2004 has been one of the most exciting years in the satellite industry for a long time. It will be remembered as the year where the private equity (PE) firms decided to invest billions of dollars in the satellite industry and the theme of ownership change and consolidation was prevalent throughout the year.

But PE investment was not the only headline grabber in 2004. Telcos played a role in shaping the events of the satellite industry as well. On one end of the spectrum, BT exited the satellite industry. On the other end, U.S. telephone carriers began aligning with direct-to-home satellite television providers DirecTV [DTV] and EchoStar Communications Corp. [DISH] to offer bundled services in an effort to combat the cable’s offering of broadband services. The unions will become especially important as voice over Internet protocol (VoIP) becomes more widespread and threatens to give consumers more incentive to drop telephone service altogether.

And in other consumer satellite industry news, the battle between Sirius Satellite Radio [SIRI] and XM Satellite Radio [XMSR] heated up, with Sirius grabbing headlines late in the year with its luring of shock jock Howard Stern and radio industry veteran Mel Karmazin onto the Sirius team. XM continued to show its lead in the subscriber category and maintained its deal making strength particularly in the auto manufacturing market by getting its equipment into the cars particularly on the factory-installed side of the fence.

In the satellite navigation category, the United States and the European Union signed an agreement for cooperation between the two countries’ satellite navigation system, GPS and Galileo, respectively. And later in the year, the United States began talks for similar cooperation with the Russian Federation and its GLONASS system, while Europe set its eyes toward the East and began holding similar talks with China for their system.

Intelsat hit the headlines on more than one occasion, from its preparations for an IPO that never materialized to the purchase of the company by a private equity firm through the blink of Intelsat Americas-7 satellite and the temporary grounding of Intelsat Americas-8, events now threatening to void the Intelsat purchase. Indeed this was the year for satellite service providers, each as diverse as the news they made.

While these were some of the major stories of 2004, here is a month-by-month recap of some major events that shaped the global satellite industry this last year:

January

The year seemed to start out slow, with more anticipation and industry buzz than significant action. Good thing for the rest period because the balance of the year was anything but stagnant. Arianespace had a great start to the year. The European satellite launch company announced that it had signed a key deal with Japanese operator JSAT for the launch of two communications satellites, the JCSAT-9 and one other satellite. Satellite News spoke to Arianespace CEO Jean-Yves Le Gall who hailed the deal. He said, “The JSAT deal is very important for us because, as you know, JSAT is one of our most important customers. It has been a terrific fight to win this contract because we had a number of competitors.”

He was also confident that the Ariane 5 ECA, (a higher capacity launch vehicle), designed to carry payloads weighing up to 10 tons would also get back on track after a high- profile launch failure at the end of 2002. Le Gall said, “With the next launch of the Ariane 5 ECA in the middle of this year, I think we will be definitely back on track with the strategy we defined one year ago, before the failure of the ECA. So, I am quite optimistic.” However, while there were a few launches of the Ariane 5 Generic, there were no launches of the Ariane 5 ECA in 2004. The next launch of Ariane 5 ECA is scheduled for liftoff in February 2005.

February

February marked the beginning of what would be a year of many changes at Intelsat. At this point in the year, the company put in motion plans to launch an initial public offering of stock in hopes of raising $500 million. The registration statement for the Congressionally-mandated IPO was to be filed with the Securities and Exchange Commission by the end of March.

Foxtel, the Australian DTH operator was getting prepared to launch digital television services. Patrick Delany, director of digital at Foxtel was confident that it would be a success. He told Satellite News in February, “We are marketing Foxtel Digital as a revolution in Australian television. Australia is not dissimilar to other markets in that the traditional choice is between 4-5 terrestrial broadcasters, and we are redefining that world with all the choice that our platform has. We are marketing that as a quantum leap.” Certainly, the digital project was a success with Foxtel announcing in December this year that it already passed the 500,000-barrier mark for digital subscribers.

Changes at Panamsat also began to garner attention in February. Satellite News spoke to Romain Bausch, CEO of SES Global in February who commented that he would not be surprised if News Corp held onto Panamsat for the near future. He said, “Panamsat is in a phase where they have accomplished their satellite renewal program, which will take another year or two before they have to enter into another satellite replacement program. This means for another year or two, Panamsat might continue to be a relatively cash rich company showing a strong cash flow. If you look at Panamsat from a pure financial perspective, it might make sense for News Corp to own Panamsat at least in the near future.” However, Bausch went on to say, “I continue to believe Panamsat will not become part of the core business of News Corp in the U.S.” Two months later, Panamsat was sold to PE Group, Kohlberg Kravis Roberts & Co (KKR) for $4.3 billion.

In other news, Patrick DeWitt, president of Space Systems/Loral was optimistic for the future despite some of the financial issues that had plagued Loral Space and Communications, its parent. He commented, “Initially, there is a stigma when you file for Chapter 11 even though SS/L was not a primary driver of the bankruptcy. For the last 10- 15 years, SS/L has been profitable, generated positive cashflow and has been very successful.” In terms of new satellite orders, he commented, “We believe that satellite orders in 2004 will be slightly higher than they were in 2003. Our estimate is that there were around 18 satellite awards in 2003. I believe there will be orders for 20-22 spacecraft in 2004.”

March

In his first interview since becoming the CEO of Pace Micro Technology, John Dyson told Satellite News that the set-top box supplier hoped U.S. satellite television market would give the company a boost. He said, “Our business changes from year-to-year. Some years, we do a lot more business in satellite, other years it is more cable. It depends on who is doing well at any point in time. This year, satellite is doing well for us. In the US, cable will do better for us because we don’t have a presence with EchoStar or DirecTV. We will continue to strive hard.”

Inmarsat Managing Director Michael Butler was also hopeful for a successful year. Apax Partners and Permira completed the acquisition of Inmarsat at the end of 2003 and Butler believed the new shareholder structure was of immense benefit to the company’s ambitious mobile satellite growth plans. He said, “There is relief, that we can now embark on the next stage of our evolution. We have learned lots of things along the way, and here we are about to enter the BGAN era with a whole new financial structure and investor base. Although our majority owners are now Apax and Permira, it is important to note that three of our largest shareholders (Lockheed Martin [LMT], Telenor and KDDI) are still shareholders. So, I think we have got the best of both worlds.” Inmarsat unveiled plans in 2002 to launch one of the world’s fastest commercial portable wireless data services, Regional BGAN.

Inmarsat also saw a management in March when then-CEO Michael Storey resigned and was replaced by Andy Sukawaty, who added CEO responsibilities to his role with the company while still maintaining chairman of the company’s board.

Via Satellite, sister publication to Satellite News, named Mark Dankberg, the entrepreneurial engineer who founded and lead Carlsbad, Calif.-based ViaSat Inc. [VSAT] Satellite Executive of the Year. At a ceremony to accept the award, Dankberg challenged satellite broadband providers to double or triple available bandwidth and cut prices from a third to half the current rates. “I don’t think it would be difficult to sell [broadband services] at such low price. We just have to figure out how to make our money doing it,” he said.

In the broadcasting arena, EchoStar won a test of wills with Viacom in March when it responded to an increase of programming fees by ceasing the broadcast of Viacom-owned stations for two days. Viacom caved and a new deal was negotiated.

April

April saw one of the biggest deals in the satellite industry for the year when it was announced that KKR was acquiring Panamsat for $4.3 billion.

Speculation about who would be the acquirer of Intelsat began in April when the company said in an SEC filing that it was suspending talks with potential investors while it resolves its IPO situation, while the U. S. Congress during the same period was working on a bill to extend Intelsat’s mandated IPO deadline for the third time.

In one of the other developing stories of the year, Satellite News tracked the pay-TV market in Hong Kong where a new satellite pay-TV operator, Galaxy, backed by TVB and Intelsat looked to make an impact. Satellite News spoke to Galaxy CEO Jim Blomfield who said the operator was targeting 60-70,000 subscribers in its first year. However, many analysts were predicting the operator would have a tough time. Later in the year, Blomfield would leave his post as CEO and Intelsat would withdraw from the venture in September with local press reports indicating that the operator only had around 5,000 subscribers, well below its targets.

Elsewhere, GlobeCast CEO, Christian Pinon told Satellite News about high-definition (HD) prospects in Europe. He said, “I cannot say it has started yet. Everybody is looking at it as a weapon to use, but who will be the one to start it, I don’t know. Once HD gets started, it will have a positive impact for the company in Europe. It will need more bandwidth, and our business is more or less related to the bandwidth of the content we provide.”

April also saw Globalstar emerge from Chapter 11 bankruptcy protection when the acquisition of the company by private equity firm Thermo Capital Partners was completed. Thermo acquired 81.25 percent of the newly formed Globalstar for $43 million. The acquisition was followed by an ambitious growth prediction of 70 percent year-over-year growth. “If we can triple our subscriber numbers while in bankruptcy, imagine what we can do” after emerging from Chapter 11 protection, Globalstar President Tom Navarra said in a conference call discussing the company’s emergence from bankruptcy.

May

BSkyB revealed details of consumer behavior patterns for its Sky+ PVR (Personal Video Recorder) offer at Euroconsult’s ‘DTH World Summit for Satellite TV Platforms & Channels’ BSkyB director of new product development Brian Sullivan said around 30 percent of new Sky+ sales were coming on the back of a recommendation or a demonstration, for example.

On the subject of industry consolidation, Dan Goldberg, CEO of New Skies Satellites told Satellite News in May: “This will be an interesting year. I draw a distinction between ownership change and consolidation. Certainly, Intelsat’s acquisition of the Skynet assets, which was approved this year, serves as a good example of consolidation. What we also saw last year was ownership rotation. That is what happened with Inmarsat, as well as Eutelsat. I think we are going to see more of that this year.” His prediction would prove to be true and in New Skies case, a deal was less than a month away.

The DirecTV Group continued divesting segments of the once large Hughes Electronics empire when it sold the set-top box manufacturing business of Hughes to Thomson [TMS] for $250 million, with provisions for the price to raise to $400 million based on increases in order levels.

May saw the first words of problems with Boeing’s [BA] Superbird-6 satellite. The satellite was launched April 15 by International Launch Services, but ended up in a very low orbit, causing the need to burn fuel to get the satellite into its proper orbital slot and taking at least a full year off its orbital life in the process. ILS said at the time that it put the satellite into the precise position requested by the satellite manufacturer.

June

Having only spoken to New Skies CEO Dan Goldberg a month ago, Satellite News was able to talk to him again after it was announced that The Blackstone Group was to acquire New Skies for $956 million in cash. Goldberg believed Blackstone would bring a great deal of financial discipline to the industry. He said, “These are investors who are very well- informed. They will be very focused owners and I think that is a good thing. They will bring a high degree of discipline and a strong commercial focus and approach to the industry, I think having private equity investors in the industry will, on balance, be a real benefit.”

In the satellite navigation arena, The United States and the European Union reached an agreement on cooperation between each the U.S.’s GPS system and the forthcoming EU Galileo satellite navigation system. The pact would aid U.S. and the North Atlantic Treaty Organization security by allowing their pursuit of wartime navigation signals from the GPS satellite constellation in localized areas without the risk of interference from the Galileo signal. To that end, Galileo would be technically compatible with GPS to prevent interference between the navigation services. Additionally, private-sector users would be able to access to a common signal once the next-generation GPS satellites are deployed.

Elsewhere, SES Astra hooked up a deal with Spanish Internet service provider Ya.com to offer satellite broadband services in Spain. In terms of expectations for the service, the operator would be happy with 10,000 subscribers by the end of the year. Guillermo Mercadar, CEO of Ya.com told Satellite News that at the very least the operator would hope to have 20,000 subscribers by the end of next year. The service would also provide 120 television channels for PC screens.

Intelsat also hooked up a deal with BT Broadcast Services to launch a new satellite broadband service in the UK. John Stanton, president of Intelsat’s data carrier and Internet business told Satellite News, “The deal with BT is a timely reminder that even in countries like the UK, which many people considered to be fully wired up, there are significant parts of the population that don’t have access to broadband terrestrially and probably won’t have in the foreseeable future. After all, if the UK needs satellite-based broadband, show me a country that doesn’t.”

In global DTH news, Satellite News spoke to the chairman of Zee Networks, Subhash Chandra about DTH services in India. He said, “In terms of satellite service, we started that about three months ago and we have done a soft launch without spending any advertising money and we have acquired about 140,000 subscribers. By the end of May, we will have around 96 channels on the platform. In June, there will be the hard launch of this service and by June 2005, we have targets to get two million DTH subscribers.”

July

The satellite broadband market received a boost in July when the Boeing-built Anik F2 satellite was successully launched by Arianespace. The satellite is a hybrid C-, Ka- and Ku-band satellite and has a portion of its capacity leased by direct-to-home satellite broadband services provider WildBlue.

While the Anik F2 bird was successfully launched, Loral Space and Communication’s Telstar 18 created some temporary tension when the satellite was dropped into a lower-than- planed intial orbit following a malfunction on the Zenit-3SL launcher. The satellite was launched by Sea Launch LLC. However, concerns were aleviated when the satellite, with a substantial amount of aditional fuel on board, was able to move to the proper orbital location.

Pace Micro Technology revealed some encouraging results. The set-top box manufacturer had a tough financial year in 2003 with an overall loss of GBP16.2 million ($30 million). However, it announced for the financial year ended May 29th 2004, it has profits of just under GBP6 million ($11.1 million).

In July, Satellite News spoke to SES Astra CEO Ferdinand Kayser about the operator’s capital expenditure plans. He said, “We are on track with ASTRA 1KR and ASTRA 1L. Besides these, there is nothing really in the pipeline. We are working on the next replacement satellites but there will be nothing decided for at least one year. The relationship with Lockheed Martin has been very smooth and efficient.”

August

In the major news story of the month, Intelsat announced that Zeus Holdings Ltd. a company comprised of PE firms including Apax Partners, Apollo Management, Madison Dearborn Partners and Permira, was acquiring the company.

August also saw some high profile unions between telephone service providers and satellite television providers. BellSouth [BLS] and Verizon [VZ] inked a deal with DirecTV to offer a bundled service of telephone and satellite TV on one bill. EchoStar in the same month announced a deal with competitive local exchange carrier CenturyTel [CTL].

Australian telco Optus launched a new broadband satellite product in Australia. Warren Hardy, managing director of Optus Wholesale and Satellite told Satellite News that the product heralded a new dawn for satellite communications in Australia. He commented, “It heralds a new dawn, not just for satellite, but also for satellite services in Australia, because we are now offering a product, which has traditionally been seen as very government and corporate focused, and really opening the floodgates and saying that anyone with reasonable means can afford a satellite capability. That is a watershed for satellite in this country.”

Following the successful launch of the Amazonas satellite in August, Hispasat CEO, Jacinto Garcia Palacios revealed usage targets for the bird to Satellite News. “We have sold at least 27 percent of the capacity on Amazonas [when the satellite was launched],” Palacios said. “We have also got another 10 percent sold if you count MoUs and intention letters. The 27 percent figure is in line with our expectations. The major problem for us is that the prices today for transponders are below what they were when we made our predictions.”

September

The private equity (PE) firms that have acquired stakes in operators such as Intelsat, New Skies Satellites and Panamsat are likely to stick around for up to five years as they look to gain a return on their investments. This was one of the main conclusions of a number of high-profile satellite finance experts came to at the Euroconsult World Summit For Satellite Financing show in Paris in September.

Joe Wright, CEO of Panamsat said at the show that there was likely to be greater financial discipline in the industry. He said, “I think it is going to be much more efficient to have PE firms at this point in time. Our industry should not have 38 operators. We can create a much more efficient industry. I don’t call it consolidation, I call it rationalization.”

Satellite News also spoke WildBlue Communications CEO Tom Moore about the operator’s satellite broadband plans in the US. In terms of the major challenges facing the operator in the next year, Moore said, “There is really only one remaining challenge for us over the coming 12 months and that is operational execution. We have successfully cleared the finance hurdles, the technical hurdles, and the launch risk hurdles so our biggest challenge over the next 12 months is operational – rolling out a national service from a standing start.”

German satellite pay-TV operator Premiere confirmed plans to launch PVR services before the end of the year to Satellite News sister publication Inside Digital TV. It will also launch a more sophisticated PVR service in March 2005. In another major announcement, the Premiere confirmed that it was launching three dedicated HDTV channels for sport, film and documentaries in Germany and Austria at the end of 2005. The programs will be broadcast in digital format via the ASTRA satellite system at 19.2 degrees East.

Intelsat ended its participation in what was considered to be a risky joint venture with TVB to provide direct-to-home satellite television services in Hong Kong, a decision. The decision was partially influenced by its acquisition agreement with Zeus Holdings.

October

The big news of October was Sirius Satellite Radio’s signing of Howard Stern. The move was not necessarily a surprise to the radio industry, as Stern has publicly voiced his displeasure with the indecency oversight of the Federal Communications Commis-sion and many industry observers expected him to jump into satellite radio upon the expiration of his contract with Infinity Broadcasting at the end of 2005. The move is a big coup for Sirius, though, because many expect a decent portion of Stern’s loyal fan base to follow him to Sirius, which will help the No. 2 close the subscriber gap between it and market leader XM Satellite Radio.

DirecTV purchased the Latin American satellite television operations of parent company News Corp in a deal that strengthens DirecTV’s presence in the Latin American market.

Loral Skynet President Patrick Brant revealed his vision of turning Loral Skynet into a provider of hybrid networking services that will use satellites, fiber optics and other technologies to meet the communications needs of customers worldwide. The offering of hybrid services could end up being a key aspect of the future of the satellite industry.

Investment bank analysts begin to doubt whether UK pay-TV operator BSkyB will reach its stated target of eight million subscribers by the end of 2005. The fears were founded on the fact that many analysts were predicting a poor performance in terms of subscriber numbers between June and September. BSkyB would announce in November that it added 62,000 subscribers in that quarter, a low figure compared to previous quarters but also ahead of analyst expectations.

Satellite News also looked at satellite pay-TV in Africa by interviewing the CEO of Multichoice the pan-African DTH platform, Nolo Letele. In terms of when it might bring HDTV to Africa, Letele commented, “We have only just started looking at it now. We are looking at what needs to be done. We recognize that in South Africa, there are very few HDTV capable TVs, but already these flat screens are coming into the market, but that will grow. We ourselves are planning tentatively to launch a single channel in 2006, which is HDTV capable.”

November

As November was drawing to a close, Intelsat Americas-7 blinked. Intelsat initially said the satellite was permanently lost, but that ended up not to be the case. However, the effects of the loss are still unknown particularly as it related to the company’s acquisition by Zeus Holdings. Zeus has the option to back out of its deal with Intelsat, but no word has been given whether it will exercise that option.

With all the talk about private equity investment in the satellite industry, questions linger as to how long they plan to stick around. Lawrence Guffey, senior managing director at the Blackstone Group, which acquired New Skies Satellites, told Satellite News: “I don’t think this industry is different from any other in which PE would invest. A typical horizon is 4-7 years. It could happen faster. But, we look at this as a typical investment horizon. I think it may take that long for supply and demand fundamentals to fully improve.”

U.K. telco BT exited the satellite business after selling its stake in leading satellite operator Eutelsat. BT sold its 15.8 percent stake for GBP368 million ($675 million) to GS Capital Partners 2000.

Sirius made headlines again with its hiring of Mel Karmazin who took over as company CEO. The hiring reunites Karmazin with Howard Stern, who he worked with at Infinity Broadcasting. The move is seen as providing validation to the satellite radio industry in general and to Sirius as a legitimate competitor to XM in the battle for market share.

In other satellite radio news in November, the National Broadcasters Association, the association dropped its bid to prevent satellite radio providers from offering local weather and traffic reports. Local traffic and weather was seen as the key reason radio listeners would stay on terrestrial services, but with the go ahead to continue to offer local traffic and weather, both satellite radio providers should benefit.

December

Given that private equity is the buzzword of the satellite industry for 2004, it was appropriate that the final issue of Satellite News included potential private equity acquisition in the satellite market. But this time, the money could go to a regional provider. The private equity firm in question is Constellation Group and its target is the financially struggling Satmex. The group reportedly pledged a cash infusion of $120 million and would assume Satmex’s more than $700 million in debt. At press time, negotiations were still ongoing.

In another acquisition story to close out the year, the Hughes name will survive following the acquisition of 50 percent of Hughes Network Systems from The DirecTV Group by SkyTerra Communications Inc. [SKYT], an affiliate of private equity firm Apollo Management L.P. SkyTerra President and CEO Jeffrey Leddy told Satellite News: “What is attractive about [HNS] is its leadership position in the VSAT industry, its technology position, the quality of the Hughes brand in general, its global reach and of course we are also very intrigued with its Ka-band initiative with Spaceway.” DirecTV will receive $251 million in cash and 300,000 shares of SkyTerra as part of the deal.

Nilesat, the Middle East based satellite operator is likely to order a new satellite in the first half of 2005. Salah Hamza, chief engineer, Nilesat confirmed to Satellite News, “We will either plan to have a new satellite or we might go to a different solution a acquiring temporary capacity until we get a new satellite. The new satellite will be a Ku-band satellite. We would hope to order the new satellite by the second quarter of 2005.”

Eutelsat signed a key deal with ChinaSatcom to give it a strong presence in the potentially lucrative Chinese communications market. Eutelsat multimedia director and MD of Skylogic Arduino Patachinni is hopeful that the deal could lead to more opportunities for the company in China.

–Mark Holmes, Gregory Twachtman