December 2001

SES-Astra's $4.3bn cash and stock deal to buy GE Americom moves it firmly out of the minor and into the major space league. Not only does the US satellite operation give SES a lever into the US market, where the company believes there is great potential in delivering broadband internet services. It also doubles its size, giving the new SES Global a fleet that is the biggest in the world with proforma Euro1.5bn in revenues for 2000.

So that's the good news. The problem now is how to grow this much bigger business when the global economy is slowing and the appetite for interactive services is clearly not living up to early billing. One way is to keep getting bigger by adding more assets. SES Global has 16 satellites on order but will drop at least four of them, potentially saving $1bn, as a result of the merger. In terms of possible acquisitions, commercial satellite pioneer Panamsat is treading water because its owner General Motors' Hughes is focused on selling rather than supporting this business. Panamsat's dilemma has been sidelined by a much bigger drama, General Motors' sale of its direct-to-home satellite company DirecTV to Echostar.

SES Global CEO Romain Bausch says he's not interested in all of Panamsat, but that certain assets could plug holes in SES Global's footprint. Bausch has just hired the company's number two, Robert Bednarek, to head strategic business development for SES Global. Other potential acquisition targets look more difficult. The logical gap to fill is Japan, a complex market even for local players. SES's stake in Asiasat gives it a good footprint over Asia, but business there is uneven at best, costly and frustrating at worst.

Bausch knows that transponder space is increasingly a commodity business. "Global reach" alone will not be enough to keep SES Global's margins in the 80% range or keep its competitors at bay. As terrestrial broadband gathers speed, satellite operators have to become more involved in the rest of the content and data distribution game.

Clearly one of the access points in this particular space race is two-way multimedia via satellite. Bausch says he continues to believe in broadband satellite but admits that it has added nothing positive so far to the bottom line. There is no clear view about how big this much-hyped market will be. In the wake of the dot bomb, and the economic downturn, all bets are off. The new CEO of SES Americom, Dean Olmstead, admits that some customers have shelved plans in interactive and internet services. He is hoping that Americom's focus on video and the fact that its satellites reach 80m cable homes in the US, will put it in pole position to provide other services to the likes of Viacom.

There is even an indication that both Americom and Astra are exploring ways to build a more direct relationship with the end consumer. These are dangerous waters, particularly in Europe where satellite-delivered TV platform operators are big Astra clients. In the US there may be opportunities created for alternative retail packages of TV services if Echostar is allowed to buy DirecTV. The new combined company could have some "behaviorial restraints" placed on it to safeguard competition and that could provide a way in for competitors.

Also note SES Global's recent decision to hire the ex-head of Premiere World Ferdinand Kayser as president and CEO of SES Astra. The troubled German pay-TV platform needs something other than more TV channels to attract enough subscribers to make it a viable business. Interactive services may be the key. Astra is involved in Germany with (SES Global shareholder) Deutsche Telekom. The T-DSL service, which uses Astra for the download and a terrestrial DSL line for the return channel, attracted 700 residential users in its test period. SES also recently launched its broadband interactive (BBI) service for Europe, but at Euro3,000 for the reception equipment this is for businesses only.

Bausch admits there have been "disappointments" in the take-up of broadband but he is betting that SES Global's ability to bundle broadcast and broadband services and to work in combination with terrestrial networks will win business. The satellite business has always been technologically sophisticated but, as new hire Bednarek has said many times, "space is not exempt from the laws of business". The future is in more sophisticated business propositions, including bundled services that can take advantage of the huge broadcast capability of satellites.