CONSOLIDATION MAY BE NEAR FOR SATELLITE INDUSTRY

Companies are “looking for new ways to cope” with changes in business environment, satellite executive said. Excess of satellite-making capacity, underused satellite constellations and volatile investment environment coupled with uncertainty about how best to use spectrum for Internet has created atmosphere in which companies “need partners” to protect “bottom-line investments,” official said. Finding partners won’t be easy, although industry has witnessed Boeing-Hughes and Lockheed-Comsat mergers in last year. Satellite attorney Philip Spector said bottom line didn’t look good: “Profit margins are incredibly thin and there isn’t much room to make a mistake.”

Boeing Space Operations Pres. James Albaugh said there’s “bound to be more consolidation,” with “a lot of more alliances over the short term” and handful of “megamergers down the road.” Lockheed Martin Exec. Vp Albert Smith has said in past that number of satellite manufacturer plants needed to be reduced. Until that happens, industry will continue to be “viciously competitive” and of “questionable profitability.”

European broadcast giant SES Astra is eyeing Loral, GE Americom and EchoStar in addition to PanAmSat in effort to tap into U.S. market, KBC Securities analyst Dirk Saelens said in research report. Consolidation of U.S. market “is opening up some interesting possibilities,” SES Astra spokesman said. He said PanAmSat would make nice fit for SES because satellite services don’t overlap in Europe. EchoStar spokesman had no comment on report. Issue is expected to be addressed by Loral CEO Bernard Schwartz in conference call with investors Thurs. He admitted recently that top priority for company in beefing up its services businesses would be to look for additional global alliances and partnering. Source who works closely with Loral suggested that meant strategic alliance with another company such as SES. Loral also reportedly has discussed merger with Lockheed Martin, but those companies weren’t said to be close to agreement.

SES said Mon. it expected to announce deal by end of year to enter U.S. market, only place it doesn’t offer satellite service. Spokesman said events were “unfolding very quickly” and plans to buy or enter into strategic relationship with U.S. company were progressing. Numerous studies of industry indicate satellite service revenue is expected to increase to $150 billion from $50 billion over next 5 years. At least 6 companies are examining ways to maintain market share, including SES Astra, which wants “larger piece of the pie,” said SES’s Exec. U.S. Rep. Dean Olmstead. Pressure to consolidate also may be result of trend among companies to bundle Internet, DBS, data and other satellite services, he said. “Everybody wants to be all things to all people,” analyst said: “Now we have to sit back and see if the strategy works.”

“No one should be alarmed” by consolidation of satellite market, said satellite attorney Henry Goldberg, whose clients include PanAmSat: “It’s happening all over the place.” Goldberg called it “par for the course” in satellite industry. “The failure of the mobile satellite industry has taken the bloom off the rose,” but satellite business is still very solid,” particularly in geostationary services, he said. GE Americom is “very mindful” of what’s going on in satellite industry. Spokeswoman said consolidation strategy is “nothing new” and company was “looking to improve its leadership position” by expanding fleet through acquisition or product line.