Euroconsult on 'Iridium Effect' on Satellite Finance: Comment (via I* yahoo thread)
Bloomberg News
September 3, 1999, 9:12 a.m. PT
Paris, Sept. 3 (Bloomberg) -- Stephane Chenard, chief
analyst at Paris-based industry consultancy Euroconsult, talks
about the climate for financing satellites projects in the wake
of Iridium LLC's recent bankruptcy filing.
Euroconsult held a two-day conference here on satellite
finance. Chenard spoke to Bloomberg there about the climate for
satellite finance as well as issues including insurance and
growth prospects.
``Other project sponsors in the satellites industry say yes,
this (Iridium filing for bankruptcy projection in August) has
made their life more complicated in trying to raise money. I
think the major financial institutions recognize that Iridium's
problems were largely specific to the way Iridium structured its
business, its business plan, or even the terms of its bank loans.
The same may apply to ICO (Ico Global Communications Ltd., which
filed for bankruptcy protection Aug. 27) but we don't know the
full story on these two bankruptcies yet.
``However, among the smaller investors, the bondholders, the
pension funds, the other animals of the public money markets,
suddenly the term satellite is a bit like the term real estate
some time ago.'
On the subject of whether there's even a market for
satellite-based telephones offering global coverage, considering
the big advances made in coverage offered by cellular telephones:
``The common wisdom is that Iridium is a failed experiment
which may come out happily. The fact is, there was no rush on
their terminals. There may be a market, but whether that
justifies a $5 billion satellite investment is a different
question. When Iridium was conceived in 1987, cellular coverage
was very spotty. The satellite companies since have been showing
maps purporting to show that about 95 percent of the world's
surface would not be covered by cellular in 2000, but the
cellular industry may have a billion subscribers within five or
10 years. The economies of scale that you get then, the level of
investment in research and development are such that the cost of
covering another square mile is falling like a rock.
``One example is Motorola, which a few years ago announced
that by some clever software trick, they could triple the range
of a cellular repeater -- meaning that your cell phone would
still work within 120 kilometers of an area that has cellular
service -- that eats away at the Iridium market. Little by
little, it edges the satellite firms to an ever-tinier market of
oil executives who travel to Antarctica.'
On where growth prospects lie in the industry:
``Iridium and ICO have very high visibility now, though the
story may change. In two or three years they become known as the
two great company turnarounds.
``But the satellites industry still has very bright
prospects in many different markets, from television distribution
to public telephone in developing countries. So there are very
many business opportunities. Next year alone we expect to see 41
commercial communications satellites launched. Most of these
hopefully will generate profits.
``Right now there is a big window of opportunity for
satellites to carry Internet traffic between the places where
Internet content is produced --today mostly the U.S. -- to places
where it is consumed, which may not be well served by
communications networks because the communication operators of
these countries have been caught unawares of the Internet's
development.
``If you are surfing in, say, Malaysia, it is likely that
your Web page will come via satellite. How that will be the case,
maybe not eternally, but right now in some parts of the world it
is the biggest business opportunity by far for the satellite
companies.'
``We've estimated the market over the next 10 years will be
approximately in the area of $15 billion, plus maybe $30 billion
for ground equipment to run these systems. It's a small
compartment of the telecommunications industry.' |
