Redefining an industry The Year In Review
By Rob Fernandez
The past year can be best characterized as a year of change and rebuilding. Major players in the industry will be sporting new faces and names when they greet 2001. Repercussions from key events in 1999, such as the failure of several Mobile Satellite Services (MSS) ventures and U.S. export controls, continue to occur and provide lessons to be studied. The industry as a whole seems seized with a new purpose, a new direction in which to focus its considerable problem-solving energies.
Mobile Satellite Services
The MSS sector continued to struggle in 2000, unfortunately drawing further bad press down upon the satellite industry.
The drama surrounding the failed Iridium system continued this year with lengthy bankruptcy court proceedings. At several points during the year, hope was revived that some white knight would emerge to purchase the Iridium assets. Telecommunications mogul Craig McCaw was identified early in the year as a possible savior, but he put such rumors to rest in March and instead chose to salvage the bankrupt ICO Global Communications.
A succession of other interested parties made bids on the Iridium assets throughout the summer, but by September the last of them had been dismissed for failing to meet the financial qualifications the court had set. As of press time, one final offer had been submitted and was scheduled for the court’s consideration in early November.
For Globalstar, financial analysts have been taking a “wait-and-see” approach. ING Barings cut its rating of Globalstar from “Strong Buy” to “Hold” in March. Globalstar’s revenues to date have not given analysts cause for much optimism. In July, Globalstar defaulted on a $250 million bank credit line that forced Globalstar’s guarantors, most prominent among them Lockheed Martin Corp., to repay the debt in exchange for Globalstar notes. As of press time, this unconventional financing, plus additional equity financing provided by the Globalstar partners in October, left Globalstar in a position to remain funded until May of 2001, according to analysts.
Another painful black mark on the MSS sector occurred in September when struggling Orbital Communications Corp. (Orbcomm) filed for bankruptcy protection while it reorganizes its finances. Prior to this, Orbcomm had laid off a total of 260 workers in two moves in August. As of press time, Orbcomm’s leadership indicated that $75 million in additional funding was needed in order get Orbcomm back on its feet.
One final bit of bad news for the MSS sector came in September. P.T. Pasifik Satelit Nusantara, managing partner in the Asia Cellular Satellite (ACeS) system, reported that the Garuda 1 satellite, expected to provide MSS services to the Asia-Pacific region from a geostationary platform, was likely to have its calling capacity limited by an antenna- related anomaly discovered during testing by its manufacturer, Lockheed Martin Corp. Testing was still underway as of press time, but if permanent, the anomaly would limit the number of subscribers who will be able to make simultaneous calls via the satellite. ACeS and Lockheed Martin were proceeding with construction of the Garuda 2 back-up satellite, which could partially address any capacity shortcomings.
A bright note for MSS occurred in May when New ICO, formerly ICO Global Communications, successfully emerged from Chapter 11 bankruptcy protection. New ICO’s recovery was made possible by a $1.2 billion investment by Craig McCaw and a group of investors. New ICO was then merged with ICO-Teledesic Global Ltd., a new holding company that controls the satellite assets of McCaw’s private investment company Eagle River Investments LLC. Ka-band hopeful Teledesic LLC’s board of directors approved the merger of their broadband communications company into ICO-Teledesic Global in May. New ICO and Teledesic became wholly owned subsidiaries of ICO-Teledesic Global.
New ICO’s revitalization also led to a contract with Boeing Satellite Systems to build at least three additional satellites and modify 11 other satellites that are under construction to improve the voice and packet data services that the company is planning.
The satellite manufacturing sector of the industry also faced some considerable upheaval in 2000. Perhaps the biggest news came from the acquisition of industry giant Hughes Space and Communications (HSC) by The Boeing Co. The former Hughes facilities will now be named Boeing Satellite Systems. This acquisition was announced in January, and the deal called for Boeing to buy HSC; Hughes Electron Dynamics, a supplier of electronic components for satellites; and Spectrolab, a provider of satellite solar cells and panels. The merger was concluded in October after both the European Commission and the Federal Trade Commission gave their approval.
The industry also saw another manufacturing powerhouse established in May when Astrium became official. Astrium was created from the merger of the space businesses of Aerospatiale, Matra and DaimlerChrysler Aerospace and BAE Systems. It is now the largest space company in Europe. Astrium wasted no time in securing new contracts, winning the three-satellite Inmarsat 4 award and a contract for Hot Bird 7 by the beginning of October.
The year 2000 also saw a dramatic shift in market share between U.S. and European satellite manufacturers. U.S. manufacturers have historically garnered between 60 to 75 percent of the international commercial communications satellite market. As of August, the Satellite Industry Association (SIA) reported that U.S. companies had been awarded only 42 percent of the internationally competitive awards. Since then, each of the U.S. manufacturers has won at least one new contract: Space Systems/Loral won IPstar, Lockheed Martin won NSS 6, and Hughes made a strong recovery with three new ICO birds and one for Asiasat 4. Whether the U.S. rally would continue through the 4th quarter of 2000 remained up in the air as of press time.
While executives from each manufacturer cautioned that no one cause was responsible for this shift, U.S. export controls were commonly cited as a key factor by all of the U.S. manufacturers. Alcatel and Astrium have been quick to downplay the significance of export controls, pointing out that the, too, are hampered by a delay in obtaining subcomponents from U.S. suppliers. Export controls or no, it appears clear that the balance of power has undergone a critical shift in this industry subsector.
The later half of the year also witnessed a string of in-orbit anomalies and manufacturer-related mishaps. In late August, an in-orbit failure left the Boeing-built Solidaridad 1 satellite unusable due to a shutdown of the spacecraft’s back-up satellite control processor (SCP). The bird had been under the control of its back-up control processor since last year, when the main control processor failed. Command and telemetry capability from Solidaridad 1 was reestablished almost immediately, but the control processor did not respond to commands sent by the control centers, and the transponder payload has been turned off, company officials said.
Boeing also encountered some difficulty in October with its new xenon ion propulsion system (XIPS). The XIPS primary electric propulsion system on Panamsat’s Galaxy 8I satellite suffered a failure that will shorten the spacecraft’s lifespan to year-end 2002. Although the satellite is operating normally on its back-up chemical propulsion system, the spacecraft has little more than a two-year supply of bi-propellant fuel onboard to keep the satellite in operation. This malfunction may affect one other in-orbit Panamsat satellite, PAS 5, but Boeing representatives claim the risk to other satellites that use electric propulsion systems appears to be limited due to manufacturing modifications that were intended to protect against the buildup of residue on a grid in the thruster.
A back-up satellite that Space Systems/Loral was building for Sirius Satellite Radio Inc. sustained significant damage in a manufacturing mishap that will delay its scheduled delivery beyond December and likely force the manufacturer to pay hefty penalties. The satellite, Sirius 4, was intended to become the company’s ground spare, and as such did not have an impact on Sirius’s service rollout, but did leave the company vulnerable if any of its other three satellites suffer in-orbit or launch failures.
The Launch Industry
The launch industry as a whole suffered a slowdown in the first half of 2000, with only nine successful commercial satellites launched. Delays in receiving the satellites from the manufacturers were the most common reasons given by launch industry executives. The pace picked up in the latter half of the year, with several dual launches in the fall, bringing the total up to 17 by the end of the third quarter.
Sea Launch suffered a five month stand-down after a March launch failure that cost ICO Global Communications Corp. its first satellite. Sea Launch recovered by mid-year with the successful July launch of Panamsat Corp.’s PAS 9 satellite.
This was the year that Arianespace’s Ariane 5 vehicle proved itself as a fully-capable successor to the workhorse Ariane 4, lifting two dual launches: Asiastar and Insat 3B in March, and Astra 2B and GE 7 in September.
Boeing’s Delta 3 launcher achieved its first success in August, albeit a qualified one. The Delta 3 rocket put a simulated satellite within the expected orbital range, although slightly lower than the nominal apogee. The imperfect orbit is a far better result than the two previous Delta 3 launches that resulted in fiery failures, destroying a valuable satellite in each attempt.
Business As Usual
There were several high-profile acquisitions and partnerships forged in 2000 that promise to change the landscape of the satellite industry. In addition to the Hughes/Boeing merger and the formation of Astrium, Lockheed Martin Corp. finalized its acquisition of 38-year industry veteran Comsat Corp. The FCC’s approval of the merger, given in August, was the last major hurdle in the merger process, and resulted in the transfer of space and earth station licenses to the Lockheed Martin Global Telecommunications subsidiary.
Société Européenne des Satellites (SES) finally made strides toward its long-awaited expansion across the Atlantic. In July, SES invested $135 million in the satellite division of Embratel, the Brazilian domestic satellite carrier, and is taking a 20 percent stake. Embratel and SES will supply Latin American business and direct-to-home markets–first in Brazil and later expanding to other countries–with access to the Internet through Embratel’s C-band satellites. SES has an option to expand its stake in the Embratel satellite division to 30 percent.
In September, France Telecom and Europe*Star threw their lots together in a joint-venture that will deliver satellite broadcast and IP services to Europe, Africa and the Middle East. Called Stellat, the joint venture includes a satellite of the same name to be manufactured by Alcatel Space Industries. This satellite will be placed at the 5 degreesW slot currently occupied by Telecom 2, and is expected to take over Telecom 2’s customers once the older satellite is retired.
In June, the FCC made a surprising decision to revoke the licenses of three Ka-band applicants, citing failure to begin satellite construction by March 1998. The affected companies were Netsat 28, Morning Star Satellite Co. LLC and Panamsat Corp. All three companies have filed appeals with the FCC as of press time. Fourteen second-round applicants for Ka-band spectrum are awaiting approval from the FCC to move forward with their plans.
An Industry Reinventing Itself
Perhaps the most pervasive development in 2000, and also the hardest to document, has been a “realignment” of many satellite companies towards serving data and Internet-related markets. Where the exhibit hall floors and after-hours receptions previously buzzed with talk of MSS applications, now industry observers are bandying about new terms such as “streaming video” and “caching.” There is no single event that one can point to that illustrates this trend, but the signs are there.
Major conferences such as NAB 2000 and our own Satellite 2000 were filled with talk of broadband service provision. Many veteran “RF” companies found new vitality and purpose in turning towards broadband applications after rallying from the depression that the failed MSS systems seemed to throw over the industry. The offices of Via Satellite are flooded each day with a tremendous array of new products and services targeting new Internet markets.
Whether this new promise continues to mature into the markets that analysts are predicting remains to be seen. The industry has become wiser, and more cautious, in embracing new trends without thorough review, but the pioneering spirit and desire to innovate remain at the core of the commercial satellite sector.
Rob Fernandez is Via Satellite’s Senior Editor.