[Satellite News – 6-10-08] After a very active tenure in the satellite industry, Joseph Wright resigned as chairman and director of Intelsat Ltd. and has moved on to a different business, but his impact will be felt in the satellite field for years to come.
“I spent 12 years with PanAmSat and Intelsat, from the time I joined the board until [my resignation],” Wright says. “During that period of time, there wasn’t so much an evolution of the business but a sea-change in the way satellite operators approached the markets and managed themselves as private sector companies and became profitable entities for shareholders. That’s tough to do — to convert from a business model that is primarily government oriented to one privately oriented. The industry has done a really good job of that.”
Wright served as CEO of PanAmSat from August 2001 until July 2006, when the company was acquired by Intelsat. Along with helping create the world’s largest satellite operator, Wright played a pivotal role in a period that saw commercial operators change their method of business. He pushed PanAmSat to increase its profitability by defining itself as a communications solutions provider and not a satellite company and also was a strong advocate for replacing larger satellites with lower-cost spacecraft carrying fewer transponders.
“When I first came on, the whole game plan of the successful operator was to get a slot, put up a satellite — hopefully the largest you could build — then take orders, because demand exceeded supply,” he says. “This is typical of brand new industries. The fixed satellite services business is not that much different than others, except it originated from government interests and then privatized. At the same time it was going from undersupply to oversupply. I thought it was a pretty good business because demand always exceeded supply. When I came in that was changing, and I had a good feeling of what had to be done.”
Wright’s next challenge will be serving as CEO of Scientific Games, the world’s largest operator of lotteries. He has been a member of the company’s board since 2004. “A brilliant entrepreneur formed the company. He will still be there and hopefully with me for a long time,” says Wright. “I’m going to be able to work with him in putting management systems in the company that he built project-by-project and country-by-country. It’s not that different from the situation at PanAmSat, which was built satellite-by-satellite and market-by-market. It’s pretty much the same situation except the we’re not facing a $1.9 billion debt repayment in six months as was the situation when I first came to PanAmSat in 2001. This will be a lot of fun.”
Wright discusses his time in the satellite industry with Satellite News Editor Jason Bates.

Satellite News: What was your assessment of the industry when you first arrived?

Wright: One of the first panels I ever participated on — I had only been at PanAmSat a couple of months — discussed what we would be doing in the future. Everyone talked about how much capital they were putting in the business and how they had the largest satellite platforms, etcetera. I said, ‘Doesn’t anybody think of profitability, return on investment, free cash flow?’ There was a silence in the room. I laid down my marker probably earlier than I should have, because nobody would have dinner with me that night. That was fine, but it gave me a good idea of what the competition was like.

Satellite News: Did you plan to change the operations from day one?

Wright: When I came on at PanAmSat we were already in an oversupply situation and on the downward curve in overall industry revenues. Prices were eroding and we had a note for $1.9 billion due to Hughes-General Motors in six months after I got there. Given those factors, it was easy to convince the engineers to go along with the new business model. They didn’t have a choice. I can remember a conference in Paris three or four weeks after I arrived and Conny Kullman and Giuliano Berretta were having a discussion on how to breakup the PanAmSat fleet. They looked at it as we would have to go into some form of liquidation because we would not be able to pay off the Hughes note.
Whether it was marketing, finance or engineering, one of the first things I told my executive team at PanAmSat was that I would listen to all opinions, but we had to move quickly and we were not taking votes. It’s not the perfect management style but one that was necessary in a period that was not necessarily a crisis situation but was a problem situation. I was fortunate to have a management team that rallied around it. The entire team was extraordinary. People may have called us cowboys, but we were an organized group of cowboys. We moved very, very quickly. We didn’t rely on getting 100 percent of the information to make decisions, and we performed. That style carries through today with David McGlade and Intelsat. It’s tough to do, but they’ve done it.

Satellite News: How did your plan lead you to the smaller satellites?

Wright: The idea is that the incremental cost per transponder was going to be so tight that it was not a good capital decision to go with larger satellites at that time. The cost per transponder was about the same as larger platforms. My feeling was that if you put up a platform and it’s only 50 percent utilized — like some of the larger ones that were being launched — you’re losing real value from the get-go. The return on investment for a satellite can take several years, so our idea was to design for the market rather than the manufacturer. If the demand was there, we would put up another small satellite. At that time we were criticized for going against the norm, but it proved pretty smart. Capital conservation is one of the ways you can help increase your bottom line.

Satellite News: What market is satellite not playing in today where it should be?

Wright: Disaster recovery. The fact that we don’t have satellite backup in all cases for our first responders to be able to communicate with the other disaster relief workers at the local, state and federal level is extraordinary after September 11, Katrina, fires, tsunamis, etcetera. That’s been one of my main campaigns while in the satellite industry. I’ve been trying as hard as I can to say ‘You should have a satellite component to back up terrestrial communications when they go down.’ I don’t know how many more disasters we will have to go through with people on the ground trying to help and can’t communicate. That’s the place where satellites are probably underutilized.

Satellite News: What else can satellite operators do to improve their bottom lines?

Wright: I think the overall approach toward managing a satellite operation is really in pretty good shape with most of the companies right now. I think you’ve had consolidation where consolidation makes sense. There may still be some consolidation opportunities with some of the smaller operators. That doesn’t mean they have to be acquired, but rather they may have to form alliances or cooperate with each other or with the larger operators. Our relationship with JSAT Corp., for example, shows how such alliances can work.
I think the concept of operating for the romance of the satellite industry is gone. I think the management talent of the industry has substantially increased. Now there is new product development and you will find that evolving around mobility. As the industry gets more into the mobile game, I think the operators will actually be participating in some of the terrestrial communications. Intelsat has built a sizable business of hybrid satellite and terrestrial services. That’s going to be the next evolution of products and services, I think. One of the things you learn, particularly in the video business, is that customers don’t care how the signal gets to them. That’s why at PanAmSat we started accessing fiber.

Satellite News: Will there be more consolidation in the industry?

Wright: It wouldn’t surprise me at all if 10 years from now the next series of ownerships involves some types of mobile/cellular communications along with the satellite fleet. Market trends are driven in part by opportunity. It will be another evolution, but I don’t see it occurring soon. Eventually, opportunities for expansion in our industry will be coming further down to the ground and with terrestrial systems. Some of the larger companies will be limited on their growth simply because of slot availability. There’s only so much real estate out there.
At some point, you could have three or four large corporations providing superb services and at hopefully very good returns for their shareholders. The regulatory regime may not allow consolidation of large companies, so you will have to have them run by very smart managers.
I then see the opportunities of either one of the large telecom companies picking up a satellite company or vice versa. But I would rather be a satellite operator expanding then a terrestrial operator expanding. You can lay fiber anywhere, but with satellite, you’ve only got those slots and that’s it. So there is a much more defensible, proprietary position as a satellite operator.

Satellite News: What will be the makeup of CEO panels at future shows?

Wright: I think you will see the CEOs you’ve got now. These companies will grow and expand their service offerings, but eventually there is a good chance you’re going to have hybrid companies on that stage, representing satellite and terrestrial operations. I think you will find more diverse, larger companies on these panels 10 years from now.

Satellite News: What is your impact on the satellite industry?

Wright: When I look back at the very beginning, the industry was driven primarily by design engineers who built the business along with the networks and hardware. Today, a lot of professional management has come in, and hopefully I played a role in that paradigm shift. The whole idea of being driven by the marketplace more than the design of the satellite is a change of thought process that has been very good for the industry. I think the satellite industry is a very healthy industry today. It’s growing. Prices are stabilizing, and that’s not the way it was seven or eight years ago. I feel very positive when looking toward the future and with the way satellite operators are being managed. I think it will only get better.