Intelsat Loss Grows In 2005; Focusing On Panamsat Deal

Intelsat Ltd. lost $325.3 million in 2005, compared to $38.7 million in 2004, due to higher operating expenses, Intelsat reported April 18. The satellite operator reported revenue growth of 12 percent to $1.2 billion in 2005.

Earnings before interest, taxes, depreciation and amortization (EBITDA) increased $79.7 million to $655.9 million, or 56 percent of revenue, for 2005. The increase was attributed to stronger revenues overall and the full year contributions of the Intelsat Americas assets and the IGen business.

"Our total year results, which included 12 percent revenue growth and strong EBITDA and cash generation, demonstrate the positive contribution of the fully integrated IGen business and improved performance in our Network Services and Telecom sector," Intelsat CEO Dave McGlade, said in a statement. "GlobalConnex, our managed solutions offering that is popular with Voice over IP providers in overseas markets, among other uses, continues to be a positive aspect of our business, growing to an annual revenue total of $110.9 million, up 47 percent from total 2004 results." Intelsat’s 2005 gains also were aided by the acquisition of the Intelsat Americas satellites in March 2004 and Comsat General, Intelsat said.

The increase in revenues primarily was attributed to an increase in lease services revenue of $68.8 million, largely consisting of new and expanded business signed by the Network Service and Telecom sector and IGen, and an increase of $64.9 million in other revenues to $78 million, primarily due to mobile satellite services sold by IGen. Channel services revenue declined by $41.4 million to $223.3 million, partially offset by an increase of $35.3 million in revenue from managed solutions to $110.9 million.

Total operating expenses for 2005 were $1.1 billion, which included a satellite impairment charge of $69.2 million related to the January 2005 failure of the IS-804 satellite. Operating expenses for 2004 were $878.8 million, which included an $84.4 million impairment charge for the IA-7 satellite. Depreciation and amortization expense increased $116.1 million to $573.5 million in 2005, primarily due to purchase accounting treatment following the acquisitions, the IS-10-02 and IA-8 satellites that entered service in September 2004 and July 2005 respectively, and a full year of depreciation recorded on the Intelsat Americas satellites compared with about nine months of depreciation recorded in 2004.

The net loss of $325.3 million in 2005 was an increase over a loss of $38.7 million recorded in 2004 due to the higher operating expenses, as well as higher interest expense resulting from financings in 2005. These expenses were partially offset by higher revenue attributable to full year contributions of the Intelsat Americas assets and the IGen business.

At the end of September, Intelsat’s backlog stood at $3.8 billion, the company said.

Focusing On Panamsat

Intelsat’s top priority for 2006 is to close its acquisition of Panamsat Corp., which will create the largest Fixed Satellite Servcies (FSS) operator in the world. The deal, announced in August, is expected to close before the end of the third quarter. "Upon closing, we plan to bring to market the enhanced services afforded by the merger quickly, and also intend to capture the cost and operational synergies as we bring the two companies together," McGlade said.

The merger was approved by Panamsat shareholders in October and also has been approved by non-U.S. regulatory agencies and the the Committee on Foreign Investment in the United States. The deal remains under investigation by the U.S. Federal Communications Commission (FCC) and the Department of Justice.

McGlade does not expect either agency to require Intelsat to divest any assets. "Our position is that there is no need for that," he told Satellite News. "We have made that very clear to the FCC, and to the [Department of Justice] here in the U.S. We are optimistic that we will not have to divest any satellites but we will not know until we get further along in this [Department of Justice] process. The key here is that our assets are very complementary. Our customer and product sets are very different. We operate in different regions with different service offerings. Our customers are looking for back-up, quality and resilience. We need every satellite we can get to offer the best service we can for our customers."

The combined company will be better able to compete internationally against much larger competitors, McGlade said. "With the scale and the scope that this business will have, we will be able to do investments like IPTV, where as each company tries to do it, the market is not big enough to sustain it," he said. "It allows us to have a much more robust offering, offer more and do it with more flexibility and do it with more quality and back-up than what we could have done. I think ultimately it is good for the operator, the customers, the investors, as well as overall. If you look at our business, the FSS business, in the context of a global telecoms market, we are a very small part of it. It is very competitive. We are seeing consolidation there. It is a natural position for us to be in to strengthen our overall position so we can compete with the fiber, telecoms and cable companies, which are mammoth compared to us."