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Stealth Consolidation in Asia

by Patrick M. French

Over the years, many commentators on the Asian satellite market have wondered aloud about when consolidation of satellite operators in the region would finally occur. The stock answer given to the question is that Asia remains dominated by national operators with little interest in forfeiting the pride that is garnered by a country having its own flag satellites in space in exchange for a more economically rational overall Asian satellite market. Others have noted that often there are serious disparities between what some satellite operators think they are worth and what another operators may be willing to pay for them. Further, it is well known that regulatory issues can be a serious, if not insurmountable, barrier to consolidation.

Yet, it is NSR’s view that over the last decade substantial consolidation has occurred among Asian satellite operators. This “stealth” consolidation has, in fact, happened in plain sight of the industry. However, the ingrained views that little progress has been made remain largely held in the market place. As described next, the consolidation among operators sometimes has taken a tortuous path and resulted in a not always direct acquisition of one operator by another — still, the result has essentially been the same.

National Consolidation Trends
Most recently in Asia, there has been a “mini-trend” in countries with more than one satellite operator to consolidate into single national players. Over the course of the last two years, China finally went ahead with the long anticipated merger of ChinaSatCom and SinoSat to create China DBSAT (as of December 2006). One of the leading Chinese companies pushing for this merger was China Aerospace Science and Technology Corporation (CASC), which is the primary contractor for the Chinese space program and owner of ChinaSatCom. This point on CASC is raised because, as described below, they will resurface again in regards to another Asian operator.

In Japan, SKY Perfect JSAT began the process of formally integrating Space Communications Corp (SCC) into the group in March 2008, and the merger was made official the following October. There is a third satellite operator in Japan, Broadcasting Satellite System Corporation (B-SAT), whose largest shareholder is NHK. B-SAT is in a somewhat special situation in that its main mission is to provide television programming to Japanese households who do not have, or have only poor, access to terrestrial TV signals. Given its specific role in the Japanese market, NSR understands that a direct acquisition of B-SAT by another operator would be difficult. However, B-SAT and SKY Perfect JSAT announced in December 2008 they would jointly procure a satellite from Lockheed Martin that would serve the needs of both companies at their shared 110 degrees East slot. This move to a “condosat” for 110 East essentially places the two companies in the same bed, even if they have not formalized the union with a marriage.

In the cases of China and Japan, the large majority of revenues for the respective satellite operators came from domestic services. It had become apparent over the years that their domestic markets could not support two healthy operators, and this was the driving force behind the consolidations. Looking around Asia, there is really only one additional country that still has multiple satellite operators primarily making their businesses off domestic demand. This is Indonesia with the two leading satellite operators, those being PT Telekomunikasi Indonesia (TELKOM) and PT Indosat (there is one further Indonesia operator that will be addressed below). There has long been speculation that Indonesia would be better off if TELKOM and Indosat were to merger their fleets. Supporters of this argument often point to the fact that TELKOM owns a number of transponders on Palapa-C2 through its stake in PT Pasifik Satelit Nusantara. However, this does ignore the long rivalry between the companies and very complex (and historically charged) overall telecommunications market in Indonesia.

Singapore— A More “Financial” Approach
As noted above, consolidation can take more forms than simple acquisition and Singapore is a good example in this area. In the 1990s, SingTel and Taiwan’s Chunghwa Telecom formed a partnership to launch ST-1. This 50/50 venture is essentially a classic condosat arrangement and therefore aligns each company such that (at a minimum) they do not try to compete with each other. SingTel and Chunghwa Telecom announced in 2008 that they would be ordering a follow-on satellite, ST-2, though in this case, SingTel would have a 62 percent share to 38 percent for Chunghwa. The follow-on order is a clear indicator that the SingTel/Chunghwa relationship is a long-term consideration.

In 2001, SingTel did acquire, outright, Australia’s Optus including the Optus fleet of satellites. Optus’ satellites are in practice operated as an independent unit from SingTel’s business unit that operates the ST-1 satellite. Yet again, such as the case with the Chunghwa relationship, the two operating units coordinate their activities to avoid competition and direct clients to the appropriate satellite resources within the overall company.

In addition, SingTel has an ownership stake in Hong Kong’s APT Satellite through its wholly-owned subsidiary SingaSat Pte., Ltd. SingTel owns a number of transponders on the APSTAR fleet, which the company markets in parallel to its ST-1 capacity. Coming back to the China Aerospace Science & Technology Corporation, CASC directly and through subsidiaries also holds a substantial stake in APT Satellite. Industry speculation for years has been that CASC is aiming to eventually merge APT Satellite into China DBSAT (and prior to that it was China SatCom), but such a move has yet to occur. Nor is it at all clear to NSR if such a merger would be in, or against, the interests of SingTel as such an assessment is dependent on the actual form of the transaction should such materialize.

To add a further wrinkle to this Singapore story, it must be recalled that SingTel itself is 55 percent owned by Temasek Holdings, one of Asia’s leading investment houses that owns and manages the Singapore Government’s direct investments into a diverse range of Singaporean and Asian companies. In January 2006, Temasek purchased 49 percent of Shin Corp. and has a substantial ownership stake in the Thai satellite operator Thaicom.

Again, industry speculation feels that Temasek may one day attempt to merge, in one form or another, its satellite operator holdings in SingTel, APT Satellite, Thaicom, and Optus into one consolidated operating unit. Further fuelling this speculation has been Telesat’s announcement that it is considering selling its interests in the APSTAR-IIR (Telstar-10) satellite and Telstar-18 (APSTAR V) satellites. While not a focus of this article, Telesat’s sale of its interests in these satellites (or eventual decision to invest in replacement capacity at these slots) is complicated by taxes issues related to its sale to Loral.

Overall, how easy or practical such a move by Temasek and SingTel to try to consolidate any one of these operators more formally is beyond NSR’s intention to assess. However, it seems that there is enough of a swirl of options and events surrounding these companies that NSR would not be surprised to see something materialize over the course of the next 12 months.

Also in the “financial” area, but separate from Singapore, it must be pointed out that SAT-GE is a subsidiary of the General Electric Company, and GE is also a major shareholder in AsiaSat. NSR is not of the impression that GE is in any hurry to push SAT-GE and AsiaSat together. It is known that GE would face tax issues if it were to sell its holdings in the short-term, and there may well be other complications that NSR is unaware of that could make this difficult. But it is not outside the realm of possibility that, in the long term, a decided push will be made by GE to sell off its stakes in one or both of these operators.

Regional Satellite Indie Operators Making Moves
Beyond the national satellite operators, there are also a number of smaller, independent satellite operators serving the Asian market. These are typically investor backed outfits that are very much focused on making a substantial return for their owners. In terms of consolidation efforts, ProtoStar has actually been successful over the last year or so in making things happen in the region. Most in the industry are aware of ProtoStar’s effective (though NSR believes not yet formally completed) acquisition of Mabuhay of the Philippines. In many ways, the two companies are a good match. Mabuhay has long been struggling with the issue of replacing its aging Agila-2 satellite and ProtoStar, following issues with initial attempts to work in Singapore, was essentially looking for an operational base for its growing satellite business. ProtoStar is already marketing Agila-2 capacity under the “ProtoStar-III” brand name, and NSR understands that ProtoStar and Mabuhay management are looking at options for a longer term solution for services from the 146 degrees East slot.

Less noticed by the satellite industry has been ProtoStar’s partnership with PT MNC Skyvision (Indovision), who is the above mentioned third Indonesian satellite operator with the IndoStar-1/ Cakrawarta 1 satellite at 107.7 degrees East. This satellite has a small S-band payload that has been dedicated to delivering Indovision’s DTH platform. While NSR is not privy to the details, it is assumed that some type of arrangement was made by ProtoStar for use of this orbital slot for its ProtoStar-II satellite and an S-band payload was added to the satellite (called Indostar-II) as a replacement for the aging IndoStar-1/ Cakrawarta 1. Once again, this is another condosat type arrangement that, while not a direct acquisition, certainly strongly aligns the business priorities of ProtoStar and Indovision. Assuming ProtoStar can get through its frequency coordination issues and finally close a deal with Mabuhay, then it could be said to have done more for consolidation in the region than any operator in a number of years.

Additional Asian Operator Moves
As is well known in the industry, SES, through NEW SKIES, is active in the Asian market, and Intelsat is a major player as well. SES has been quite public about its ongoing search for acquisitions, either of operators or specific satellites, to strengthen the NEW SKIES fleet, and NSR has no doubt that Intelsat (or Eutelsat, for that matter) would proceed similarly, should the right opportunity arise. Potential targets for these companies include almost any of the companies mentioned above (except the “hard core” national operators) as well as Asia Broadcast Satellite and even possibly MEASAT.

It should also be noted that MEASAT and Antrix (the commercial marketing arm of India’s ISRO) signed a JV partnership in late 2004. It seems little has come of this JV to date, but there is always the possibility that the two companies could revive their efforts in the future. Similarly, ABS signed an MOU with Vietnam Telecom International in October 2007 for the possible exchange of capacity on their respective satellites, ABS-1 and VINASAT-1. Further, KT signed a deal with Intelsat in January 2009 to become a distribution partner for Intelsat’s Network Broadband Global Maritime service.

Consolidation Is Happening
Overall, NSR is not aware of a single satellite operator in the Asian market that is not, in one way or another, tied to another. Granted, some of the links can be tenuous at times, and in practice may have limited influence on the behaviors of the connected parties. Yet, the fact is that a real web of relationships exists throughout the region and much more coordination of efforts between operators exists than many in the industry realize. More importantly, this “stealth” consolidation has yet to reach the end of the path, and it is highly likely that in the months and years to come, new deals will emerge that will ever more tightly bind together the seemingly disparate players in the Asian market. It is just a question of patience and keeping one’s eyes and ears open in the region.