by Marc Crossman and Anh Steininger

In the satellite universe, 1999 would probably be considered the year of the dish. As a result of consolidation and a clearing of the legislative cloud, the DBS sector has been the one bright spot for the satellite industry, having climbed all the way back from near obscurity at the beginning of 1998. Given that legislation has yet to be completed, this momentum should continue well into 2000.

In the MSS sector, the disastrous commercial launch of Iridium at the beginning of 1999 more or less dictated the environment for the other MSS players for the year. Globalstar eventually succeeded in differentiating itself from Iridium; however, the acid test is in the commercial launch and the subscriber ramp up, which will begin in early 2000.

In the FSS sector, as a result of several malfunctions and satellite failures in 1998, there was pent-up demand for 1999. Several of the providers such as Loral, Panamsat and GE Americom have successfully launched satellites in 1999 and are planning to launch at least 10 more in 2000. This could lead to an overcapacity situation in the near to mid-term future.

DBS

As a result of intense consolidation, only two DBS providers-Hughes Electronics (DirecTV) and Echostar-are left. To recap, Hughes bought USSB and Primestar, and Echostar bought the satellite assets of AskyB, a joint venture between News Corp. and Sprint. So what could have been a five-player industry with no winners is now a two-player industry, leaving the two remaining providers with the capability to compete successfully with the cable incumbents.

So far in 1999, DBS subscribers have grown at record rates, with no sign of a slowdown anytime soon. At this point the DBS industry is 37 percent ahead in subscriber net additions over last year, with the key selling season still ahead. The robust subscriber growth has been reflected in the stock prices, as Echostar is up over 330 percent YTD and GMH, which began making its strong push in September, is up over 70 percent YTD.

Legislation allowing local-into-local rebroadcasting for the DBS providers is expected before the end of the year. Since market research data shows that the number one reason why consumers do not buy DBS is the lack of local channels, subscriber growth in 2000 will outpace even that of 1999.

MSS

This past year was a big disappointment for the MSS sector, starting with the unsuccessful commercial launch of Iridium. After eight months of being in business, subscriber results were so dismal that the company was forced to file for Chapter 11 bankruptcy. Unfortunately, the failure of Iridium also affected the other potential MSS providers, particularly ICO Global Communications. After numerous failed attempts to raise the financing needed to take the company to the operational stage, ICO was forced to file for Chapter 11 shortly after Iridium.

Possibly the one bright spot of the MSS sector in 1999 was Globalstar. By emphasizing its relationships with its service providers, Globalstar has succeeded in differentiating itself from Iridium. In October, Globalstar officially launched commercial service of its network on a region by region approach. However, for the next few months, the phones will only be in "friendly user" hands.

Do not expect any meaningful subscriber results until the first quarter of 2000. In order for Globalstar to be successful and take MSS to the next level, it must achieve subscriber levels of at least 665,000, generating revenues of $220 million by the end of 2000. The company’s estimates are much more aggressive, with 1 million subscribers generating approximately $600 million. Although ICO recently announced that it has worked out a possible financing plan, we believe that the future of ICO will depend on the success level of Globalstar.

FSS

A series of malfunctions and launch failures in 1998 led to shortage of transponder capacity at the beginning of 1999 in the Americas. Thus we currently have a situation of pent-up demand, keeping transponder prices firm. Since the start of 1999, all three leading fixed satellite providers, Loral, GE Americom, and Panamsat have successfully launched satellites. Each has a very aggressive launch schedule in 2000, especially Panamsat.

As a result of its ambitious schedule, the year 2000 will be a breakout year for Panamsat, with revenue growth of over 40 percent as opposed to flat growth from 1998 to 1999. For Loral, the possible success of Globalstar combined with an EBITDA expansion of its FSS business also should spell a very big year in 2000. However, going beyond 2000 we could see an overcapacity if all of the planned satellite launches are successful, and the space segment supply exceeds demand.

Marc Crossman and Anh Steininger are satellite analysts at J.P. Morgan in New York City. These views are those of the authors and do not necessarily reflect the views of the Via Satellite editors or J.P. Morgan.