PanAmSat CEO Joe Wright has had a busy few weeks. Despite his best efforts, it seems unlikely that PanAmSat will be able to acquire European rival Eutelsat, at least in the short to the medium term.

The U.S. operator also has issues in Latin America with one of its largest customers and sister company, DirecTV Latin America, possibly heading into bankruptcy protection.

In an exclusive interview with Interspace, PanAmSat CEO Joe Wright talks about his company’s European plans in light of recent events concerning Eutelsat, as well its growth strategy this year.

Interspace: There has been much speculation that you have pulled out the bidding for Eutelsat? Can you clarify your company’s position?

Wright: We have withdrawn from the process and we have notified [Eutelsat CEO Giuliano] Berretta of that fact. Let me put it in this context, I think Berretta has built one of the finest DTH [direct-to-home] platforms in the world at 13 degrees East with the HOT BIRD [satellites] and also one of the finest satellite companies in the world. There is no question that in my mind the best overall merger for our industry would be Eutelsat and PanAmSat. We would be interested in eventually taking a look at this again but right now, we feel there is a difference in the interests of the management team and the key shareholders [of Eutelsat], which are basically telecoms companies who want to get liquidity for their own reasons … The process became too complex, as differences in interests and disagreements occurred between all of those parties as to the goals and objectives for selling interest in Eutelsat. Having said that, I think if they are able to get together and resolve their particular differences in goals, getting liquidity for the key shareholders who do want to exit, then there may be an opportunity for the companies to re-engage.

Interspace: Why did you pursue such a deal, although it looked very difficult to pull off?

Wright: There are varying degrees of complexities in doing deals. We always knew at PanAmSat that this was going to have to be – what I call – a European solution to any kind of merger between our two companies. [Berretta] has built a wonderful operation in that marketplace. You have to honour and respect that. We understand the difference between the U.S. and Europe and in this case we felt we could get past it. You have got to have a consistent party on the other side to have any successful negotiations. I believe [Berretta] had a difficult process underway. In the background there is still a potential IPO [initial public offering] and there are some who desire to go down that path. I think he is doing a terrific job of handling the politics. But, that has to be handled first, before any deal in a reasonable timeframe can be done.

Interspace: Where do you go from here in terms of the European market?

Wright: We have already announced a joint venture with BT [Group]. We would love to expand our scope and interest in that venture, as well as talk to others that are in the European market … Beyond that, we have made some announcements in terms of new products we are bringing to the market, whether it is video-on-demand, which we think is going to be a good market, store and forward [S&F], and our Internet connection business, both one-way and two-way services, which we will look to expand in developing markets. We are also going to be focusing more on the U.S. government business. We are looking at expanding our growth in value-added services using our global fleet, leveraging its strength, as well as our management and financial strengths.

Interspace: Could you give us an update in terms of discussions with DirecTV Latin America (DLA)? How optimistic are you that DLA can resolve its financial problems, and what impact is this likely to have on PanAmSat’s revenues in 2003?

Wright: What DirecTV Latin America is doing right now is absolutely the right strategy of trying to restructure their contracts and agreements to make sure they are financially healthy. We support that all the way. In addition, we have been working with them over the last year to restructure our agreements with them in order to ease the cost burden on them while [enabling them to provide] service to their customers. I think that they stand a good chance as long as the content providers are co-operative and want to see a healthy company.

Interspace: What do you see as the main revenue generators for PanAmSat in 2003? Could you tell us more your plans to increase revenues in the government sector?

Wright: We already have announced plans to acquire Hughes Global Services [HGS]. That will give us between $30 million and $40 million of incremental revenue for this year assuming it closes in the first quarter. You put that on top of our range, which is between $790 and $820 million in revenues in 2003, and you are looking at an additional 4 per cent right there. In 2002, government services constituted about 3 per cent of our overall revenues. In addition, we are going to combine our efforts at PanAmSat with [HGS] efforts to sell to the U.S. government. With the acquisition of HGS, we think we will able to accelerate our sales simply due to the fact we are going to have more people, more experience and a new contract vehicle down in Washington. They are going to give us a very valuable contract vehicle. When you combine that with the fact that the U.S. government has publicly stated that are going to need more bandwidth in the future and are going to use commercial satellite operators more and more, I would look upon this [sector] as a real growth area for us.

Interspace: There are rumours that your parent, Hughes Electronics, is considering combining PanAmSat and Hughes Network Systems. How is the speculation surrounding your future affecting the management’s ability to do business?

Wright: There are going to be many alternatives [explored by] Hughes over the next few months. That is simply one of the ideas that was floating around. One of the advantages we had last year when all of the activities were going on in Washington [concerning the Hughes-EchoStar merger] was that we were really focused internally to make sure we completed the turnaround of the company. That was the number one priority. So, we made sure the upgrade of the fleet was completed with Galaxy IIIC. We upgraded the marketing so that we are really focused on our core video customers. We also refocused our R&D programme – which meant we were not going after greenfield projects any more – and on increasing the services to our core customers. So, while all those other were going on in Washington, we were tending to the knitting at home. As a result of our efforts, we are in the strongest financial position we have been in. We are now in a position where we are a real asset to Hughes and I think they are going to have many alternatives in terms of getting value out of PanAmSat. But, that is going to be up to them.

Interspace: Is your effort to go after the market for video-on-demand (VOD) and other value-added services different from what you have done before?

Wright: Yes, the approach we took before was one in which we followed a strategy of expanding the fleet in order to obtain the advantages of consolidation. We are opportunistic about that. But now, it will primarily be about expanding the fleet in established markets … rather than going into brand new markets that are risky. Those opportunities are going to come up if you have patience over the next few years and we do have patience. We are now going to put more of an emphasis on vertical expansion, which means providing more of the services directly to our customers, such as VOD. The VOD service will be coming across our satellites but we are actually talking about providing the VOD and SVOD [subscription VOD] services ourselves. It is the same thing with S&F. We provide many of the hybrid satellite and fibre services as a back up, rather than a primary service. These are things that are being asked of us by our customers. We look upon this as one of the better areas of growth that we can pursue. The satellite fleets are going to [operate in markets with] too much capacity for a few years. Now is a great time to go after the value-added services and selectively grow the fleet and get into established markets.

Interspace: Could you tell us about the Galaxy XII satellite? Could you explain your strategy of building smaller satellites?

Wright: The satellite has 24 C-band transponders. [Smaller satellites] are a departure from the old strategy that bigger is better. Bigger is not always better if you don’t have a market place for it. These are satellites that are really satisfying our market needs in the U.S. There is also the advantage that you can use an Ariane launch vehicle and put two of them up. They have double the power of some of our other satellites so we can use them as we help our customers transition from analogue to digital. Three out of our next four satellites are going to be smaller Orbital satellites.

Interspace: What level of growth do you expect to see in terms of Ka-band services?

Wright: In terms of Ka-band, we would look to eventually provide broadband services. Again, this is something that will happen in the future. The adoption of Ka-band has taken longer than many people thought because the market has discovered that most applications can be handled using the Ku-band. Therefore, we do not have to jump into the Ka-band market yet. But, over time, we believe this will be a market and we will be there. In terms of when, we think we will make investments in this market towards the second part of this decade.

–Mark Holmes

(Contact: Kathryn Lancioni, PanAmSat, e-mail: [email protected])