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The New Strategy in the Sky

PanAmSat Corp. founder Rene Anselmo might not recognize his old
firm's business plan today.

Now one of the world's top three satellite operators, the company manages a global fleet of 29 communications satellites, 24 of which it wholly owns, for the delivery of news, sports and other programming to TV viewers on six continents. It also supports the largest concentration of satellite-based business networks in the U.S., as well as specialized communications services in remote areas of the world.

But, in a sign of how much the satellite-communications business has changed in recent years, PanAmSat is no longer racing to put new spacecraft in the skies to beam TV signals around the world. Instead, the company is focusing on upgrading and replacing the older satellites in its international fleet. It's also searching for ways to use its remaining satellites more efficiently, consolidating its business and keeping its employee count down.

"The entrepreneurial days are gone," says James Cuminale, PanAmSat's veteran general counsel and chief of strategy. "The days of the wildcatters like Rene who kicked the industry into high gear are gone."

In another strategic shift from its earlier gung-ho days of satellite expansion, PanAmSat is developing an optical-fiber network to deliver more video services over the ground, not from outer space. Taking advantage of the competitive edge provided by its four Earth stations, all linked by fiber, the company now offers more than 22,000 miles of ground lines to distribute video, data and other services across the planet, particularly in Europe and Asia.

"Everybody knows us for providing news and sports around the world [via satellite]," says Mike Antonovich, executive vice president of global sales and marketing for PanAmSat. "We need to have them rethink us as a terrestrial service provider."

PanAmSat executives attribute these adjustments in corporate strategy to the significant changes that have occurred in the satellite-communications business over the past few years, especially in the wake of the 2001 recession. After explosive growth throughout the 1990s, market demand for new satellite services has unexpectedly flattened out since the new decade began.

As a result, smart satellite players like PanAmSat have stopped scrambling to place new satellites into new orbital slots, then signing up hordes of commercial and government customers. Instead, they're launching satellites only in proven markets after booking the orders in advance and making sure that the capacity is needed.

"Brand-new satellites in brand-new slots with no contracts make no sense until the market turns around," says Joseph Wright, a long-time PanAmSat board member who took over as company president and CEO three years ago. "We've evolved in part because we had to. We're also realistic about what markets can and can't do."

Even in parts of the world where market demand for satellite-communications services is running strong right now, PanAmSat is resisting the urge to rush in and put up new spacecraft right away. Instead, the company is trying to squeeze more transmission capacity out of its existing birds and transponders and relying more on fiber transport.

Take Iraq, for instance. Although international broadcasters and cablecasters are crying out for the ability to beam more TV signals from the war-torn country, PanAmSat is reluctant to fill what may well be just a temporary gap.

"There's great demand now for satellite capacity over Iraq," Wright says. "But I wouldn't spend $250 million on what may be a two-year requirement. And I wouldn't move a satellite there."

PanAmSat officials also note that younger private satellite operators have flooded the market with too many new birds in recent years despite stagnant growth in the market. Not surprisingly, then, some satellite providers have responded to the increased competition by cutting transponder leasing rates, making the business less profitable for everybody.

"This industry has been competing with itself too much," Antonovich says. "It's not an oversupply issue; it's an underdemand issue."

Finally, unlike in the early days of the satellite business, most, if not all, of the world's prime orbital slots have now been snapped up by satellite operators. The few locations still open for picking don't appeal all that much because of their poor viewing angles or limited range.

In particular, the prime orbital slots over the U.S. are now all but gone. So, even if there is market demand for more communications services, there's simply nowhere in space to put a new satellite.

"Our business is like the real estate business," Wright says. "You've got beachfront property and others."

"Most of the U.S. capacity is gone," Cuminale says. "C-band is sold out. Ku-band is heavily utilized."

Due to such constraints, the only satellites that PanAmSat is building right now are upgrade replacements for existing spacecraft. In December or January, the company plans to launch Galaxy 14, a U.S. replacement satellite that is already fully leased. Then, in the summer of 2005, the firm aims to launch Galaxy 15, another U.S. replacement bird.

"I don't think we'll end up pumping up much more satellites," says Kurt Riegleman, vice president of North American sales for PanAmSat. "It's a much more mature industry."

Turning to efforts on the ground, PanAmSat is striving to build itself into a major distributor of video, data and other telecom services over fiber lines, particularly when the need is urgent. The company's new PASport unit, geared toward the needs of international broadcasters, provides long-haul fiber and hybrid satellite-fiber connectivity services from Europe and Asia to 22 cities around the world.

PASport competes against similar services offered by phone carriers that don't focus on the broadcast market. PanAmSat executives note that their fiber-delivered video-service complements, rather than competes with, their bread-and-butter satellite-video operation. They also note that their customers could care less about which technology delivers their TV signals, as long as it's the best way possible.

"Fiber has become a more meaningful aspect of the services we provide," Cuminale says. "It's very useful in newsgathering."

Thus, the new PanAmSat is a far cry from the one that Anselmo set up in 1984, when the government-backed Intelsat consortium still enjoyed a tight monopoly over global satellite capacity, no other privately run international operators existed, the skies were not clogged with orbiting spacecraft and digital-video services had not yet been introduced in the TV business. Yet, just as it did under Anselmo, PanAmSat still sees itself leading the charge into a new satellite era.

"We started as a little bit of a renegade," Wright says. "We're kind of continuing that now, just in a different way."