Intelsat Gets Revenue Boost from PanAmSat Deal

Satellite giant Intelsat announced record quarterly and annual revenues in reporting its fourth-quarter 2006 earnings today, owing largely to its July 2006 acquisition of major competitor PanAmSat.

The Pembroke, Bermuda-based company had Q4 revenues of $543.2 million, an 84% increase over the same period in 2005. $238 million of the $248 million in additional revenue came from operations of the former PanAmSat business, with $10 million attributed to Intelsat’s net growth. Similarly, Intelsat said that its record annual revenues in 2006 of $1.7 billion, a $491 million increase and 42% jump over 2005, were powered by $456.7 million in revenues from the former PanAmSat business.

Intelsat still posted a net loss of $63.4 million for the quarter and $368.7 million for the year, which the company attributed mostly to an increase in net interest expense relating to the additional debt it took on with the PanAmSat deal. For example, in Q4 2006 Intelsat paid $247.6 million in interest expenses, a $145.2 million increase over the same period in 2005.

Intelsat CEO David McGlade said that the company is performing well and that the integration of PanAmSat’s operations, which includes consolidating technical operations and centralizing customer care, is right on track. Intelsat engineers have transitioned the control of four PanAmSat satellites to Intelsat’s operations center in Washington, D.C., with another three to go in 2007. The same facility will also manage four new birds to be launched this year.

Intelsat currently has some 1,200 employees, but should see a reduction come third quarter 2007, says Frownfelter (the company had initially planned to reduce headcount to around 1,000). Cutting redundant staffing and facilities should result in $92 million in annual savings by the end of 2008.

As to be expected, the revenue mix of Intelsat’s business has shifted considerably toward broadcast and cable customers. While media customers accounted for only 18% of revenues in Q4 2005, they contributed 37% of revenues in Q4 2006.

Intelsat is pursuing new video customers by bundling network programming for delivery to small-to-medium-sized IPTV operators, and is supplying satellite capacity to Qualcomm for its MediaFLO mobile-TV service. McGlade said international growth is strong, both in providing overseas links for clients like China Central Television and the National Basketball Association and in providing capacity for direct-to-home (DTH) satellite operators like MultiChoice in South Africa.

"Within media, the globalization of content remains a key theme," said McGlade.

Intelsat also indicated it would have higher capital expenses in 2007 than originally projected, as it is expanding the capacity of some satellites that are currently being built and taking contingency measures to ensure service in the wake of recent launch failures by providers like Sea Launch.

Intelsat COO Jim Frownfelter said the company had procured an Ariane 5 rocket to launch two satellites, Intelsat-11 and Horizons-2, in September. Intelsat-11 will provide DTH capacity for DirecTV Latin America, while Horizons-2, a joint venture with Japan’s JSAT, will count Tribune Broadcasting as one of its Ku-band customers.

Intelsat has also accelerated the construction of a replacement high-powered satellite that will serve as a ground spare.

"That could be a fast replacement for Intelsat-11," says Frownfelter. "In case the launch goes bad, we want to protect our DTH business in Brazil."