Another Year of Satellite Mergers Expected

“The big satellite regulatory issues this year will be driven by mergers,” said a longtime satellite lawyer: “DBS, satellite radio and MSS players all are ripe for deals, and most of the sexier possibilities will require FCC approval.”

An XM-Sirius union would require overhaul of a 10-year- old rule in the original satellite radio order that requires the existence of 2 SDARS operators, Chmn. Martin confirmed last week (CD Jan 18 p6). The satellite radio operators may already be testing the regulatory waters on the matter, sources said. They identified former FCC Chmn. Dick Wiley and Sirius CEO Mel Karmazin as among recent 8th-floor visitors, likely on that issue. “There’s got to be something in the works,” a lawyer said.

XM and Sirius could see $6.7 billion in synergies if they combined, according to a Tues. research report by Bear Stern’s Robert Peck. That’s a lot of money for 2 companies that reported cash-flow positive earnings for the first time last quarter, analysts said.

Meantime, XM and Sirius will continue to battle their spectrum neighbors -- the WCS licensees -- at the Commission. Compromise between the S-band players and closure of the long-open SDARS terrestrial repeater rulemaking could be on the horizon for the first time in 2007, onlookers said. Wrangling between SDARS and WCS players has held up final FCC rules governing SDARS terrestrial repeaters for years, but service rules proposed by Sirius in Oct. seem to be gaining support. XM recently backed the plan and WCS announced “conceptual support” for some of Sirius’s proposals (CD Jan 11 p). The players have also reported “recently revived negotiations.”

Discrepancies in XM and Sirius’s ground networks haven’t been resolved, however. The satellite radio operators confessed to having built their ground systems differently than the FCC originally authorized in separate STA requests this fall (CD Oct 6 p1). XM and Sirius have made several appearances on the FCC 8th floor in recent weeks, seeking quick action on the STAs, which would let them run repeaters at higher powers and in locations other than those originally licensed. General Motors, Honda and Toyota have pleaded in XM’s behalf.

The DBS industry will be less predictable in 2007, sources said. “God only knows what’s going to happen with the DBS crowd,” said a satellite lawyers echoed by several others. The Liberty/DirecTV transaction -- which will put Liberty Chmn. John Malone in charge of DirecTV in place of News Corp.’s Rupert Murdoch -- “will be huge this year,” said another source. Onlookers think the $11 billion asset swap will require an FCC vote because the deal involves a significant interest (38.5%) in a DBS operators (CD Dec 26 p1).

Expect to see more FCC action on the 17 GHz DBS reverse band, as well as on “tweeners,” regulatory sources said. Both FCC proceedings are open and active. “The tweener and reverse band proceedings are intellectually stimulating and I expect more flags to be planted,” a satellite lawyer said. It’s hard to say whether the FCC will act on DBS requests for Commission review of the International Bureau’s recent EchoStar and Spectrum 5 tweener authorizations, lawyers said. Tweeners are an important issue for the FCC, “but in the grand scheme of things, it’s only interference,” said another satellite lawyer.

There’s little room for FSS mergers, now that Intelsat has joined forces with PanAmSat, SES Global has merged with New Skies, and Loral Skynet is combining with Telesat Canada. “Rollups” of smaller, regional satellite operators could make news in 2007, sources said. Interesting deals could also “percolate out of” the Loral Skynet-Telesat Canada deal, we're told: “They're resourceful people who are going to think outside the box.”

The mobile satellite services industry will almost certainly shrink, several industry officials said. “There are just too many MSS players out there,” a longtime satellite attorney said. Private equity investors “have seen they can make lots of money by churning satellite companies,” a source said. A shakeout is bound to happen among Inmarsat, Mobile Satellite Ventures, Globalstar, Iridium, TerreStar and ICO, the source said.

MSS consolidation could come through mergers or joint ventures. “There’s potential for work on the L-band and maybe in the S-band,” a regulatory lawyer said. L-band “rebanding” negotiations between L-band rivals Inmarsat and Mobile Satellite Ventures have long been rumored, and recent remarks by TerreStar CEO Robert Brumley posed the possibility of an S-band partnership between 2 GHz competitors TerreStar and ICO (CD Dec 11 p7). “This will all begin to play out during the next year,” a source said.

MSS 2 GHz issues will mature first, several said. They'll have to because of the FCC’s milestone schedule. 2 GHz licensees ICO and TerreStar have 2007 launch milestones. ICO has applied for a 4-month extension, to Nov., citing delays by manufacturer Space Systems/Loral. Loral is also building TerreStar’s satellite. “This next year will be very telling. It will be very interesting to watch, as a business matter, whether the 2 GHz licensees can meet their milestones and financing needs, and get up and running,” a lawyer said. Also on the line: Whether MSS operators’ ATC plans finally take flight.

Satellite spectrum issues will arise this year -- particularly around WRC-07, sources said. The FCC will face many requests to house wireless services like WiMAX in satellite spectrum, especially C-band satellite spectrum, lawyers said. “There is no possibility of fixed wireless applications such as WiMAX co-existing with C-band satellite signals -- there is just too much interference,” a satellite attorney said. WiMAX interference is a “huge issue” given the number of C-band satellite customers out there, especially in the TV industry, the attorney said.

Some think satellite will begin to play a bigger role in rural broadband deployment this year, in response to President Bush’s broadband deployment goals. The Satellite Industry Assn. and others are expected to continue their push for a USF environment that would include satellite broadband. “More and more policymakers are turning to satellite to get broadband out to rural areas, and especially with increased technological innovation and ways to improve spectrum efficiency a la ATC,” an attorney said.

Satellite services will also play a bigger role in 2007 homeland security and disaster recovery efforts at all govt. levels in the U.S., a satellite official said. “It will be the result of a combination of legislation passed and agencies’ maturing after Katrina,” the official said. The commercial satellite industry launched an educational campaign of sorts after Hurricane Katrina -- to show agencies and public safety officials how satellite phones, VSAT fly- aways, satellite broadband and other technologies can fill in for blown-out terrestrial networks.

“The education process has worked its way through, and now we're moving on to the next stage, which is making sure satellite is a part of the tool kit,” especially for FEMA and state emergency agencies, a satellite official said.