A plan by Intelsat, announced Monday, to purchase PanAmSat Holding for $3.2 billion is the largest takeover in recent years in the fast-consolidating commercial satellite industry. But it is unlikely to be the last.
There are still about three dozen satellite providers operating worldwide, which means there are too many players in a market that is no longer growing fast enough to sustain them all.
Increasingly, a global network matters, too. Programmers like Disney, CNN and others are expanding into Asia, the Middle East and beyond and need satellite operators that can beam their signals to all points on the globe.
PanAmSat had this in mind last month when it bought a satellite and two orbital slots from Alcatel to help it expand further into Europe, the Middle East, Africa and Asia.
Then there is the big threat from the operators of the world's transcontinental and transoceanic fiber networks. These companies can zip bits and bytes around the world, often for far less than satellite operators.
To combat these low-cost providers, satellite companies need the size and scale to drive prices lower. They also need to focus on their unique ability to offer high-speed data connections, video programming and phone service to developing countries where markets are just opening and where fiber networks are scarce.
To do that, they need a constellation of satellites that blanket not just wealthy markets in North America, Europe and parts of Asia, but also Africa, the Middle East and South America.
"I think this is just a normal step going forward," said Joseph R. Wright Jr., the chief executive of PanAmSat. "We're kind of following a normal evolution in our industry. Consolidation is not only necessary, but inevitable."
If Intelsat's purchase of PanAmSat is approved, the new company would become the industry leader with 53 satellites, surpassing SES Global of Luxembourg, which has 35 satellites. The only other company with more than 10 satellites is Eutelsat, the European operator, which has 23 satellites.
The remaining companies are far smaller, which makes the likelihood of another large deal doubtful.
Yet many smaller companies could help one of the big operators expand into new regions. Loral Space and Communications, which has four satellites across the globe, is likely to be involved in future mergers and acquisitions, according to industry analysts.
The company expects to come out of bankruptcy around Oct. 1 and be relisted on the Nasdaq Stock Exchange immediately afterward.
It will also re-emerge with little debt, something Bernard L. Schwartz, the chairman of the company, said could be a big selling--or buying--point.
"Without significant debt on our balance sheet, and having equity, I'm hoping to actively participate in the market," he said. "Intelsat and PanAmSat will not be out there to expand for quite a while. That leaves opportunities for the rest of us."
New Skies Satellites of the Netherlands is another company that some industry analysts say could become a takeover target.
The company has five satellites and, like PanAmSat and Intelsat, is owned partly by private equity investors--the Blackstone Group, in this case--who want a return on their investment.
Many small, regional operators are government-owned and are unlikely to be spun off or sold. But these companies are good candidates to form joint ventures, industry executives say.
Still, none of the merger talks would be in earnest if demand for satellite services were not on the upswing. Growth in high-definition broadcasting, Internet-based programming and on-demand video services have buoyed satellite providers in North America, Asia and Europe. The larger satellite providers expect demand for video services to grow as much as 10 percent this year.
"The fundamentals are improving and it's being driven by things like high-definition televisions," said Todd Mitchell, an industry analyst at Kaufman Brothers Equity Research. "The programmers are putting these products out there and you need more capacity for that."
Telecommunications companies in developing countries are also expanding their phone and Internet services and need ways to transport signals around the globe cheaply.
And the biggest client of them all, the United States government, is also leasing more satellite space to provide communications to Afghanistan, Iraq and elsewhere.
As always, the key to consolidation lies in the hands of regulators. But in the United States, satellite companies are likely to face little resistance, industry analysts say. The Justice Department has approved several large deals between wireless and landline companies in recent years, and they are likely to approve most satellite deals, too.
http://news.com.com/Too+many+players+still+shadow+satellite+industry/2100-1033_3-5844430.html?tag=nefd.top
There are still about three dozen satellite providers operating worldwide, which means there are too many players in a market that is no longer growing fast enough to sustain them all.
Increasingly, a global network matters, too. Programmers like Disney, CNN and others are expanding into Asia, the Middle East and beyond and need satellite operators that can beam their signals to all points on the globe.
PanAmSat had this in mind last month when it bought a satellite and two orbital slots from Alcatel to help it expand further into Europe, the Middle East, Africa and Asia.
Then there is the big threat from the operators of the world's transcontinental and transoceanic fiber networks. These companies can zip bits and bytes around the world, often for far less than satellite operators.
To combat these low-cost providers, satellite companies need the size and scale to drive prices lower. They also need to focus on their unique ability to offer high-speed data connections, video programming and phone service to developing countries where markets are just opening and where fiber networks are scarce.
To do that, they need a constellation of satellites that blanket not just wealthy markets in North America, Europe and parts of Asia, but also Africa, the Middle East and South America.
"I think this is just a normal step going forward," said Joseph R. Wright Jr., the chief executive of PanAmSat. "We're kind of following a normal evolution in our industry. Consolidation is not only necessary, but inevitable."
If Intelsat's purchase of PanAmSat is approved, the new company would become the industry leader with 53 satellites, surpassing SES Global of Luxembourg, which has 35 satellites. The only other company with more than 10 satellites is Eutelsat, the European operator, which has 23 satellites.
The remaining companies are far smaller, which makes the likelihood of another large deal doubtful.
Yet many smaller companies could help one of the big operators expand into new regions. Loral Space and Communications, which has four satellites across the globe, is likely to be involved in future mergers and acquisitions, according to industry analysts.
The company expects to come out of bankruptcy around Oct. 1 and be relisted on the Nasdaq Stock Exchange immediately afterward.
It will also re-emerge with little debt, something Bernard L. Schwartz, the chairman of the company, said could be a big selling--or buying--point.
"Without significant debt on our balance sheet, and having equity, I'm hoping to actively participate in the market," he said. "Intelsat and PanAmSat will not be out there to expand for quite a while. That leaves opportunities for the rest of us."
New Skies Satellites of the Netherlands is another company that some industry analysts say could become a takeover target.
The company has five satellites and, like PanAmSat and Intelsat, is owned partly by private equity investors--the Blackstone Group, in this case--who want a return on their investment.
Many small, regional operators are government-owned and are unlikely to be spun off or sold. But these companies are good candidates to form joint ventures, industry executives say.
Still, none of the merger talks would be in earnest if demand for satellite services were not on the upswing. Growth in high-definition broadcasting, Internet-based programming and on-demand video services have buoyed satellite providers in North America, Asia and Europe. The larger satellite providers expect demand for video services to grow as much as 10 percent this year.
"The fundamentals are improving and it's being driven by things like high-definition televisions," said Todd Mitchell, an industry analyst at Kaufman Brothers Equity Research. "The programmers are putting these products out there and you need more capacity for that."
Telecommunications companies in developing countries are also expanding their phone and Internet services and need ways to transport signals around the globe cheaply.
And the biggest client of them all, the United States government, is also leasing more satellite space to provide communications to Afghanistan, Iraq and elsewhere.
As always, the key to consolidation lies in the hands of regulators. But in the United States, satellite companies are likely to face little resistance, industry analysts say. The Justice Department has approved several large deals between wireless and landline companies in recent years, and they are likely to approve most satellite deals, too.
http://news.com.com/Too+many+players+still+shadow+satellite+industry/2100-1033_3-5844430.html?tag=nefd.top
