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PanAmSat Buys Terrestrial Network

By | November 24, 2003

      Wilton, Conn.-based satellite operator PanAmSat [Nasdaq: SPOT] is expanding its land-based capabilities with an all-cash acquisition of Chantilly, Va.- based Sonic Telecom, a provider of international high-definition multimedia transmission services and business applications.

      The $6 million transaction will extend the reach of PanAmSat’s 24-satellite global fleet and its existing fiber network throughout the United States, Europe and Asia, company officials said. The resulting integration of Sonic Telecom to the PanAmSat infrastructure will provide customers with a seamless satellite/fiber network that will deliver video content virtually to or from anywhere in the world in a secure manner with “robust redundancy,” they added.

      The purchase also will give PanAmSat access to assets that were developed with $40 million in investment by Sonic, explained Joe Wright, president and CEO of PanAmSat, during an exclusive interview with SATELLITE NEWS. For PanAmSat to build the same terrestrial capabilities on its own would have required a number of years and far more than the $6 million it paid to buy Sonic. “We were going to build a network the size of Sonic’s, but it would have taken roughly a year or two longer and three or four times as much money,” Wright said.

      Sonic fell into financial difficulty and ultimately filed for Chapter 11-bankruptcy court protection prior to PanAmSat agreeing to buy its assets. Sonic faced a difficult market trying to deliver telecom services in a weak economy.

      “This acquisition fits our sweet spot,” Wright said. “The demands of our existing video customers and other customers require us to provide a hybrid satellite/fiber service to take advantage of the best attributes of both. We feel that FSS [fixed satellite service] companies have to come to the ground and provide more services to their customers.”

      To that end, PanAmSat intends to build-out a global fiber network that will be interconnected with its satellite fleet. A signal automatically will be routed by the most efficient transmission method, regardless of the technology.

      The acquisition of Sonic Telecom is the latest phase of PanAmSat’s hybrid satellite/fiber strategy. The first phase began in April when PanAmSat entered into an agreement to use the 20,000-mile broadband fiber optic network of Level 3 Communications [Nasdaq: LVLT] to create a virtual teleport. By connecting satellite uplink facilities to an advanced terrestrial network, PanAmSat was able to offer customers access to its satellite fleet from any Level 3 network location.

      The second phase of the hybrid plan involves the expansion of the Level 3 network into points of presence (POPs) in the United States, Wright said. The third phase is to expand internationally, he added.

      “This Sonic deal jumpstarts our U.S. effort and gets us into the third phase,” Wright said. “Sonic needed to join a larger company that had more diversity and a larger customer base.”

      In addition, Sonic had not tapped the U.S. government market but its capabilities fit PanAmSat’s strategy of increasingly serving that market.

      “A big part of the U.S. government’s requirements are over fiber, as well as satellite,” Wright said.

      To compete, the FSS sector needs to evolve from only selling satellite services to providing global communications services on the ground as well as in the air. These new terrestrial capabilities will help PanAmSat to broaden its portfolio of services, Wright said.

      Customers now will be able to use PanAmSat’s communications network to conduct point-to-point transfer of backhaul video traffic, connectivity to a global network, as well as videoconferencing, bridging and video event management. “This hybrid approach of uniting delivery systems is not only the future for our industry, it is the present,” Wright said.

      Sonic Telecom brings to PanAmSat its customer base of multi-national broadcasters and corporations, as well as related network management capabilities, a usage-based billing platform and access to an established international fiber network. In addition, PanAmSat gains access to an additional 20 PoPs around the world that are complementary to its existing network.

      Sonic and PanAmSat already share a number of common customers including CNN, ABC, Reuters and the NFL. These customers and others will have access to a broader array of services, as well as a single point of contact for all their video distribution content needs, whether in the air or on the ground, PanAmSat officials said.

      In addition, G2 Solutions, PanAmSat’s government services division, will be able to leverage PanAmSat’s expanded hybrid satellite/fiber network to support military and homeland security applications.

      Industry Kudos

      Susan Irwin, president of Washington-based satellite consulting firm Irwin Communications, said that the Sonic acquisition “gives PanAmSat a valuable asset at a bargain basement price. Sonic was badly in need of additional funding to cover its monthly operating costs. PanAmSat will be able to take advantage of Sonic’s fiber network to complement the services it provides to its long-standing, strong broadcasting customer base. Additionally, Sonic’s profitable videoconferencing network brings a relatively new market sector to PanAmSat. It is imperative in the current environment for all satellite operators to provide a full range of transmission options.”

      Tara Giunta, a partner in the Washington office of the Coudert Brothers law firm, said, “This merger shows that those satellite operators who intend to be competitive in the future are aggressively seeking ways to diversify and extend the reach of their networks and services. PanAmSat is taking the lead in what may become more common as the telecom market reawakens.”

      Roger Rusch, president of the Palos Verdes, Calif.-based satellite consulting firm TelAstra, said, “PanAmSat is executing a well-planned strategy for growing its services in a rapidly changing environment. The Sonic acquisition appears to strengthen substantially the PAS [satellite] networking resources. This announcement addresses all the appropriate concepts, including high definition television and hybrid fiber-satellite networks.”

      However, PanAmSat still must manage its business carefully during difficult times, since there is excessive satellite capacity and high-definition TV has been slow to take off, Rusch said.

      “When the HDTV market develops, [PanAmSat] will be prepared,” he added.

      Andrea Maleter, technical director at the Bethesda, Md.-based Futron satellite market research company, said, “This action shows that PanAmSat has now clearly moved on from the cost-cutting of the recent past and back into the more aggressive market approach with which it entered the satellite business.”

      Wright remains attentive to the bottom-line but understands the need to reshape PanAmSat to capture future growth in the markets where it is available.

      Sonic will operate as a separate subsidiary until PanAmSat figures out the best way to organize it, Wright said. That period will be roughly three to five months, he added.

      Adding Skills

      Wright said Sonic’s employees are adept at running fiber networks and those skills can be put to use as PanAmSat builds that part of its business. “We will be able to use a good part of their people and experience,” Wright said. Sonic currently has 35 employees and all of them will be retained initially.

      In addition, Sonic’s HDTV orientation fit PanAmSat’s strategy of building and launching new satellites aimed at serving the growing needs of that market.

      The international terrestrial capability will ease PanAmSat’s current need to double-hop signals coming from the Middle East, Wright said.

      “By giving us the landing ability in Europe, this gives us a single hop linkage from the Middle East that we have not had before,” Wright said. “Now, we will be able to avoid latency problems in telecasts.” The timing is especially good for PanAmSat with the approach of the Summer Olympics in Greece next year.

      Another satellite operator that has been adding to its terrestrial infrastructure during the past couple of years is PanAmSat rival Intelsat.

      “Intelsat is coming down more to the ground,” Wright said. “It’s a really intelligent strategy on [Intelsat CEO] Conny Kullman’s part. He is doing what we’re doing. He is primarily in telecom because that is the nature of his customer base,” Wright said.

      “I’m not so sure it makes sense to invest in fiber over land-based markets if you are in telecom and data services,” Wright said. “Unless you integrate it with satellites, you are in a pure commodity business that is having pricing pressure.”

      –Paul Dykewicz

      (Kathryn Lancioni, PanAmSat, 646/293-7415; Susan Irwin, Irwin Communications, 202/223-1016; Tara Giunta, Coudert Brothers, 202/736-1809; Roger Rusch, TelAstra, 310/373-1925; Andrea Maleter, Futron, 301/347-3450)

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