In the near term, the fixed-satellite service (FSS) industry is likely to be characterized by incremental growth rather than by “blockbuster” mergers between operators, according to panelists at a recent Washington, D.C., meeting of the Society of Satellite Professionals International (SSPI).

The difficult state of public equity markets for technology and communications companies has created opportunities for private equity funds and investment banks, said Dara Panahy, an attorney who works in satellite finance with the law firm Milbank, Tweed, Hadley & McCloy.

The list of financial investors interested in FSS operators includes Blackstone, Goldman Sachs, Oppenheimer, Permira, Apax, Apollo and Eurazeo, Panahy told attendees. These firms have looked closely at Eutelsat, Intelsat and Inmarsat, all established satellite operators that formerly were intergovernmental organizations.

Cash-hungry telecommunications providers have shown the greatest interest in selling shares in these operators, Panahy said. The ability to find interested buyers has reduced the likelihood that these large FSS operators will be taken over by a competitor, he added.

Instead, horizontal growth strategies are unfolding that combine satellite capability with complimentary technology, Panahy said. One example is a recent deal in which PanAmSat [Nasdaq: SPOT] and Level 3 Communications [Nasdaq: LVLT] agreed to develop a hybrid satellite/fiber transport network to deliver high-bandwidth content to cable broadcasters, network television affiliates, news agencies and ISPs, he added.

Another example is the move by Liberty Media [NYSE: L] to join with Intelsat and the National Rural Telecommunications Cooperative to invest in WildBlue Communications, a development-stage Ka-band broadband services provider.

A wild card in the FSS industry is New Skies Satellites [NYSE: NSK], an operator in the Netherlands that is looking to acquire a regional satellite operator or in-orbit satellites, Panahy said.

Andrea Maleter, technical director at Futron Corp., a Bethesda, Md.-based consultancy, said both horizontal and vertical integration would take place in the FSS industry. She offered a time line that showed a trend toward horizontal integration in the 1980s, and a return to that type of integration today. Maleter also emphasized the key role being played by large financial investors.

Pressures are rising for consolidation among FSS operators in the long term, said Patrick Mayworm, vice president of business ventures at Intelsat Global Services Corp. The primary forces driving mergers and acquisitions are regulatory and political, technological, financial and economic, he added.

There is an oversupply of capacity, a weak growth outlook, poor stock valuations and a clear interest among certain shareholders to sell, Mayworm said.

Intelsat’s talks to buy Eutelsat last year collapsed when Eutelsat’s most eager shareholders cut separate deals to cash out their holdings. However, Intelsat remains focused on pursuing acquisition opportunities that may arise with a large FSS operator in the future. “We expect Intelsat’s merger and acquisition actions to determine the future shape of the satellite industry,” Mayworm said.

–Paul Dykewicz

(Dara Panahy, Milbank, Tweed, Hadley & McCloy, 202/835-7521; Patrick Mayworm, Intelsat, 202/944-6800; Andrea Maleter, Futron, 301/347-3450)