MSS Assets Expected to End Up with Wireless Providers, Say Observers

Mobile satellite service satellites and spectrum could end up in the hands of the major wireless players after MSS companies move through their bankruptcies, said several panelists at the Satellite 2011 conference in Washington. The panelists showed a reticence to predict who will end up with the MSS assets, but many pointed to the wireless players as a logical end, due in part to the FCC’s focus on making that spectrum available for terrestrial use.

But many questions remain over how the MSS market will change in coming months, said Maury Mechanick, a lawyer with White & Case. For instance, would regulators allow Harbinger Capital Partners, which has bid to buy TerreStar and DBSD and already owns LightSquared, to take over all of that spectrum, he asked. Mechanick predicted that the L- and S-band satellites would eventually fall into the hands of the wireless players. Such a purchase would allow a major wireless provider to make the case of having ubiquitous service, which would then drive the competitors to buy a satellite to match, he said. It seems largely clear that MSS will “never be sustainable” on its own, he said.

The government has continued to ignore the role satellite broadband can play in providing connectivity to the most remote areas at a fraction of the cost that would be required for a company to build-out, said Mechanick. The Obama administration’s recently announced plans to increase wireless investment further demonstrates the governmental marginalization of satellite broadband, he said. The FCC did provide some hope through its effort to increase communications services to tribal lands, in which it pointed to satellite broadband as a cheap and effective means for connecting the most rural of territories. Mechanick jokingly said he wondered if that document was written by the same people who wrote the National Broadband Plan, which he says largely ignored the technology. Mechanick expects the FCC to loosen the MSS/ancillary terrestrial component gating criteria as it seeks to promote broadband use in the spectrum.

The past year has shown the strength and resilience of the satellite market, good indicators of a mature market, said Dara Panahy a partner at Milbank, Tweed. Mergers and acquisitions picked up in 2010 and are expected “to continue to pick up,” said Panahy. The FCC revived market interest in the MSS bands by singling them out as a good source for wireless spectrum in the agency’s broadband plan. Other countries’ regulators will likely be dealing with a spectrum shortage and look to create their own broadband plans, he said. That could lead to other efforts to promote terrestrial use of satellite bands, though a viable market would be necessary to support such businesses, he said. Several indicators point toward a healthy 2011 for the satellite industry, said Philippe-Olivier Rousseau, managing director of BNP Paribas. Private equity funding is back on track and export credit agency activity is robust, showing confidence from both private and public financing sources, he said.

The increased role played by export credit agencies in satellite financing has allowed companies to raise significant amounts of money at favorable rates they may not have been able to come by through private means, said Jim Murray, a managing director at Morgan Stanley. While that role is akin to a “government bailout,” it does have employment benefits throughout the industry, he said. But it has yet to be seen if the operations those funds are going toward will materialize in the long term, he said.

The telecom world will likely grow increasingly convoluted and “confused” as companies get into “each others’ space,” said Omar Jaffrey, a managing director at UBS Investment Bank. For example, the wireless industry’s need for spectrum could lead to major transactions involving satellite companies, he said. That will likely make for an interesting year filled with “cross-pollination,” he said. The MSS sector has found new life from an “asset value perspective,” he said. Investor interest for bankrupt DBSD and TerreStar are high and it wouldn’t be surprising to see them eventually bought by a wireless provider or another company that is hoping to increase connectivity to its customers, he said.

The FCC has shown a willingness to support new entrants that would create more effective competition to Verizon and AT&T, said Fred Turpin, head of communications investment banking at JP Morgan Securities. Turpin admitted he has “no idea how this will turn out” because things seem to change every week.