Now that it has emerged from bankruptcy, Loral Space & Communications can focus on growing the company, with a return to the North American services market one of the possible avenues.

Satellite industry observers have mixed thoughts about how effective Loral, though its Loral Skynet unit, will be as a competitor in the North American market. Loral will need an infusion of capital to re-enter the arena and also will face a tough competitor in the planned combination of Intelsat Ltd. and Panamsat Corp.

“I would say [Loral’s] biggest challenge is they don’t have any satellites over North America right now,” Karim Nour, program manager of space and communications at Frost & Sullivan, told Satellite News. “To get back into the North American market is going to cost a lot of money. It is not just a strategic decision. It is a tremendous financial commitment. The truth is it is going to take Loral a while to regain investor confidence in order to embark on that kind of road.”

Needed Capital

Loral agreed to a two-year non-compete clause in North America when the company sold certain satellites to Intelsat in March 2004. Loral’s desire to return to the North American market when the agreement ends in March is well known.

At the National Association of Broadcasters conference in Las Vegas in April, Loral Skynet President Patrick Brant told Satellite Today, sister publication to Satellite News, that “plans are in motion” for the company to get back into North America following the expiration the non-compete clause that was agreed upon when Loral sold certian space assets to Intelsat. “We expect to become a solid player in the market,” Brant added at that time.

There has been no indication that those plans have changed, though Loral Chairman Bernard Schwartz was not immediately available for comment before this issue of Satellite News went to press.

How Loral Skynet will re-enter the North American service arena is subject to differing opinions among industry observers, but the company will need an influx of cash to fund its return, analysts said.

One possible opportunity, according to Eileen McGowan, manager of Futron Corp.‘s FCCFilings.com service, could be to reacquire the satellites Loral sold to Intelsat as part of Loral’s bankruptcy proceeding. Intelsat paid $961.1 million for four in-orbit spacecraft and two in the manufacturing stage. Loral used the proceeds to pay down debt and meet bankruptcy obligations.

Now with industry observers speculating that Intelsat and Panamsat may be forced to divest certain satellite assets as a condition for receiving government approval of their merger, the sale of some of those North American satellite assets back to Loral could be a win-win scenario for all parties.

The reacquisition of existing spacecraft would bring Loral back into the market much faster than building and launching new satellites, McGowan said. “Going through the motions of acquiring licenses and building new satellites would certainly generate revenue for Space Systems/Loral, but it just seems like it would make a lot more sense to acquire something already on orbit than a new satellite that would have to be authorized, contracted for, constructed and launched,” she said. “That just seems to be a lot of investment in an area where we really don’t need more satellites necessarily. It is not like there is a lack of available capacity on orbit. I think it is more a matter of changing the ownership of what is already there.”

Nour, however, believes Loral will have to place new satellites in orbit. “I don’t see them buying satellites from anyone else right now,” he said. “I think they have to launch their own, so we are looking at 2007-2008” before they can be a presence in the North American market.

Market Opportunity

Assuming Loral is able to get the necessary in-orbit assets, the bigger challenge could be finding a market to compete effectively. Whatever combination of Intelsat and Panamsat emerges will be a dominant player in several lucrative satellite markets, analysts said

One area that Loral should steer clear of is video. “In the video markets, Panamsat together with Intelsat is a killer combination,” Nour said. “With Panamsat’s hardware and Panamsat’s experience in the video markets, that is going to be tough to get into.”

Roger Rusch, president of satellite industry consultancy Telastra Inc., suggested that if Loral were to make a video play, it would have to offer services at a discount. “This would be a typical Loral strategy to cut prices,” he said “However, it would have to be a significant discount for most clients since they have established relationships and dedicated antennas pointed at the SES Americom and Panamsat satellites. Repointing antennas costs money and interrupts service.”

While the military market also is booming for commercial satellite operators, Loral again will have to compete with the Intelsat-Panamsat behemoth, as well as SES Americom. The military market “is all Intelsat’s and SES Americom’s right now,” Nour said. “I don’t see Loral getting into that anytime soon. They don’t have the sales force. They don’t have experience. They don’t have the physical presence to compete in that market.”

The best opportunity for Loral could come from offering Ku-band services, Nour said. “Our forecasts still show tremendous demand for Ku-band over North America,” Nour said. “Whether they can get the orbital slots and landing rights, that is another question. I don’t know how much room there is for Ku-band to be flown, but if they can put the satellites up, they will definitely be met with demand. I see them competing on corporate networks and, to some extent, on video. They could be quite a competitor, but first they’ve got to put the hardware up and that costs a lot of money and raising money is still going to be Loral’s challenge for the near-term future.”

While doubting whether Loral can even make an effective return to the North American market, Rusch said, the best play would be to look at new services. “In North America, Skynet could establish new types of services for new clients,” he said. “Rather than compete in an entrenched marketplace, Loral should come up with clever applications.”

–Gregory Twachtman

(Eileen McGowan, FCCFilings.com, 301/347-3431; Karim Nour, Frost & Sullivan, +33 1 42 81 12 40; Roger Rusch, Telastra, 310/373- 1925)