With the consolidation of the major players in the Fixed Satellite Services industry now completed, public and private investors are now turning their attention to other aspects of the satellite market to see if there is another return on investment.

Peter Nesgos, a partner at Milbank, Tweed, Hadley & McCloy LLP in New York, has more than 20 years of experience working with the aerospace and communications industries and the financial and insurance communities in structuring commercial space and satellite projects. Nesgos shared his thoughts on the satellite industry from the investor point of view with Jason Bates, assistant editor of Satellite News.

Satellite News: What impact will the Fixed Satellite Services (FSS) consolidation have on the market now that the SES Global-New Skies and Intelsat-Panamsat deals have been completed?

Nesgos: Recent consolidation has been the next phase following the significant private equity investments we have witnessed in the FSS sector. The expectation is that increased efficiencies from consolidation will result in lower costs and increased profit margins and, hopefully, this will be passed along to the marketplace as attractive pricing and rationalized capacity. Consolidation works to correct the imbalance between supply and demand and that’s what we should expect to see developing next.

Satellite News: How attractive would horizontal mergers or acquisitions involving satellite companies and telecommunications providers or program distributors be to the investor community?

Nesgos: This is an important and inevitable development. If the focus is on the consumer or subscriber, as it should be, then bundled, diverse service offerings, whether through mergers or distribution deals, among satellite operators, cable companies, telcos and content distributors is definitely something to be monitored closely — and encouraged.

Satellite News: Are transponder prices stabilizing enough for investors or is overcapacity still an issue that needs to be watched?

Nesgos: Transponder pricing must be considered by geographic area and type of service offering. Generalizations cannot be made and each market segment needs to be evaluated independently. This is a constant issue for investors as it drives capex decisions for new satellites, redeployment of existing satellites and consolidation decisions.

Satellite News: Is the latest business plan offered by Mobile Satellite Service (MSS) providers based on ATC technology generating outside investment interest or are investors still wary of those businesses?

Nesgos: The intrinsic value of radio-frequency spectrum can never be underestimated. Any provider that holds part of a finite resource will always attract investment attention. The key is how to most efficiently and profitably deploy it. A lot of the interest in MSS providers has been generated because of the possibilities of using spectrum to improve existing service offerings or to enhance the service offerings of other providers. There’s always risk whenever a market has not been proven, but the attraction is evident by the level of investment that has gone into MSS companies in the past couple of years even acknowledging the significant capital liquidity in the marketplace.

Satellite News: Are Asia, Africa and Latin America ready to provide the business that satellite companies have been looking for or are those regions still several years away from living up to their promise?

Nesgos: Near term opportunities in FSS, MSS and [digital audio radio services] have already been pursued. Market demand cannot be ignored, especially considering recent economic growth in China, India, Brazil, Mexico and South Africa. Sub-Saharan Africa cannot be far behind but continues to present challenges as does the effect of latent competition in South East Asia. The development of these markets is inevitable; the timing is still unclear.

Satellite News: Will U.S. government civil and military customers continue to provide a solid base of business for satellite operators?

Nesgos: Government services has become an attractive core market, especially for FSS providers. And that’s not only in the U.S. This is probably the most important new major market to develop over the past few years and promises to keep growing as the government continues to change the way it does business.

Satellite News: What are the top three satellite-based business opportunities or initiatives that are the most attractive to investors?

Nesgos: Here’s where we’ve been seeing investors put their money in the satellite business:

1. Satellite operators with proven track records, diversified customer bases and demonstrable cash flow. These businesses will always be the most attractive investment opportunities. This is exemplified by the prodigious investments made in Eutelsat, Panamsat, Intelsat, New Skies and Inmarsat in recent years.

2. Promising new markets based on proven technology, perceived market demand and high barriers to entry. Investments in these market opportunities, such as to support XM Satellite Radio, Sirius Satellite and Wildblue Communications, reflect the attraction to investors in these businesses.

3. Important satellite applications that respond to government demand or offer synergistic opportunities with terrestrial service offerings. Recent investments in satellite imaging companies such as Geoeye, Digitalglobe and Imagesat reflect the perception that government needs will drive this market. Also, investment interest in MSS providers such as Globalstar, Iridium and ICO Global demonstrate the attraction to investors of companies that offer opportunities for growth commensurate with inherent market risks.