SES Global and rival PanAmSat buy up smaller companies with strong federal links

Government demand is providing a lifeline for the satellite services business in what promises to be another hard year for the industry.

SES Global, one of the world's largest satellite services companies, has bought out bankrupt US operator Verestar for $18.5 million, outbidding rival SkyTerra Communications in a move that could significantly increase SES's Americom subsidiary's share of US government traffic.

Verestar has valuable connections with the US government, which accounts for half its sales, SES Americom says. Its rival, PanAmSat,has also been buying up smaller companies with strong links to the US government: both companies expect strong growth in that market to outweigh continued falls in sales of telecoms and broadcast services.

Government sales represent 15% of SES Americom's sales, and this could rise by 50-75% after the takeover this year, SES Americom says. Despite overall SES sales falling 11% to €1.2 billion ($1.45 billion) last year, the AGS subsidiary of SES Americom, which serves the US government, saw 17% growth and expects "very robust double-digit growth before the effect of the acquisition" in 2004.

Demand is picking up for private-sector fixed satellite services, PanAmSat says, but price competition is still strong. Since 2000 the commercial satellite business has been going through a prolonged slump, triggered by oversupply in the wake of the telecoms bubble of the late 1990s, and both SES and PanAmSat expect to see very little overall sales growth in 2004.

The exception is in the government market. SES Americom says: "The government - overwhelmingly the US government - is a growing percentage of the global fixed satellite services market." PanAmSat agrees, predicting that the US government will become the single largest buyer of fixed satellite services; contracts with the defence department have been joined by demand from other government agencies, whose demand for communications bandwidth continues to grow. In 2003 PanAmSat took over Hughes Global Services and Esatel, both government specialists, and saw government sales triple to $73.8 million, although its overall sales were also flat.

Outside the USA, however, tight budgets are limiting state spending on satellite communications: Gerard Donelan, head of government services for SES Astra in Luxembourg, and in charge of bringing the products SES developed for the US government to new customers in western Europe, says: "We haven't landed any contracts yet...there is smaller demand because governments are smaller and budgets are tighter, and we are dealing with several different countries, not one large defence department."

ALEXANDER CAMPBELL / LONDON

Source: Flight International