Chris Forrester Paris

This year’s PBI/Satel Conseil forum generated one over-riding question, seeming to ask ‘which of the key platform speakers’ companies will still be around a year from now?’ Speakers seemed near-obsessed with the need to discuss:

• whether the current over-capacity of launcher companies would see consolidation
• what is likely to happen to PanAmSat’s orbit assets, and Loral’s role in satellite operations
• when might a European satellite builder acquire a US operation

Although PAS were not present on the platforms, it was probably the most talked about company at Satel Conseil, helped by the Boeing announcement September 4 that it had been selected to build a new 48 transponder satellite for PAS and their JV partner JSAT. Horizons 1 will provide coverage over North America, Central America, Alaska and Hawaii, and launching in Q4/2002.

Eutelsat’s CEO Giuliano Berretta made it perfectly clear that notwithstanding the recent 21 per cent investment in Hispasat, he was looking at further expansion via acquisition. North America was an obvious target. “We’ll get bigger, although PanAmSat might be too large a meal as it stands.” He suggested Eutelsat was looking for a slice of the PanAmSat pie should it be offered. Eutelat’s latest craft, Atlantic Bird 2, is now at Kourou awaiting launch on September 25.

Another delegate questioned whether PanAmSat might be sold by General Motors/Hughes ahead of the disposal of DirecTV, or after. SES Global’s Romain Bausch, while stressing he had no inside knowledge, suggested a pre-sale might make sense. He also said that almost all of the speakers found themselves looking after companies that were minnows in comparison to the giant telcos, despite valuation falls over recent months. “We need to reach a critical size not only in terms of market reach but to attract the notice of capital market investors. Until we start hitting around the $10 billion sort of mark, they tend not to notice us.”

Bausch forecast that some of these telcos, with their “desperate need for cash” would themselves be catalysts for change in the satellite sector over the next year. “In the United States the satellite operators are owned by companies almost by chance,” he added. As to SES Global’s strategy, he said they would not adopt a “green field” approach but continue to link with established operators, leveraging existing positions while at the same time maintaining its regional and national roots. “As of Year One [of SES Global] our shareholders will still receive an improved return.”

Other speakers and delegates suggested Intelsat might make a likely bidder for PAS. But CEO Connie Kullmann, while happy to talk about how the newly-privatised Intelsat was a significant improvement over the old version, was near-silent on the question of PAS, although agreed the assets were obviously “in play”. When questioned specifically he did not deny Intelsat was talking to PAS and Loral. Instead, he said Intelsat had transformed itself from a company with non-flexible rates, uncompetitive pricing and a poor reputation for innovation. “That’s now changed,” he said, “and we can now answer some of these negatives.”

Bob Ross, CEO of New Skies, the Intelsat spin-off, reminded delegates that in his view the normal economies of scale meant expansion was inevitable. “It is no harder to fly 10 satellites than to fly 5. Our TTC sites can handle 40. Consolidation is also a way to hedge your business, where one might see a decline in Latin America in one category but an expansion in another category over the Middle East.”

Jacinto Garcia Palacios, CEO of Hispasat, took an upbeat view of his market, outlining the appeal of a fast-growing market of some 510 million Spanish and Portuguese speakers around the planet, and that this sector also showed an enthusiastic appetite for the Internet. “We want to be one of the 4 or 5 leading satellite operators, with partnerships and alliances to secure this position.” Snr Palacios emphasised that Hispasat’s audience were making enormous cultural and creative strides, “and over the next 20 years this will represent new vectors, and we want to be part of this growth.”

Growth was hardly a word uttered by either the launcher or satellite-building outfits present. Armand Carlier, Astrium’s CEO, admitted that profitability had slipped for all satellite builders. “Just look at the share prices and the return on sales, once around 8-9 per cent, now barely 0-5 per cent.” He argued that with prime contractors increasingly being asked to participate in the venture, and with cuts in government-sponsored R&D, it was going to be a problem for European satellite-builders to invest in R&D “and might damage our future.” Moreover, he stressed: “We are not bankers. There must be an opportunity for profit.” He admitted there was excess capacity in the satellite-building sector and the logical next step would be for a trans-Atlantic merger although the restrictions on transfer of technology made such an event unlikely.

Jean-Claude Husson, chairman and CEO at Alcatel Space, wholly agreed, adding that they were investing in new engineering staff (up 20 per cent) and in new clean rooms and test facilities. He spoke about Alcatel’s enthusiasm for a Europe-wide XM/Sirius type DARS service, but also agreed consolidation amongst the world’s five major prime contractors was “a reasonable view. Space should play a larger role for Alcatel.”