The announcement that a Chinese conglomerate is buying satellite fleet operator Spacecom of Israel is billed as a strategic investment by the company but is no consolidation play: Beijing Xinwei Technology Group appears to have no ownership of other satellites.
But the transaction serves as an example of how difficult it is to consolidate an industry that screams out for rationalization.
Led by Eurocom, Spacecom’s investors have been seeking a transaction for years. Most recently, Hispasat of Spain expressed interest, but the transaction could not close in part because of Israeli regulatory issues.
It will be interesting to see how Israeli authorities structure the Beijing Xinwei transaction beyond insisting that the formal operation of the Amos satellite fleet remain on Israeli territory. The government is an important customer for Spacecom.
What’s true in Israel is true in just about every other nation that has a satellite operator domiciled on its territory. And often these regulatory barriers, constraining but livable, are compounded by governments’ insistence that it makes financial sense to own even one satellite on their own.
Hispasat itself is an example as the Spanish government blocked an attempt by Eutelsat of Paris to purchase the Spanish operator. Thus rebuffed, Eutelsat is now seeking to sell its Hispasat shareholding.
This is why consolidation in Asia has been impossible. In fact, the opposite has occurred as nations elect to affirm their sovereignty by launching national satellites even when the business model doesn’t make a lot of sense.
Other transactions await. Avanti of London is for sale as a distressed asset and a buyer likely won’t find a hostile reaction in the British government. ABS of Bermuda, owned by private-equity interests, has had success in rolling up small fleet operators in Asia and has no government overseer to block a sale.
For ABS, the issue is likely to be whether its owners will accept a price deemed acceptable by the market or elect to hold on in the hope of better days.
Telesat of Canada, owned by public pension fund PSP Investments and New York-based Loral Space and Communications, has been on and off the sales bloc for years. No sale has occurred because of disputes between the two shareholders, whose interests are not necessarily aligned, and because they have insisted on prices that no one wanted to pay despite Telesat’s success as a business.
Here too, when and if PSP and Loral arrive on the same page and agree to a price that will find a buyer, it will be interesting to see what conditions the Canadian government places on the sale.
The business of operating a fleet of commercial telecommunications satellites is no longer the cakewalk it used to be once the initial capex hurdle was cleared. Providing television remains a growing and profitable business, but less than in the past. Mobile applications, the fastest-growing market, have special needs that are better suited to spot-beam satellites of the sort that all the major fleet operators are now building.
It would be nice to think that these pressures would trigger mergers to reduce the number of operators rather than force the industry to watch as the more fragile companies struggle for survival. This is how price wars are started. Some customers would be delighted at this outcome — for awhile. But beating up on your service providers usually turns out to be a bad strategy over the long term.