NEW YORK-Though not for those impatient or faint of heart, satellite-sector investing has reaped handsome rewards overall in recent years and promises better days ahead.
“Last year’s stumblers have addressed their issues and are coming on strong,” Thomas W. Watts, first vice president of Merrill Lynch, Pierce, Fenner & Smith Inc., said recently at the investment bank’s “Satellite CEO Conference 2000.”
“The sector has a volatile history, but it can outperform broader markets.”
For the past 12 months, Merrill Lynch’s SatCom Index rose 223 percent, well above the 57-percent return of the Nasdaq Composite Index or the 29-percent return of the S&P 500.
“The themes for the top performers are Internet access and mobile data,” Watts said .
“Satellite services are a major component of the global broadband infrastructure for Internet and data services. Expect strong returns in 2000.”
The Merrill Lynch SatCom Index comprises 22 companies in seven categories: diversified operators like Hughes Electronics; domestic and foreign direct-to-home television companies; very small aperture terminal/broadband providers, including Gilat Satellite Networks; fixed satellite services, like AsiaSat and PanAmSat; digital audio radio services; and mobile satellite services, including GlobalStar Telecommunications and Pasifik Satelit Nusantara.
The investment bank projects revenues of the worldwide commercial satellite industry will grow to $200 billion in 2009, a five-fold increase from 1999 revenues of $41 billion.
Watts anticipates one of the most dramatic changes to occur in VSAT and broadband revenues, which Merrill Lynch expects to experience a 53.5-percent compound annual growth rate to $51 billion in 2009, from less than $1 billion in 1999. These services will skyrocket to 26 percent of the total from 2 percent.
VSAT companies like Hughes Network Systems, Gilat, ViaSat and Globecomm’s NetSatExpress appear poised to transform themselves from manufacturers to providers of high-speed Internet and data services, Watts said.
“Of the newer services, we expect mobile satellite services to contribute most to growth,” rising to $33 billion in revenues by 2009, up from $400 million in 1999,” he said.
The MSS expansion will depend on falling prices and new mobile data services. While “the demand remains for satellite telephony,” Watts said carriers need to better address distribution issues and the fit between their technologies and business plans.
Mobile satellite service providers in various stages of development include Iridium, Globalstar, ICO Global Communications, American Mobile Satellite Corp., Ellipso, Asia Cellular Satellite (ACeS), Thuraya, AMPT, Constellation Communications and TMI.
“Globalstar dropped its per-minute rate to under a dollar in Asia, but Globalstar and Iridium have limited data capabilities in their first-generation systems,” Watts said.
“Within a year, ACeS and ICO will offer data at 128 kilobits per second, comparable to cellular. And ACeS is adopting [General Packet Radio Service] for seamless capability with cellular.”
Pasifik Satelit Nusantara, the single largest ACeS shareholder, planned a Feb. 19 launch of the Garuda 1 geosynchronous satellite. If successful, the launch will enable ACeS to offer its customers in the Asia-Pacific region voice and data services comparable in price to terrestrial wireless. Commercial service is expected in August.
“Ericsson has committed to providing the first batch of at least 5,000 phones by June and more than 200,000 in the first 12 months,” Watts said.
“Investors may recall that phone delivery problems plagued both Iridium and Globalstar.”
TMI, backed by BCE subsidiary Telesat Canada, recently won a Federal Communications Commission license to expand its MSS service into the United States. Having signed up approximately 15 service providers in both countries, it plans a commercial service launch by mid-year, Watts said.
Merrill Lynch expects the little low earth orbit sector, which is a nascent niche play, to achieve a 10-year compound annual growth rate of 66.2 percent, rising to $872 million in 2009.
Orbcomm, LEO One USA, Final Analysis and ESAT are the little LEO players in various stages of development.
“Orbcomm had some delays in execution, but it appears to be gaining momentum,” Watts said.
Orbcomm, which is a “first-to-market provider of mobile data services to large vertical markets,” has 200,000 subscriber units in service or on order, said David Thompson, chairman and chief executive officer of Orbcomm’s parent, Orbital Sciences Corp. The Year 2000 goal is 150,000 installed units with 350,000 additional on order.
“Now fully funded as the result of a transaction completed at the end of January,” Orbcomm hopes to exploit its expected three-year lead before competitors enter its arena, Thompson added.
