Intelsat focuses on integrating PanAmSat assets

July 11, 2006

(Satellite News via NewsEdge) After completing its acquisition of PanAmSat Holding Corp. last July 3, Intelsat will spend the next 18 months fine-tuning the operations of what is now the largest provider of fixed satellite services around the globe.
The new Intelsat will operate a combined fleet of 51 satellites as well as own eight teleports and have fiber connectivity and more than 50 points of presence in nearly 40 cities, providing communications services to 99% of the world's populated regions.
"The combined assets of our company provide the highest level of service and network reliability to existing customers, while opening doors to new business opportunities in key communications growth markets such as HD, IPTV and applications resulting from the convergence of video, voice, data and mobility," David McGlade, Intelsat CEO, said in a statement.
"This merger creates a strong, next-generation, global communications leader with an unrivaled ability to provide the competitive and sophisticated services consumers and businesses need by leveraging unparalleled satellite, terrestrial and technical expertise," he added.
Intelsat acquired all outstanding shares of PanAmSat for about $3.2 billion, and the total value of the deal, including debt, was about $6.4 billion.
For the 12-month period ending March 31, pro forma revenues for the combined company were more than $2 billion, and the combined revenue backlog, based on long-term customer commitments of up to 15 years, stood at about $8.3 billion.
"We have a detailed and defined integration plan that defines our operating strategy and to manage the next capital cycle," said Jim Frownfelter, the former president and COO of PanAmSat who now serves as COO of Intelsat. "Over the next 18 months, we want to execute to get the company where we want to be. Most of that will get done in the first 12 months."
The transaction should pay for itself in terms of both revenue generation and cost savings, Frownfelter said.
Intelsat expects to save $92 million a year in operating expenses and more than $400 million in capital expenditures over the next five years.
Among the capital expenditure savings will be the elimination of three planned satellite procurements, two by PanAmSat and one by Intelsat. The company will continue with the manufacturing of five satellites already under construction, all of which are scheduled to be placed into orbit by 2008.
Four of the satellites are scheduled replacement spacecrafts, while the fifth is the Horizons-2 satellite being developed by a joint venture of PanAmSat and Japan's JSAT Corp, which is financing the project.
But the three satellites that Intelsat and PanAmSat had planned to order within the next several years were no longer needed, Frownfelter said. "The industry has been plagued with an overcapacity situation. In the late 1990s and early 2002, there was 'A Field of Dreams' approach. If you build it, the customers will come. So companies built big satellites with many transponders and waited for the customers to call. The industry does not behave that way anymore due to supply and demand."
Intelsat has been studying the satellite fleet, which combines Intelsat's 27 spacecraft designed to provide global and spotbeam coverage with PanAmSat's 24 satellites that cover specific regions and land masses, to determine the most efficient way to provide service.


"The combination provides for maximum operations, the ability to respond to changing market conditions and unprecedented backup capacity," Frownfelter said.
PanAmSat derives more than 60% of its revenues from media service distribution, while more than 60% of Intelsat's revenues come from network service applications. Combined, the fleet has about 66 of its capacity in use.
"As we look at combining the fleets, we expect revenue synergies by having sales relationships and cross selling the capacity," he said.
The combined Intelsat has sales offices in London, Brazil, China, France, Germany, India, Japan, Mexico, Singapore, South Africa, the United Arab Emirates and the United States.
The last six months of the integration plan would focus on the satellite operations facilities, though Intelsat already planned to close at least 14 sites, including PanAmSat's Wilton, Connecticut headquarters, as well as a headcount reduction of 25 to 30% of employees, Frownfelter said.
Intelsat also plans to close redundant sales offices and at least three teleports.
He declined to specify which teleports were targeted to be shut down.
While the new Intelsat would be the No. 1 operator in nearly every satellite service market, the company had not ruled out future acquisitions to further expand its offerings, most likely involving some of the regional operators around the globe, Frownfelter said.
"Generally, the operators are characterized by having small fleets, anywhere from one to six satellites, with low utilization and low EBITDA margins," Frownfelter said. "As we look at those regional operators, if they are No. 1 in an area representing something in line with our strategic growth initiatives, we may pursue that in the future. But over the next 18 months, [the integration of Intelsat and PanAmSat] is our primary focus."

c 2006 Access Intelligence, LLC

c 2006 Dialog, a Thomson business. All rights reserved