Forbes article mentions more "giants" hovering around John Malones new TSATA deal.
forbes.com
December 28, 1999
Liberty may make key satellite announcements
By Charles Dubow
NEW YORK. 2:35 PM EST-On Dec. 17 Liberty Media LMGa LMGb announced it would invest $300 million in TCI Satellite Entertainment TSATA to form an Internet joint venture. Now there is talk that Liberty is planning still more investments. Could the company be on the verge of announcing a series of strategic partnerships as well?
The terms of the Dec. 17 deal were that Liberty would purchase shares of cumulative preferred stock in TCI Satellite TSATA in exchange for Liberty's economic interest in $300 million worth of Sprint PCS PCS stock.
Partners are exactly what TSATA needs. The company is essentially a shell that, until Dec. 17, had only 1 million shares of Hughes GMH heavy losses and no operations to speak of. Today, with $370 million in assets and the power of Liberty Media Chairman and Chief Executive John Malone behind them, the company could become a force in the broadband satellite business.
"This company is a work in progress," said John Tinker at Steamer Capital in New York. "What can they do? Whatever they want. It's a fascinating space. Liberty can now play around in it and see where it can go. It's a great vehicle to build from."
Why all the attention suddenly on TSAT? For one thing, broadband is becoming recognized as an increasingly integral component in the services offered by cable and telecommunications companies. The problem is that the cost of deployment in less populated areas will be too high.
"The last mile is going to be a real problem," according to Armand Musey at Banc of America Securities. "The delivery mechanism for a significant chunk of the population will have to be wireless because nothing else can cover large areas of land more cost effectively. That is where satellite comes in."
Over the past year satellite has begun to earn more and more respect as a viable method for delivering broadband. To be sure, digital subscriber line (DSL) and cable modems will make sense for a lot of people, but there still are big gaps. As investors and operators start working out the numbers they'll see that satellite stocks could be a sector that is ready to pop.
So what kind of partner should TSAT look for? TSAT needs space segment assets, such the satellites owned by a Loral LOR or Lockheed Martin LMT . But that space can always be rented.
"Even more importantly, it also needs to partner up with a company that offers distribution," Musey said, "which is hard to come by because there aren't that many. For that they could look at a Tandy and Echostar, a Pegasus or one of the DBS [digital broadcast satellite] companies."
But almost as important, TSAT needs installation. Echostar DISH , which in many ways would make the best fit, doesn't have a broadband solution and needs to find one. Any potential conflict between the two could be alleviated, as long as there was a clear division, in which Echostar would be responsible for broadcasting the video and Liberty took care of data.
Another potential partner for TSAT could be Israeli satellite operator Gilat GILTF Gilat has the best two-way satellite technology on the market--most broadband satellite providers have one-way technology that use a telephone line for the upstream communication--at the lowest price point available today.
Since TSAT has the million shares of Hughes stock, could a deal be in the offing? Musey thinks it's possible, but Hughes' two-way offering is still several years away, and TSAT may require a more immediate solution.
"Malone is so smart," Musey said. "He's seen a lot of mainstream communications companies look into satellite. It used to be that companies had to make a choice between either satellite or DSL connectivity. That made satellites a long shot for both operators and investors. But not anymore. The technologies adapted and improved, and multiple technologies can work together where they couldn't in the past." |
