BA

The story of the Iridium satellite telephone service provides a blueprint for savvy investors who may want to rescue Boeing Co.‘s Connexion satellite Internet service by capitalizing on the U.S. government’s demand for commercial satellite bandwidth, according to satellite analyst firm Northern Sky Research (NSR).

Boeing announced Aug. 17 that it would shut down the Internet service for aircraft, which was not close to reaching the financial goals the company set. Although Connexion was generating some revenue, about $320 million in Boeing’s last report, "such financial performance is not sustainable in the public markets especially when the company backer is The Boeing Company," NSR said in an Aug. 24 e-mail.

"Although this is pure speculation on NSR’s part in terms of the future of Connexion, we believe the technology is the right fit at a time when the U.S. Military is looking more closely at commercial offerings in order to bridge the bandwidth gap and applications gap that has pervaded over the past two decades," the firm said. "More importantly, the development costs for the next-generation UAV (unmanned aerial vehicles), as well as other applications or platforms that can run on a Connexion-like service, are easily justified via a U.S. [Department of Defense] bailout."

While not a financial success, "the technology of the Connexion service is revolutionary, cutting-edge and highly reliable," NSR said. "The technical features and performance- enabled true broadband service, including video broadcasts, on a vessel traveling 600 miles per hour with minimal signal drop or degradation. The antenna system where the intelligence resides required high [research-and-development] costs but in the end delivered a product that was relatively inexpensive to install given the technical specifications and performance benchmarks. Although considered a market failure, technologically Connexion is a resounding success from an engineering perspective."

The story of Iridium provides a perfect model, NSR said. As a decision was pending to pull the plug on the constellation and de-orbit the satellites, a group of investors purchased Iridium’s $5 billion system for about $25 million, and the system has survived and thrived with the U.S. Department of Defense as a major anchor tenant.

"One of the next big pushes by the U.S. military is the next-generation unmanned aerial vehicle," NSR said. "UAVs run on Ku-band at high altitudes where data and video have to be relayed back to central command. … There is an obvious symmetry between UAVs and 747s in terms of how easy a Connexion by Boeing unit can be retrofitted to change its mission from serving business-class passengers accessing corporate intranets and watching business news, to fulfilling one of the military’s increasingly mission-critical activities in surveying battlefields, searching for weapons of mass destruction, and gathering intelligence for theater as well as civil applications. Moreover, [research-and-development] efforts and dollars that have been poured into the Connexion project, specifically the antenna system, can be leveraged to develop the next-generation UAV to run on Ka-band."

Other possible uses include providing service to land vehicular units, maritime vessels and other aircraft.

NSR is not privy to the form or structure of a U.S. government rescue. Another group of savvy investors can perhaps replicate the Iridium model via a fire sale, the military can buy the technology rights, or other creative arrangements on the commercial market can be undertaken. A satellite operator or systems integrator could partner with Connexion or buy the service and technology rights outright for instance. One thing is certain, however, in that Connexion offers a technology and service that is superior and valuable. From NSR’s viewpoint, the right fit is in military services where cutting-edge satellite technologies have always had a key role to play for non-mission-critical as well as mission-critical objectives. The military might be the right place for Connexion and — perhaps most importantly — it would certainly be a waste to dump this technology outright.

Boeing also faces continuing financial fallout from its decision to close Connexion. The company already announced it will record charges for closing the system, and now at least one of Boeing’s 11 international airline customers plans to seek money from Boeing.

The Korea Times reported Aug. 22 that Korean Air will ask Boeing to reimburse the airline about $12 million to cover the cost of installing equipment to provide the service.

Korean Air was the first Korean airline to install the service, and outfitted about 29 aircraft with hardware at a cost of about $400,000 apiece since the deal was announced in April 2004. In January, the companies reached an agreement for Korean Air to retrofit other carriers with the hardware.

TEL

Telenor Satellite Services purchased the satellite communications activities of Norse Technology AS and acquired the majority of stock in Norway-based Norse Electronics AS, Telenor announced Aug. 23.

Norse Electronics will become part of Telenor’s Customized Solutions business segment strengthening the Sealink broadband maritime services offering, Telenor said. The acquisition also enhances Telenor’s capabilities to deliver communications packages and services to the oil and offshore market.

"Adding Norse’s integration and installation capabilities along with our industry-leading Sealink broadband maritime services, and all located in very close proximity to our Eik global teleport facility, is a formidable combination that will allow us to deliver faster equipment installation, tailored and customized configurations, and complete around- the-clock service and support for global and regional customers," Morten Tengs, CEO of Telenor Satellite Services, said in a statement.

SAT

Asiasat recorded revenues of HK $475 million ($61 million) in the first half of 2006, the company reported.

The figure was up from revenues in the first half of 2005 but only because of a one-time gain of HK $46 million ($5.9 million) from the early termination of a contract, the company said. Without the gain, revenues for the first half of 2006, which closed June 30, would have been down HK $16 million ($2.1 million).

Despite continued tough market conditions in Asia, the operator announced that the overall utilization rate across its satellite fleet was up 4 percent.

Asiasat is optimistic that high-definition (HD) TV will be a key driver for increasing the company’s performance, but it may be a while before the company sees its revenues and profits increase. "Despite some encouraging signs, there is little evidence emerging to indicate that these will make significant changes to Asiasat’s results for the second half of 2006," Romain Bausch, Asiasat’s chairman, said.

Wildblue

Wildblue Communications Inc. completed a $350 million debt financing round intended to fund the growth of the company’s satellite broadband business, Wildblue announced Aug. 21.

The financing round, led by Liberty Media Corp. and Tennenbaum Capital Partners LLC, includes a credit facility that refinances a portion of the shareholder financing that Wildblue secured in January and $170 million of additional financing. Certain other shareholders who participated in the original financing, such as the National Rural Telecommunications Cooperative, also are participating in the new financing round.

Wildblue "has created a very strong competitive offering and has developed a formidable set of distribution partners that will enable the company to execute its business plan," Michael Leitner, managing director of Tennenbaum Capital, said in a statement. "We are excited about the opportunity to support their strategic initiatives and believe that their revenue and cash flow growth potential is excellent, given surging demand for broadband services in these historically underserved geographies."