U.S. President George W. Bush July 12 signed off on a law that lifts the restrictions in the Open-Market Reorganization for Betterment of International Telecommunications (ORBIT) Act that would otherwise prevent Intelsat from entering into a merger or acquisition transaction with New Skies Satellite B.V. But, industry observers said, it is unlikely the two companies will rush down the aisle to be joined as one.

News of the presidential action came to light first in a July 13 research note on New Skies issues by Vijay Jayant, satellite and entertainment analyst with Lehman Brothers.

According to the note, Part 47 of the U.S. Code, Section 736b “has been repealed, and U.S. law now places no incremental restraints on activities between Intelsat and New Skies beyond the standard antitrust requirements.” The note also mentions that the U.S. Federal Communications Commission will be required to submit a report annually to Congress on the state of competition in the Fixed Satellite Services industry.

The ORBIT Act, initially signed into law in 1998, required the former intergovernmental organizations that operated satellites to privatize and dilute the interest of government signatories that held ownership interests in the organizations. The act required those organizations to issue initial public offerings of common stock but later amended it to allow for compliance to be demonstrated by private equity ownership in lieu of an IPO.

The action came with no fanfare from New Skies or Intelsat, neither of which issued a press release marking the occasion.

However, Intelsat issues a prepared statement to Satellite News regarding the alterations to the ORBIT Act. “This amendment of the ORBIT Act recognizes just how successfully Intelsat has met the act’s original goals,” Tony Trujillo, executive vice president and chief administrative officer said. “Intelsat is 100 percent owned by private equity, fully privatized and now able to compete in the marketplace just like any other company.”

Consolidation Coming, But When?

The repealing of the restrictions satisfies a request both New Skies and Intelsat made at an April 14 hearing of the House Energy and Commerce Subcommittee on Telecommunications and the Internet (SN, April 18).

New Skies CEO Daniel Goldberg told subcommittee members in written testimony that one of the company’s objectives is to “pursue an acquisition, joint venture, strategic combination or other strategic transaction with another satellite operator as and when suitable opportunities arise. Intelsat is one of a number of entities with whom it would be logical for New Skies to consider such arrangements.”

More recently, Goldberg told Satellite News that the satellite industry is ripe for consolidation, which will “be driven by a number of things, including the desire to rationalize some of the excess capacity out there and the desire for some of the operators to expand their scope and strengthen their position in certain markets.” (SN, July 11).

Jayant agrees. “We continue to believe consolidation in the Fixed Satellite Services industry is likely, given the fixed cost nature of the business, and believe New Skies is much more likely to be acquired by a larger plan than to be a consolidator,” he wrote in the research note. The July 12 “action expands the range of potential acquires to include Intelsat.”

Many have speculated for a while that Intelsat and New Skies would eventually come together, it likely would not happen in the near term.

“I think right now that New Skies’ satellites are in position to compete with Intelsat satellites so it is kind of dubious as to whether Intelsat would want to spend the money to buy those assets,” Roger Rusch, president of TelAstra Inc., told Satellite News. “I don’t think they are complimentary. They offer just excess capacity and right now the owners of Intelsat are likely to want to keep the capital expenditures in tow. At some point, [gaining the excess capacity] could be important. But right now, I don’t think it is.”

Eileen McGowan, product manager of FCCFilings.com, told Satellite News that she thought Intelsat and New Skies would merge. “I don’t know how soon it will happen,” she said. “I think there is some synergies between the two companies. However, with the new private ownership, you never know. If it doesn’t make sense from a profitability standpoint, it probably won’t go through.”

“There would definitely be some advantages” to a New Skies/Intelsat merger, McGowan said. “I think for New Skies, there may be more. New Skies is smaller and may benefit from having a bigger corporation and network and resources and that sort of thing and Intelsat may find some benefits from having a company that does have some specialization.”

However, the companies would still need to overcome potential antitrust issues.

“Competing operators would see Intelsat growing by acquiring more satellites and another operator and shrinking the market,” McGowan said “I think that would threaten the interests of companies like SES Americom, which has almost always fought Intelsat at every step, and Panamsat to a certain extent. If Intelsat and New Skies do merge, the other players in the market will fight tooth and nail to make sure they don’t get some unfair advantage if the merger is approved or try to prevent it altogether.”