1) In an in-depth roundtable forum on the satellite communications sector (13,000+ words), three prominent analysts: John Coates of Salomon Smith Barney, William Vrattos of Georgica Advisors and Thomas Watts of Merrill Lynch examine commercial satellite launches and recent failures, technology transfer issues, system design concerns, satellite Internet/broadband issues, point-to-multipoint transmissions, supply/demand issues, the regulatory outlook, and investor concerns.

Investors have done a poor job differentiating between sectors and firms in regards to risk, Vrattos states, "There are a few sectors that have outperformed because the fundamentals of those businesses are excellent, and the risk in those businesses has gone down significantly. However, I still think there are sectors of the satellite industry that tend to be grouped together by investors who don't differentiate between different companies or different sectors and instead assume that launch risk or any other risk of a given company is directly comparable to failures or issues at another."

The problems at Iridium have created an unfair malaise toward the sector, Coates declares, "It's been more of an execution issue with Iridium (Nasdaq: IRID - news). It's problems that have been company-specific or outside of Iridium's control but specific to Iridium itself, namely the handset availability and getting service providers trained. And this has put pressure on the rest of the industry without regard for the underlying fundamental outlook."

Liquidity concerns are plaguing the sector following the Iridium difficulties, Watts asserts, "Iridium is going through a restructuring right now where we could see public investors diluted. Clearly, in the longer run there's the question of whether the equity gets wiped out or not. Just at the end of last week we had ICO (Nasdaq: ICOGF - news) unsuccessfully try to do a financing, so there are reports of that venture folding unless the strategic partners step up. And then Globalstar (Nasdaq: GSTRF - news) still has to raise $600 million by September in an environment where both of its competitors seem to be fouling the water."

Fears of impending Congressional action have begun to damage U.S. satellite firms, Watts states, "They're taking foreign satellite manufacturers that clearly are fourth in the market at best and handing a global market to them. The U.S. government has done two things. Already they've transferred approval of satellite exports from the Commerce Department back to the State Department. Then secondly, the current export approval process has already led to the cancellation of the Asia Pacific Mobile Telecom project. That's already more than a $100- million cost to U.S. companies."

Vrattos concurs that investors' fears of legislative actions are hurting the sector, "To the extent investors are looking to a Loral (NYSE: LOR - news) or a Hughes (NYSE: GMH - news) to be the backstop financier to an ICO or a Globalstar, every hundred million or so of cash counts. And to the extent that those companies have to take write-offs because of legislation, it does weigh on investors' minds."

A positive for the satellite sector is the ability to deliver broadband service to remote areas currently unserved by wireline. The Post Office decided they needed a data network connecting most of the post offices in the U.S. Watts states, "They ran a competitive bid. MCI (Nasdaq: WCOM - news) originally won it, and MCI was going to do frame relay to most of the post offices in the country. When they went out and actually looked at where those post offices were located and how close they were to the MCI fiber backbone, as well as the availability of local frame relay connections from hundreds of local telephone companies, they threw up their hands and went to Gilat (Nasdaq: GILTF - news). So in fact MCI will only do the top 7,000 post offices, the so-called large area offices, and the next 28,000 they have subcontracted to Gilat, because Gilat can do high speed data, they can do it today, they can do it regardless of where the post office is located, and they don't have to go through a local carrier. They just go out and set up a dish."

Watts has a preference for the DBS sector, "Currently EchoStar (Nasdaq: DISH - news), as a pure-play in the sector, is one of the most favorable. It's really had a lot of appreciation already. But as we look forward, we think we could lose all of $9 a share this year but roughly break even next year, and in 2001 do $5 a share and 2002 do $12 a share. So the wonderful thing about these largely fixed cost businesses is once they've turned earnings-positive, there's a very dramatic effect. So we continue to like that as one of our favorites. It has all of the reasons we like DBS in there, from your local programming coming on, to potential alliances, to data and Internet services."

Satellite radio, an emerging sector, requires investors to develop a long- term outlook. Vrattos states, "In terms of CD Radio (Nasdaq: CDRD - news), this company, I am certain, will have numerous hurdles in terms of financing, in terms of technical challenges, in terms of marketing execution. But it's run by some real entrepreneurs who have been able to raise almost a billion dollars from nothing and made some real progress in creating what looks like will be a business. If you believe in the product and in the industry becoming a reality over the next five to 10 years, and you're willing to hold this for that time period, I think this will be a real home run for any investor with a long time horizon."

Vrattos cites another example of satellites superior reach to remote and rural areas with an Indonesian telecoms firm, "Pasifik Satelit Nusantara (Nasdaq: PSNRY - news) is a company in which we are one of four or five institutional investors. It's very much under the radar screen. I think it's one in the mobile satellite sector that could be a real sleeper with upside, given that it is taking an even lower-cost approach than the rest of the companies by doing a GEO service, believing that people who need communication in remote areas need it at an affordable price, first and foremost. So they will have pricing closer to cellular pricing, with handsets closer to cellular size, and will be launching their satellite this year, which obviously has its own risk. But they are fully funded. Lockheed Martin (NYSE: LMT - news) is committed to the project now. And at $7.50 a share, an investor can create its ACeS project, in which PSN owns 30%, at not that much higher a price than at where Lockheed just invested $162 million. So it's an interesting way to ride along with Lockheed at not much higher a cost and to participate in what could be a very exciting project that will actually be launched in the near term."

2) A review of management performance at 13 Satellite Communications firms asked market insiders about the ability of management teams to create shareholder value. In a sector where many management teams received harsh reviews, a few CEOs merited praise.

A buysider gives accolades to David Margolese, Chairman and CEO of CD Radio, Inc., "Dave Margolese is a pretty smart guy; he can sell a story without acting like he is. They are going to be in every car in the United States and make billions of dollars. He's so low key about it. This is the best idea and he's not even hyping it."

Top marks for Charles Egren, Chairman, President and CEO of Echostar Communications, from an industry executive, "Charlie Ergen has proven to be a real maverick and a dynamic CEO that has built EchoStar from the ground up and the fruits of their strategic moves over the past three or four years are beginning to pay off. He is clearly at the top of the class."

A money manager continues, "When you talk about EchoStar you are talking about CEO, Charlie Ergen. He is almost the entire management there. It's a very flat management structure. Ergen likes to pretend he's a country bumpkin, but he's five steps ahead of everybody else. He's playing a chess game and thinks he can see 12 steps ahead and knows he's got checkmate even if nobody else knows he's got checkmate. And for one guy, he's been running circles around the competition lately."

Constellations - SpaceDaily Special Report

Community
Email This Article
Comment On This Article

Related Links
Space

Memory Foam Mattress Review

SPACE MEDIA NETWORK PROMOTIONS Solar Energy Solutions Tempur-Pedic Mattress Comparison ... Newsletters :: SpaceDaily :: SpaceWar :: TerraDaily :: Energy Daily XML Feeds :: Space News :: Earth News :: War News :: Solar Energy News

SPACEDAILY

Satellite Launch To Boost DTH In India
Calcutta, India (SPX) Dec 28, 2005
The successful launch Thursday of India's heaviest satellite from spaceport of Kourou in French Guyana may have boosted the country's space research efforts to yet another level, but it has also lifted the spirits of at least three Direct-To-Home televisions broadcasters, one of which has been waiting for years to launch its services in India.