As with any significant transaction, there is always a first step needed to get the forward momentum going. The Intelsat–Panamsat merger took its first step toward completion when Panamsat shareholders approved the deal, Intelsat CEO David McGlade said during a Nov. 10 conference call with investors.

That Panamsat shareholders approved the deal should not have been a surprise, given the $25 per share that investors stand to receive, a premium of 26 percent of the share price the day the merger was announced Aug. 29 and a 39 percent share price over Panamsat’s $18 initial public offering.

With this hurdle cleared, the merger now faces regulatory and anti-trust scrutiny. “The approval process at the Federal Communications Commission is underway,” McGlade said. “The initial comment period has begun and we expect comments and replies to be completed in December.” McGlade also noted that the U.S. Department of Justice made a request for additional information. “This was expected and is common in major transactions. We remain comfortable that all approvals will be received and the transaction will be completed sometime in the second or third quarter of next year.”

Intelsat and Panamsat integration teams already are hard at work, an indication that the companies expect this transaction to go through, McGlade added. “The integration teams have thus far been successful at putting together work plans that we believe address head-on the most significant challenges,” he said, without identifying those challenges. “They are making good progress in identifying synergies that we expect will improve our operating cost structure and increase efficiency. The executive level steering committee is making sure that teams are moving in the right direction and are prioritizing properly.”

Convergence

While McGlade did not offer any specific details on the merged company’s strategy going forward, he talked in general about convergence in the telecom market. Those comments, when taken side-by-side with comments made during Panamsat’s Nov. 9 conference call with investors, give a hint of things to come for the combined Intelsat-Panamsat.

The merger “is an important transaction when viewed across the global communications landscape that is seeing a massive convergence of business models and traditional platforms, including cable and telecom companies, wireless and data service providers and others,” McGlade said. “In this environment, satellite service providers face a myriad of competitors, and many in our industry have spoken of the need for consolidation.”

With the goal of addressing the converged marketplace, Intelsat’s move to acquire Panamsat becomes less surprising in retrospect, particularly when one considers the markets that each company serves.

Intelsat noted in its third quarter earnings release that nearly two-thirds of its revenues are derived from network services and telecom. On the flip side, Panamsat CEO Joseph Wright said that two-thirds of Panamsat’s revenues come from program distribution and video services. By combining the two, a foundation is laid to address one of the major telecom markets, triple-play offerings that combine voice, video and data services.

Triple play is gaining momentum across the telecom market, blurring what has been a traditional line of separation among voice, video and data providers. With telcos pushing to enter the video market through Internet protocol television (IPTV) and direct-to-home satellite service providers partnering with or acquiring telecom service providers, the triple-play concept is being embraced on all fronts.

Roger Rusch, president of satellite industry consultancy TelAstra Inc., noted that both Panamsat and Intelsat have attempted to provide more complete communications services but ultimately remained true to their core competancies. “The combined company will be able to provide a broader range of services,” Rusch said. “In each area, they will be able to provide a strong offering, a little stronger [than if they tried to offer converged services] alone. These companies are basing strategy on the ability to be a strong, balanced full-service company.”

Based on comments made during the Panamsat investors call, Panamsat appears to be gearing its future activities to take advantage of the converged marketplace, putting its future plans in line with the growing market opportunity that McGlade discussed during his call.

Jim Frownfelter, Panamsat president and COO, highlighted specific initiatives that the company has in place and plans to embark on new initiatives going forward. He noted Panamsat’s support of Group W-Com‘s Pegaso Banda Ancha service, which aims to provide direct-to-home service providers, local telcos and cable television service providers with nationwide, two-way broadband data services for consumers, enterprises and hotels. The service will launch in Mexico and ultimately expand to Central and South America. Frownfelter also highlighted Quickspot, a global IP-based voice and video distribution platform designed for extremely high-quality, immediate transmission access for broadcast, government and military applications.

On the development front, Frownfelter noted Panamsat’s work in developing satellite-based WiMAX (a wireless wide area network technology that offers broadband connectivity over a range of about 30 miles from the access point) and broadband via power lines, “which is an application that is under development using satellite technology for broadband communication for apartment complexes, high rise commercial buildings and residential properties utilizing existing electrical building wiring for local distribution.”

Piecing together the general comments on convergence from McGlade’s call and some of the specific future plans highlighted in Panamsat’s remarks gives a possible clue as to the route that the merged company may take.

Looking to add terrestrial technologies into the mix could be more of a survival tactic for the merged company going forward, Stephen Blum, president of Tellus Venture Associates, said.

“Ultimately, there is no reason to be a satellite company,” Blum said. “There is a reason to be a telecom company because that is what people buy. They buy telecommunications services. They don’t buy satellite services anymore. If they can figure out how to integrate [terrestrial] technology into their infrastructure, that opens the door to additional partnerships down the road. It makes sense to be there.”

In McGlade’s words, “When completed, the merger with Panamsat will create a world class communications leader doing business in [more than] 200 countries and territories with a premier base of customers across the media, corporate, government and telecommunications verticals. We will have enhanced reach and reliability and will be able to bring advanced technologies to existing and emerging economies.”

The only question that remains is will the merger gain regulatory approval as easily as it gained shareholder approval.

–Gregory Twachtman