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The Little Satellite Company That Could

Twenty years later, PanAmSat's success can be traced to its tenacious founder and uncompromising vision 9/26/2004 08:00:00 PM Eastern

If it had not been for the 1982 World Cup in Spain, PanAmSat Corp. might never have gotten off the ground.

The late Rene Anselmo, then president and co-founder of Spanish International Network (SIN, now Univision), launched PanAmSat two decades ago after constantly running into problems trying to beam TV programming from other continents to his Latin America home base. Intelsat, then an entrenched, international satellite monopoly run by a conglomerate of governments, gave Anselmo fits when he tried to get transponder space and reasonable rates. The brash entrepreneur declared war after Intelsat made it difficult for him to show Italy's successful World Cup run.

"He worked with consultants and realized he could do this," says Mike Antonovich, executive vice president of global sales and marketing for PanAmSat and the company's unofficial oral historian. "So he said, 'Let's go find a satellite and show these bastards how to serve customers.'"

Now, 20 years later, PanAmSat is one of the world's largest providers of satellite broadcasting, video and network services. With its global fleet of 24 satellites reaching 98% of the Earth's population, it delivers TV programming to more than 125 million homes, including 2,100 TV channels and about 7,000 hours a month of news, sports and event coverage.

In the U.S. alone, PanAmSat carries nine of the top 10 cable networks and nearly 100 channels overall. Its lineup of major TV programmers includes HBO, CNN, ESPN, MTV Networks, Fox, Disney, Time Warner and Discovery Communications. Virtually every major video news operation in the world is a PanAmSat customer.

Nobody could have foreseen that back in 1984, however, when privately owned international satellite companies were still viewed as alien creatures from space. Operating out of a three-person office near his home in Greenwich, Conn., Anselmo faced tall odds getting even one satellite off the ground, never mind two dozen, because of price undercutting by competitors and strong international government resistance.

Yet Anselmo and his small band of employees pressed on for four years. A colorful, larger-than-life figure known for his gregariousness, vision, tenacity, temper tantrums and biting broadsides to government officials, the swashbuckling Anselmo had already earned a reputation as a fighter and crusader. As SIN president, for example, he had staged a televised, one-man hunger strike at New York's World Trade Center to gain his Paterson, N.J., station, WXTV, a highly desirable transmission antenna atop one of the Twin Towers.

"[Anselmo] was a very uncompromising guy," Antonovich notes. "He was a put-your-money-where-your-mouth-is person."

Finally, after mortgaging his home in Greenwich and putting much of his personal fortune on the line, Anselmo launched in 1988 the world's first privately owned international satellite to serve Latin America. He gave the $180 million satellite, known officially as PAS-1 Atlantic Ocean Region, the name of Simón Bolivar, the great liberator of South America. With no insurance, without commercial clients and with regulatory clearance to serve only the U.S. and Peru, the satellite roared into space on an Ariane 4 rocket.

PAS-1 sat there in geosynchronous orbit 22,000 miles above the equator, barely used, for its first year because Intelsat and its member countries staunchly boycotted it. Antonovich, the 12th employee hired by Anselmo, recalls company executives' eagerly awaiting video-transmission orders on Election Day in November 1988, only to come up dry.

"Nobody called on Election Night," Antonovich says. "We were all dressed up [but had nothing to do]."

Battling the Intelsat stranglehold on international satellite transmissions, Anselmo wooed commercial-TV programmers, lobbied government broadcasters, and pressed policy makers and regulators for an opening. He became famous for the sarcastic open letters, missives and cartoons that he sent FCC commissioners, as well as presidents, prime ministers and other world leaders, advancing the cause of private satellites.

In particular, Anselmo drew attention for his public cartoons of Spot, a fictitious, smart-ass dog that engaged in satirical conversations spoofing U.S. and international satellite regulatory policy. Sort of a countercultural type, Spot was constantly incontinent, always leaving a puddle underneath him.

"As a lobbying/marketing exercise, it was brilliant," Antonovich says. "Some of these letters were rabidly funny."

It took time, but Anselmo's lobbying efforts eventually paid off.

PanAmSat's first big break came in 1989, when CNN signed up as PAS-1's first major commercial customer for Latin America. In a sweetheart deal, Antonovich says, Anselmo offered CNN founder Ted Turner free transmission for a year and a $1 million satellite dish for no charge in return for the pact. Anselmo also gave CNN the right to walk away from the contract until PanAmSat cleared enough countries with its signal.

"He was very courageous and crazy like a fox," Antonovich says. "He was savvy enough to know how to drive the business. Rene saw his niche, his opportunity to break through."

Indeed, the pioneering pact with CNN for program distribution to Latin America plus the Peruvian government's support ultimately did break the blockade. PAS-1 eventually attracted other TV networks from the U.S., Peru, Argentina, Chile, Italy, Japan and Mexico, as well as telecommunications traffic from emerging Latin American carriers.

The company's next big break came in early 1990, when the Iron Curtain collapsed, as symbolized by the dismantling of the Berlin Wall. One nation after another began dropping regulatory barriers to PanAmSat as viewer demand surged for live satellite footage of the popular uprisings in East Germany and the rest of the Soviet satellite states. Even France, which had led the Intelsat boycott against PanAmSat, relented and allowed the company entry.

"Overnight, we were issued licenses to show the Wall coming down," Antonovich says. "All of a sudden, we were granted access to all the former Soviet republics."

When the first Persian Gulf War broke out a year later, PanAmSat's future as a satellite player was secured. With limited transponder time available internationally because of a dearth of satellites, Anselmo capitalized on his company's transatlantic-transmission capabilities to beam video coverage of the war back to the Americas. As a result, PanAmSat effectively sold out space on PAS-1 by 1992 and became an orbital workhorse.

"The Gulf War really propelled him forward with customers like CNN and Ted Turner," says James Cuminale, PanAmSat's counsel and chief of strategy, who came onboard in 1991. "He was very flexible, very open. He was video-centric."

Yet Anselmo was not content with operating just one measly satellite to serve Latin America. In his dreams, he saw a vast network of satellites beaming video programming around the globe. Watching the success of Hughes Space and Communications (now Boeing Satellite Systems) with communications satellites over the U.S., he aimed to match it with a fleet of his own birds over the other six continents.

"He saw the power of satellite-distributed video in the United States," Cuminale says. "He decided he'd go into the business internationally and duplicate the Galaxy model in the U.S."

So Anselmo decided to take an even bigger gamble with his company. In late 1991, PanAmSat stunned the communications industry by announcing plans to build and launch three more international satellites for the whopping price of $720 million, even though it didn't have nearly enough money to pay for them. The contract with Hughes gave Anselmo a year to raise the financing.

First, Anselmo and his business partners sold SIN to Hallmark for $600 million, giving him some of the cash he needed. Then, unable to make a financing deal with the banks and frustrated on other fronts, he desperately turned to Televisa head Emilio Azcarraga. As a young man starting out in the TV business, Anselmo had once worked as a writer for Azcarraga's widely respected father. Now he needed money from the junior Azcarraga, whom he regarded as a dilettante and playboy, to keep his dream alive.

"Rene wouldn't give up control to the banks," Antonovich says. "So finally he made a last-ditch call to the last person he wanted to call."

Fortunately for Anselmo and PanAmSat, Azcarraga came through. He agreed to plunk down the last $200 million Anselmo needed in return for a 50% stake in the company. Thanks to his contribution, the company went ahead and launched PAS-2, PAS-3 and PAS-4 over the next three years, gaining global coverage by the summer of 1995.

"Everybody thought he was crazy," Antonovich says. "Any other reasonable person would've taken his little business and been happy. But then Rene created this satellite company to build a global video franchise."

In the early 1990s, PanAmSat also made headlines by becoming the first commercial satellite company to transmit digital TV signals. Faced with surging demand from programmers for its Latin American satellite and strapped for transponder space, the company began tinkering with digital compression as a way to squeeze more than one video channel on a transponder.

PanAmSat started in 1992 by digitally compressing live sports coverage, putting as many as four video channels on a single transponder. It quickly expanded from there, especially when PAS-3, its second satellite designed for Latin American coverage, failed and the company suddenly needed a lot more channel capacity on PAS-1.

"[Anselmo] used digital technology for a very pragmatic reason," Cuminale says. "Interestingly, the international [satellite] fleet went digital before the domestic fleet."

Critics predicted that satellite providers would never find enough TV channels to fill all the slots created by digital compression. Instead, the move to compression helped spur an explosion of digital channels over the rest of the decade.

"All compression did was lower the cost of entry for people to launch channels," Antonovich says. With the transponder costs for programmers plummeting from $1 million to $400,000 a year, he says, "the economics improved for our customers."

Under Anselmo's leadership, PanAmSat also helped spearhead the drive for direct broadcast satellite (DBS) service. In the mid '90s, for instance, the company and Hughes launched satellites for the two rival Latin American DBS providers of the time, Sky Latin America and Galaxy Latin America. Thanks to moves like these, PanAmSat today beams more than 530 TV channels to DBS homes in the Americas and South Africa.

"[Anselmo] was one of the first guys to look at direct-to-home [DTH] television as a real opportunity," Cuminale says. "He saw DTH as a terrific application for satellites."

With its new satellite fleet in place, PanAmSat came out with its initial public offering in September 1995 to launch a new era of expansion. But it did so without its feisty founder. Just one day before the company went public and barely a month after PAS-4 launched into orbit over the Indian Ocean, Anselmo passed away.

In tribute to its founder, PanAmSat adopted Spot as its logo. The company also adopted the dog's name as its first stock symbol, trading on the NASDAQ stock exchange as SPOT. And Anselmo's memory clearly lived on.

"We still work for him," Antonovich says. "The checks are just signed by somebody else."

A year later, PanAmSat and Hughes Electronics announced plans to merge their satellite operations. With Hughes the owner of the dominant Galaxy U.S. fleet and PanAmSat the owner of a growing international fleet, the union turned the new company into a true worldwide satellite powerhouse. The new, publicly owned PanAmSat Corp. opened for business in May 1997 with a network of 14 spacecraft.

PanAmSat continued its rapid expansion through the rest of the decade, launching three satellites in 1998 alone and five more birds during another 12-month period covering parts of 1999 and 2000. By the time the new millennium began, it had more than 20 satellites in operation around the world.

PanAmSat had also started upgrading and replacing its older satellites to meet a new wave of demand for more-advanced high-definition TV (HDTV) service. Thanks to this 30-month, $2 billion upgrade, which was completed two years ago, the company is now clustering HDTV channels on one of its cable satellites to build a new HDTV "neighborhood."

"We're still breaking new ground," says Kurt Riegleman, vice president of North America sales for PanAmSat. "We created the first cable neighborhood in the late '80s and the first digital neighborhood in the mid '90s. Now we're creating HDTV neighborhoods."

With global satellite capacity starting to outstrip demand as the new century began, PanAmSat also stopped focusing exclusively on outer space. Under the leadership of Joseph Wright, a former PanAmSat board member and director of the federal Office of Management and Budget (OMB), who took over as company president and CEO in 2001, the company began paying more attention to video services delivered over fiber lines on the ground.

"For a long time, we ignored fiber at our peril," Cuminale says. "So we entered the video-services business with fiber and added 22,000 route miles between Asia, the U.S. and Europe."

Most recently, PanAmSat went private again, due to the spinoff of the old Hughes Electronics from the DirecTV Group. In a $4.3 billion transaction, Kohlberg Kravis Roberts & Co. (KKR) bought the company from DirecTV Group, which is controlled by News Corp.

PanAmSat executives say the move will allow them to focus on what they do best: building the satellite-communications business. With a committed parent behind them and no more worries about meeting quarterly-earnings targets, they say, they can focus just on their customers.

"We're satellite solutions providers, not just an FSS [fixed satellite services] operator," says Riegleman, who came up through the Hughes side. "So I think it's going to be fun."

 

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