Satellite Is Sexy Again

Many of the satellite communications outfits that ended up in bankruptcy have reemerged and are drawing the interest of private equity

by Olga Kharif

Some of the biggest names in tech have tried—and failed—to win at satellite communications. Remember Teledesic, a venture begun by wireless pioneer Craig McCaw and Microsoft (MSFT) co-founder Bill Gates aimed at constructing a constellation of hundreds of satellites that transmit high-speed Internet services? Or how about Iridium, or ICO Global Communications (ICOG), or Globalstar (GSAT)?

Those are among myriad efforts to use satellites to beam phone calls and broadband access that were ultimately scrapped or ended up in bankruptcy court, having lost billions of dollars. "Over the history of the industry, there have been a number of ventures that have been restructured and scratched," says Rich Power, an analyst at consulting firm Pike & Fischer.

Yet somehow, satellites are sexy again. Many of the companies that ended up in Chapter 11 have reemerged and are once again drawing investors' interest. In the past half-year, private equity firms including Harbinger Capital Partners and Silver Lake have poured billions of dollars into satellite companies. In February, BC Partners, Silver Lake, Intelsat management, and other investors acquired satellite broadband provider Intelsat for $17 billion. In March, the Gores Group and other private equity investors snapped up satellite services and networking provider Gilat Satellite Networks for $475 million.

Bigger Demand for Satellite Services?

In February, Harbinger teamed up with EchoStar (SATS) and others to pour $300 million into TerreStar (TSTR), which aims to provide mobile broadband services. Harbinger also agreed to provide TerreStar with additional airwaves and as much as $50 million in loans; in recent months, the investor has also been hiking its stake in Inmarsat (ISAT), which provides satellite broadband and voice services to ships and planes. And in January, the firm invested $150 million in MSV, which also plans to provide mobile broadband services.

Why the surge of interest in satellites? For starters, these companies are considered bargains. "These are incredibly distressed assets here," says Patrick Comack, an analyst at Zachary Investment Research. At 4.69, TerreStar's stock is trading 56% lower than a year ago, for instance.

Investors also see rising demand for satellite-based communications—not just calling and Internet access but TV services, too. As bandwidth-hogging high-definition channels proliferate, telecommunications companies that provide TV services will need more equipment to convey the signals, relying at least in part on satellites, says Raymond Svider, partner at BC Partners in London. Some corporate networks are also depending on satellite services for Web access.