka-band satellites, explaining that “we (Loral) do not have the in-house skills to develop the marketing resources to competitively deploy such a system.”
Underlying this strategic turnabout were the financial problems of Loral-supported Globalstar, a LEO-based mobile telephone system.
At the present time, the Loral Skynet fleet leases Ku-band transponders to customers such as StarBand. Schwartz has said that Skynet’s Telstar 8, to be launched within two years, “will include Ka- broadband, two-way capacity as a fixed satellite service.”
Loral and Alcatel have had a close alliance for years. Loral agreed to invest $30 million in Alcatel’s SkyBridge project, and Alcatel returned the favor regarding Loral’s CyberStar project. There have been no changes in these commitments.
Bridging The Gap
The proposed SkyBridge constellation of 80 Ku-band satellites in LEO, first announced in early 1997, has been postponed but not cancelled by Alcatel and its industrial partners.
Indeed, operations will begin before the end of 2001 in GEO rather than LEO. According to David Finkelstein, Skybridge’s spokesperson, “The current financial environment requires that we push back the LEO constellation time frame.”
Skybridge will temporarily lease GEO Ku-band transponders to begin its broadband IP data services via satellite serving Europe, Latin America and possibly Asia.
As to North America, Finkelstein said, “We feel North America is well-covered for these services and we will not begin on North American satellites.”
For its long-term plans in LEO, Skybridge has sought funding of $6.2 billion including $4 billion for satellites and $2 billion for ground segment. To date, $1 billion has been raised, leaving a shortfall of $5.2 billion.
“Alcatel and its industrial partners are doing most of the funding,” said Finkelstein, “but times are difficult with service operators and carriers. That’s the biggest problem at this moment.”
Alcatel’s partners include Boeing, Loral, Litton, L-3 Communications, Qualcomm and EMS Technologies of the United States; Com Dev of Canada; Mitsubishi Electric, Sharp and Toshiba of Japan; Thomson, CNES and SNECMA of France; SRIW of Belgium; Starsem of France and CIS.
The Future Is Upon Us
The question is not whether these satellite schemes will work. How many times do we need to point at satellite TV? We already have enough proof that satellite systems deliver spectacular results.
What is it that’s needed to assure investors? Does Wall Street really understand us? We aren’t just technology; we promise a new level of life.
Robert N. Wold is based in California. His e-mail address is firstname.lastname@example.org