TerreStar Restructures Board, Announces Layoffs

[Satellite News – 4-22-08] On the heels of the resignation of CEO and President Robert Brumley, TerreStar Networks Inc. is laying off nearly half of its employees in a cost-cutting measure, parent company TerreStar Corp. said April 22.
    “This is what we believe is an appropriate response to the environment and is fully in keeping with our very prudent capital financing plan,” a company spokeswoman said. “The executives have [resigned] at a time when we’ve buttoned up our previous financing. It’s a good transition point from a visionary company into a company that’s operational and execution oriented.”
    The layoffs, which will affect 79 of the company’s 180 employees, are expected to save the company about 45 percent in base salary and expenses, the company said. The headcount includes the four executives who resigned April 16. Along with Brumley, COO Michael Reedy, Chief Marketing Officer Doug Sobieski and Robert Siegel, the company’s executive vice president of finance and corporate development, also stepped down.
    Jeffrey Epstein, TerreStar’s general counsel and secretary, has been named president, but there are no plans to name a new CEO, the spokeswoman said.
    “We believe these cost reduction measures are a realistic and appropriate response to the current economic environment and are in keeping with the prudent capital financing plan we’ve mapped out,” Epstein said in a statement. “By taking these actions we strengthen our financial position while maintaining our focus on launching our satellite, developing the integrated 4G handset and delivering on our strategic vision of creating the nation’s first integrated satellite terrestrial mobile communications network. With these expense reduction measure, the company expects to be internally funded into mid-FY2009.”
    TerreStar is among the mobile satellite services (MSS) companies planning to launch a hybrid satellite-terrestrial communications network that will use a combination of geostationary spacecraft and a ground network using ancillary terrestrial component technology to provide services. TerreStar-1 originally scheduled to be launched in November 2007, has been delayed twice, and satellite manufacturer Space Systems/Loral expects provide a more definitive delivery schedule after testing of the satellite is completed in April. Launch provider Arianespace has said it can launch the satellite during a window that runs from December through February.
    Some of the MSS companies have burned through large amount of cash and such cost-cutting measures were inevitable, said John Stone, a partner with Near Earth LLC. “I would have suspected that they would have operated more leanly all along and that this is returning more to that kind of a model,” he said. “I think a lot of people had hoped that by now these guys would have cut a deal with a party that could help them utilize their spectrum. The actual resources to be able to fully utilize their spectrum are very significant. We’re talking multiple billions of dollars on top of what’s already been spent.”
    Stone believes the MSS companies would have to partner with a larger spectrum user in order to realize the full value of their spectrum assets. “I think you have to partner with someone whose deep pocketed. [A company who has] not only money but also the skills to be able to utilize spectrum assets. Examples could be anywhere from a wireless firm like Verizon to a mobile virtual network operator like Virgin Mobile that might want to move to become actual network operator, as opposed to simply being a reseller. They might want to gain control over their own destiny. Alternatively, we’ve repeatedly heard about cable providers wanting to take their triple play and make it a quad play by adding wireless. Absent that partnering, I think these guys are going to have a lot of trouble managing their spectrum assets.”
    In February, EchoStar Corp. was among a group of companies that agreed to invest $300 million to help fund the manufacturing and launch of TerreStar’s satellites. As part of these transactions, TerreStar also will obtain access to additional spectrum held by EchoStar. In return, EchoStar and other investors will have the right to nominate two members to the boards of both TerreStar Corp. and TerreStar Networks Inc.
    Andrea Maleter, technical director for Futron Corp., sees the layoff announcement as a “not unexpected” realignment of the MSS business. “It has been clear for some time that there would be a reconciliation of the companies within the MSS sector,” she said. “There does not appear to be sufficient market. More companies are planning more satellites than the market demand can justify.”
    Another unnamed industry official said he was “blown away” by the TerreStar news but added that the MSS sector actually could benefit from a reduction in the number of operators. “My view is that while there’s a viable business for some, six is way too many,” the official said. “One way or another the number needs to be reduced. There’s still an incredible amount of risk [in this business]. With access to additional financing being driven by the subprime crisis, belt-tightening is inevitable. The point of consolidation is to reduce costs. The type of belt-tightening you’re about to see is inevitable.”
    Brumley said much the same thing in a SATELLITE 2008 panel in February. “I still believe consolidation is important in the industry,” he said during the “Mobile Satellite Services: MSS industry Leaders Stake Their Claims” panel. “I think 2008, as we all execute on our plans, is going to be a big year for the industry and there will be a lot of changed. I think this panel in 2009 may be a little smaller.”