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Ventures Offer Respectable Returns

By | April 5, 2004

      The high-profile failure of low-Earth-orbit (LEO) satellite voice services left the industry saddled with a reputation among many large investors that it posed inordinate risks. Funding for many ventures dried up. Even extraordinarily deep-pocketed telecommunications pioneer Craig McCaw stopped bankrolling ICO Global and Teledesic when it appeared those planned multi-billion-dollar systems offered little or no chance to pay off.

      However, if financial investors choose their risks carefully, the satellite industry can provide a fertile ground for reaping respectable returns. A recent case study is the March 26 recapitalization of Maritime Telecommunications Network, a Miramar, Fla., company acquired for $30 million in February 2003 by Falconhead Capital, a New York-based investment firm. The refinancing of MTN included the retirement of the remaining acquisition-related debt, the return to Falconhead investors of approximately 80 percent of the $14 million in equity they committed last year and a new bank facility on favorable terms at today’s low-interest rates. The new financing through Bank of America consists of a $15 million term loan and a $5 million revolving-credit facility.

      A key reason Falconhead was able to help its investment partners recoup the bulk of their money so quickly was MTN’s fine financial performance. MTN, a provider of high-speed satellite communications, primarily offshore, emphasizes great customer service, cost-effectively filling of unique market niches and growing strategically by seizing new opportunities that match its capabilities. Falconhead, an investment firm that specializes in the media, leisure and sports businesses, also has helped by providing input to enhance service to existing customers, to win new orders, to launch strategic initiatives and to grow MTN significantly in the past year.

      Among MTN’s accomplishments since its acquisition by Falconhead are:

      • The renewal of five-year agreements with a number of large cruise-ship companies to provide an array of communication services that include voice, data, Internet cafés, Wi-Fi hotspots and printable newspapers;
      • The installation of satellite-based communications services onboard Cunard’s Queen Mary 2, the world’s newest and largest ocean liner. ABC News’ “Good Morning America” used MTN’s communications services to broadcast live segments recently while the ship was at sea on its maiden voyage;
      • Multiple agreements to provide the U.S. government with various services around the world; and
      • Renegotiation of multi-year, satellite-space-segment pacts to serve the global needs of MTN’s expanding customer base.

      Cruising For Dollars

      Anyone who has ever taken a cruise vacation for at least several days likely has walked past or possibly has used the satellite-based mobile communications technology MTN offers via onboard Internet cafes or Wi-Fi “hot spots.” MTN announced on March 16 it formed a joint venture, Wireless Maritime Services, with AT&T Wireless [AWE] to allow cruise-ship passengers to use their own wireless phones while at sea. That service is expected to be available on several cruise lines later this year (SN, March 22).

      Already profitably entrenched in the cruise ship industry that has averaged 8 percent annual growth since 1980, MTN is branching out further into providing mobile communications services to the offshore oil and gas industry as well as to government agencies.

      MTN may have received its biggest splash of publicity during the past year from equipping a special truck called the “Bloommobile” to help NBC News Correspondent David Bloom cover the early stages of military action in March/April 2003 aimed at liberating Iraq. Bloom rode in the truck as he provided captivating MTN-delivered video and audio images of U.S. forces advancing through the Iraqi desert.

      The Bloommobile is equipped with a stabilized VSAT (Very Small Aperture Terminal) antenna designed to provide mobile, in-motion live broadcast services. The truck stays locked on its satellite-based communications transponder even when the vehicle and camera are moving at high speed over uneven terrain.

      Dave Kagan, MTN’s CEO, said, “Our expertise and the products we bring to the customers is a global plug-and-play, always-on network. We showed that to the military and the [U.S. Army] Third Infantry Division. Bloom’s footage was supplemented by Wi-Fi laptops that allowed soldiers to send e-mails. We also provided them with worldwide phone service.” Tragically, Bloom died April 6, 2003, from an aneurysm while covering the conflict. NBC later re-deployed the Bloommobile in the United States, and it has been used it to cover news events ranging from Hurricane Isabel to the political campaign of Gov. Arnold Schwarzenegger (R-Calif.).

      That enterprising spirit of bringing communications to remote places to address marketplace needs is driving MTN’s growth. That spirit also is part of the fabric that holds the satellite industry together and keeps it vibrant as a technology that offers unique and wide-ranging communications services.

      Companies that exhibit similar ingenuity with their new products range from satellite radio providers, Washington, D.C.,’s XM Satellite Radio [XMSR] and New York City’s Sirius Satellite Radio [SIRI], to Carlsbad, Calif.-based satellite and wireless provider Viasat [VSAT]. The stock prices of all three of them confirm that investors have taken notice.

      XM’s stock has risen so much following a $475 million recapitalization during January 2003 that one of its strategic investors, El Segundo, Calif.-based DirecTV Group [DTV], announced March 26 it was selling its remaining 9 million shares of XM’s Class A common stock. Half of the shares were sold in January.

      DirecTV could use the proceeds from the sale to fund the expansion of its DBS business with more local-into-local service and HDTV, said Roger Rusch, who heads TelAstra, a Palos Verdes, Calif.-based satellite consulting firm.

      The total price of roughly $230 million that DirecTV officials said the company would reap from the stock sale equals $25.56 a share, well-above the $6.03 cents a share XM traded for on April 7, just one year ago this week. The stock closed at $27.93 a share last Wednesday.

      Also last Wednesday, Sirius ended trading at $3.40 a share, up from an adjusted close of 65 cents a share on April 7, 2003. Viasat’s stock price had risen to $24.88 a share by the time trading closed last Wednesday to more than double in price from $11.41 on April 7 a year ago.

      –Paul Dykewicz

      (Dave Kagan, MTN, 954/538-4000; Chance Patterson, XM Satellite Radio, 202/380-4318; Roger Rusch, TelAstra, 310/373-1925; Bob Marsocci, DirecTV, 310/964-4656)

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