Princeton, N.J.-based SES Americom has forged a multi-year service agreement to provide satellite capacity to EchoStar Communications [Nasdaq: DISH], despite SES Americom’s previously expressed willingness to work with EchoStar competitors in the U.S. satellite TV marketplace.

EchoStar has agreed to purchase all the Ku-band and Ka-band capacity on SES Americom’s AMC-15 satellite that is under construction. The SES Americom satellite would operate under the banner of its fledgling Americom2Home business platform. The spacecraft will deliver new video and Internet services to U.S. consumers. SES Americom is the U.S. unit of Luxembourg’s SES Global [Luxembourg: SESG].

EchoStar, the second-largest U.S. direct broadcast satellite (DBS) services provider, plans to use the capacity for a combination of satellite TV programming bundled with satellite-delivered, high-speed Internet services.

Lockheed Martin [NYSE: LMT] is the manufacturer of the AMC-15, a Ku/Ka-band hybrid satellite that would be based on the A2100 spacecraft platform. AMC-15 would be deployed at 105 degrees West Longitude, after its planned launch in August 2004. When fully operational, the satellite will feature 24 Ku-band transponders, 12 Ka-band spot beams and high levels of redundancy on core components such as amplifiers, receivers, commanding beam and computer control systems, SES Americom officials said.

Until AMC-15 becomes operational, EchoStar plans to begin testing with interim capacity from another SES Americom satellite. That test spacecraft would be determined after the launch of AMC-9, set for next month.

Satellite TV industry analysts viewed the deal as important, especially since Americom2Home also could serve competitors to EchoStar and rival DirecTV, a unit of Hughes Electronics [NYSE: GMH]. “Pre-selling an entire satellite would be a great accomplishment for SES anytime but its particularly impressive in this economy,” said Steve Blum, a satellite broadcasting consultant who heads Tellus Venture Associates, of Marina, Calif.

“Within one year of Americom2Home’s creation, one of its expected opponents is starting to work with it,” said Jimmy Schaeffler, a satellite-broadcasting consultant with The Carmel Group.

“The deal brings two companies together in a way that could create other partnerships, alliances or even mergers somewhere down the line. It shows that despite the failure of the EchoStar-DirecTV merger, EchoStar is still a key player in the overall multi-channel marketplace and is aggressively going to find ways to deliver broadband. This is probably the first of many EchoStar announcements in that regard,” said Schaeffler, who heads the Carmel-by-the-Sea, Calif., consulting firm.

John Mansell, a Fairfax, Va.-based media regulation analyst with Kagan World Media, said the arrangement between EchoStar and SES Americom points out the wisdom of the Federal Communications Commission and the Justice Department in opposing the EchoStar-DirecTV merger.

“Clearly, this arrangement is another avenue for EchoStar to move into providing high-speed Internet access,” Mansell said. “The problem of overcapacity for fixed services appears not to be affecting DTH [direct-to-home] services. EchoStar and DirecTV still are experiencing very robust growth in the United States. This is a big boost for Americom2Home.”

SES Americom President and CEO Dean Olmstead said the long-term agreement exemplifies the role he envisions for the development of Americom2Home as a wholesale platform to maximize the range of entertainment and information services available to U.S. homes.

The goal with Americom2Home is to expand the direct-to-home neighborhood in the United States by replicating the successful model established by SES Astra, a European unit of SES Global, Olmstead said.

Kevin Smyth, senior vice president of SES Americom’s residential satellite services, said the plan is to offer three frequencies, including two at 105 degrees West, for Ka-band and Ku-band fixed satellite services (FSS). The third frequency would be at 105.5 degrees West, an orbital slot allocated to Gibraltar by the International Telecommunication Union (ITU) that SES is trying to have approved for U.S. service. The attempt to use the third frequency has stirred controversy and no assurance exists that the FCC will provide the needed clearance. Undaunted, SES Americom is seeking U.S. rights for a satellite at that orbital slot.

Unlike the business model of direct satellite TV service providers, the Americom2Home concept is to offer a wholesale DTH satellite platform that those companies and others could lease to provide programming. SES Astra has built a successful wholesale business in Europe by selling transponder capacity at 19.2 degrees East and 28.2 degrees East to DTH service providers who supply the programming.

“Our approach from the beginning was to develop our orbital resources,” Smyth said. “We are akin to real estate developers.”

Americom2Home is developing the orbital spectrum the way that a land developer would use real estate, Smyth said. “The spectrum is the land and the satellites are the buildings,” he added.

Americom2Home’s deal with EchoStar only involves the use of capacity on AMC-15 that would be positioned at 105 degrees West if it launches successfully. The FCC already has approved SES Americom’s use of the two-frequency bands at 105 degrees W, Smyth said.

With EchoStar agreeing to use all the Ku-band transponders and Ka-band spot beams on AMC 15, SES Americom’s backlog will receive a boost.

Circular Reasoning

Rather than launch another FSS satellite into a weak market, SES Americom changed the design of the satellite to become “more direct-to-home friendly,” Smyth said.

“We increased the power over the United States,” Smyth said. “We put a new reflector on the satellite to make the Ku-band FSS circularly polarized. It is standard practice that Ku-band FSS transponders are linearly polarized. However, almost all transponders used for DTH are circularly polarized.”

SES Americom opted to make the FSS capacity on the AMC-15 circularly polarized to meet the needs of DTH customers. Approval from the FCC for that change is in the works. A 30- day public comment period has elapsed and company officials expect no problem in gaining that FCC authority.

The advantage of having the Ku-band FSS circularly polarized rather than linearly polarized is ease of installation of a small satellite dish, Smyth said. A circularly polarized satellite does not require a rotational adjustment of the feed at the focal point of the dish. At the focal point of every dish is basic hardware called the feed and LNB (low-noise block-down converter). The signal hits the feed, then collects energy and relays the signal into the LNB. Next, the LNB down-converts from the satellite frequency to the satellite receiver’s frequency.

“That technical change helped to make the satellite much more attractive to DTH service providers,” Smyth said. Another advantage of the satellite’s design is that the power was increased over the United States by an average of 1 to 1.5 decibels, he added.

EchoStar’s agreement with SES Americom effectively blocked any of its rivals from using the AMC-15 at a prime orbital position above the United States.

“It will be interesting to see what EchoStar has in mind,” Blum said. “The capacity could be used for broadband, multimedia or even local-into-local television programming. Since AMC-15 is positioned between DirecTV’s primary location at 101 degrees West and EchoStar’s location at 110 degrees West, services could be offered to any DBS customer.”

“The deal does not reflect a change in Americom2Home’s strategy, this merely clarifies the implementation,” Smyth said. “EchoStar is a large, very important customer. We always have characterized ourselves as a provider of satellite capacity. That is our core competence. We have said that we would not own retail DTH subscribers. We also have said we need partners on the content side and the distribution side.”

There was initial uncertainty about how Americom2Home’s business model would develop. “The approach that worked for AMC-15 is that EchoStar is providing both the content and distribution elements,” Smyth said.

SES Americom is also getting ready for the launch of AMC-16 to the 85 degrees West orbital slot. Since AMC-16 is a clone of AMC-15, it also has all the DTH-friendly enhancements. However, until AMC-15 is launched and deployed successfully, AMC-16 would serve as a ground spare, Smyth said.

–Paul Dykewicz

(Kevin Smyth, Americom2Home, 609/9874174; Steve Blum, Tellus Venture Associates, 831/582-0700; Jimmy Schaeffler, The Carmel Group, 831/643-2222; John Mansell, Kagan World Media, 703/433-0571)