Will private equity ownership of satellite carriers save the industry, or strangle it? Six of the industry’s top CEOs thrashed out this question before a standing-room-only crowd at SATELLITE 2005’s Global Satellite Operators Roundtable on March 23.

Five of the six CEOs were all for private equity ownership. “I think this is a very healthy thing for our industry,” said Joseph Wright, president and CEO of Panamsat. “It’s given us a professional exposure and ability to approach the private investment community.”

“Generally, it’s a good situation,” said Conny Cullman, CEO of Intelsat. “I think private equity will add a new discipline to this industry.”

“They’re pure financial players,” said Andrew Sukawaty, chairman and CEO of Inmarsat. “The capital investments they’ve made prove this is not a short-term game for them. So I think it’s a force for good, and drives a more commercial focus to what we do.”

“I consider it a very, very positive move,” said Bernard Schwartz, chairman and CEO of Loral Space & Communications. In the past, FSS companies were too small to convince large investment research firms to monitor the industry, he explained, which made it difficult to attract private investment. With private equity firms now having a stake in FSS, Schwartz believes that these companies will have an easier time getting new capital.

“When they [private equity investors] came in, it was extremely important to Eutelsat,” said Giuliano Berretta, chairman and CEO of Eutelsat. In fact, private equity investors saved this FSS carrier from being sold in 2002, he said.

The lone voice of dissent was Romain Bausch, president and CEO of SES Global. Although he agreed that private equity investors will rationalize CAPEX and add discipline to the industry–which currently has 2,500 unused transponders (1,300 C-band/1,200 Ku-band) in orbit–Bausch worried that private equity firms would siphon off too much cash from their newly-purchased FSS properties. “The fact is you can only spend your cash flow once,” he warned. “You have to make a balance between returning money to shareholders and investing in the future. It is very clear that most companies today are focused on returning cash to shareholders.”

For many of the FSS executives who spoke, having private equity owners looking over their shoulders adds an extra level of pressure to their daily lives. So how will they and their companies keep the new owners happy? “Performance, performance and performance,” said Schwartz. Deliver the kind of returns the private equity firms want, and everything will be fine. Fortunately, he believes that these “new stockholders will be likely to make long-term bets even at the expense of near-term return, because I think the business fundamentals are so attractive.”

Private equity ownership wasn’t the only issue the six CEOs tackled: HDTV’s likely impact of the satellite industry was also discussed. For his part, Eutelsat’s Berretta was more optimistic about European HDTV’s chances this year than he was at last year’s Roundtable. However, Berretta cautioned FSS companies to wait for “real players” to launch HDTV services: “We should not be doing experiments for experiments’ sake.”

SES Global’s Bausch was also bullish: From his perspective, the advent of HDTV and interactive services will revitalize the industry’s core video business, and serve as real sources of growth for FSS carriers. Not only will these opportunities occur in North America and Europe, he said, but the upcoming 2008 Olympics in China will promote FSS usage for HDTV as well.

Loral’s Schwartz echoed the collective faith in HDTV, but called on FSS companies to pursue other growth opportunities as well; private equity ownership notwithstanding. “We have to stretch ourselves” to ensure that FSS companies keep up with terrestrial carriers, he declared. “We can’t be risk-averse.”

Intelsat’s Cullman also cited video as a big growth driver for FSS operators, but by no means the only one: Corporate networks will also be “an opportunity for this industry,” he said. Cullman also expects government usage to increase, and pointed to North America, Europe and Africa as prime growth areas.

Meanwhile, Berretta said satellite broadband would be a growth area for Eutelsat, but for corporate data traffic, “not for browsing the Internet.”

As for the possibility that FSS companies might venture into the MSS sector in their quest for new revenues, thus infringing on Inmarsat’s turf? “Competition is a good thing,” replied Inmarsat’s Sukawaty. “It helps you get up in the morning with a spring in your step.” He added that Inmarsat may end up entering some FSS markets. Whatever happens, Sukawaty emphasized that his company is well prepared to compete for mobile satellite customers.

The high cost of space insurance spurred Schwartz to characterize the industry’s current rates and policies as “haywire.” Both he and Cullman questioned the rates insurers are charging, which are so prohibitive that some satellite companies have taken to insuring themselves. For his part, Berretta called for a clearer distinction to be made between launch insurance and in-orbit insurance, to better reflect the different levels and time periods of risk involved with each. Meanwhile, Schwartz offered a solution that might reduce insurance rates. He asked satellite buyers to spend a little more upfront so that their satellites could undergo more quality testing before being sent into orbit, to reduce the chance of on-orbit problems later. Improved testing could help reduce space insurance rates, Bausch observed, because the current level of on-orbit failures were playing a role in increasing risks and pushing up premiums.

Besides these topics, the six CEOs discussed other issues facing their industry. For instance, reliability of equipment and the ability to cope with “anomalies” remains a “business as usual” challenge, said Schwartz. However, competition between satellites and fiber is no longer an issue, said Wright, “Because we’re all using fiber” to provide customers with cost-effective hybrid communications solutions. Differing regulatory regimes are still causing problems for FSS carriers, said Berretta. So do the different management styles used at various FSS companies, which leads to “different operators getting different results” from their respective fleets. Such differences can get in the way during reactions to satellite anomalies, Berretta noted, when operators have to respond with new transmission paths “within minutes.” Overall, “the major challenge for the satellite industry is to find the right position in the distribution chain, to ensure that it remains the platform of choice,” Bausch concluded; especially in the face of terrestrial competitors such as fiber and DSL.

All told, the six CEOs were generally upbeat in their portrayal of the satellite carriage sector. It is also safe to say that they were more concerned about high insurance rates than the impact of private equity ownership. In fact, with the exception of SES Global’s Romain Bausch, they lauded private equity’s impact on the satellite industry. This said, the conventional wisdom that thrifty private equity FSS owners will buy fewer new satellites was not discussed by the six CEOs; even though this trend will hurt satellite manufacturers. Had the manufacturers’ CEOs been included in this roundtable, the tone would not have been so upbeat.

–James Careless