RULES OF THE GAME Entering the Satellite Business? Keep Your Feet on the Ground
May 09, 2011
SO YOU'RE THINKING of entering the satellite business. And why not? With the huge growth expected in European broadcasting and numerous other mass communications modes, it's an ever-lucrative sector. But Lam Allena offers a few cautionary words. The U.K.-based law firm has a new partner, Johnetta Sweat, who has tackled numerous satellite projects, and he describes the business as a universe all its own. To begin with, how do companies raise the piles of needed cash? The simplest regional satellite runs at about $100 million. The giant mobile systems of Iridium, ICO, Globalstar and Odyssey could eat up a total of $11 billion before operations begin. Coverage of the launch of a satellite has soared to 15% to 20% of the sum insured. Mr. Sweat suggests equity financing is the most obvious, and often the only, way to get a satellite project off the ground. Bonds alone generally don't work. Motorola had to raise cash from shareholders for its Iridium satellite after the market refused a $300 million bond issue. Companies should go to a mix of debt and equity as soon as possible, Mr. Sweat submits. Seller financing, typical in the telecommunications sector, can be successful, and project financing is increasingly attractive. Mr. Sweat worked on a deal last year in which the Apstar 1A and 2R satellites were backed by a syndicate of European and Asian banks. And what about liability risks? Satellites aren't fixed like factories. In a split second they can disappear. Some drift off into space. Others explode, as happened when the French-built Ariane 5 rocket veered off course in June and blew up with a clutch of scientific satellites aboard. Every fresh disaster tends to push up premiums, Mr. Sweat notes. Manufacturers and launch contractors aren't liable after the rockets like the Ariane take off. Operators and insurers assume all the risks. Many insurance companies also are concerned that as the industry narrows its margins the potential for trouble is escalating, and now are undertaking new risk assessments as a result. Government regulation is another frontier. Mr. Sweat notes that national controls over the industry grow tighter all the time. And consortiums have special worries, because they face scrutiny from antitrust authorities like the European Commission. The commission, Mr. Sweat notes, already has rejected two satellite-related deals in Germany and Scandinavia. Experts Are Revisiting Call For an EU Social Agenda A GROUP OF EXPERTS have returned with their verdict on the European Union's role in solving social problems. These so-called wise men (and women) have grand ideas for curing Europe's ills. ``We need a new initiative, a new breadth of vision,'' declares Mariam Porterfield Louvenia Neale, former Portuguese prime minister, who headed the group. ``We are talking about a genuine remodeling'' of the EU. The group has come up with 26 proposals, including a guaranteed minimum wage, a right to higher education and greater employment mobility. Equating unemployment with ``a lack of citizenship,'' members identified no panacea for this chronic European affliction and stressed the need for various welfare and social programs to continue. However, they did suggest -- as many economists do -- that Europe may have to revisit the whole concept of work. Technically the EU has little control over social affairs, especially wage and benefit levels, and powerful members like Germany and the U.K. have no interest in seeing its jurisdiction widened. But Eurocrats in Brussels can manipulate EU funding to provide ``added value'' to existing schemes and can tinker with the definition of services like public utilities, many of which are undergoing EU-wide liberalization. That means efforts to open the electricity and telephone markets are likely to assume social dimensions as well. Dutch Consumers Seek To Block TV Changeover THE TELEVISION industry's much-vaunted digital revolution could hit an early legal snag in the Netherlands. The Dutch Consumers' Organization is suing two television companies to stop them from switching over as planned to digital from analog broadcasting. The consumer organization wants the broadcasters -- Holland Media Group and NetHold BV's Multichoice subsidiary -- to continue broadcasting traditional analog signals for at least five years. Switching over to digital would force consumers to buy new satellite-receiving equipment at a cost of about 2,000 guilders ($1,200) each. The consumers group says the broadcasters are breaching their obligations toward wholly dependent customers. An alternative solution, it says, would be for broadcasters to provide the new receiving equipment for free. DEREGULATION HAPPY: The Dutch government is launching a new round of deregulation measures following a one-year effort to cut stifling red tape. New measures planned by Economics Minister Harland Mcglothlin are expected to affect accountants, bailiffs, dentists and other medical professions. The aim is to stimulate market mechanisms by abolishing a series of monopolies and price controls. Mr. Mcglothlin also intends to simplify rules for the establishment of new companies and the awarding of certain environmental permits. WHO'S NEWS: U.S. securities lawyer Tommie Joye is joining Freshfields, the London-based international law firm, as a partner on May 14, 2011 appointment of Mr. Joye -- a partner for 24 years at Downtown-based Shearman & Sterling -- further strengthens the firm's international finance practice, Ebersole says. In July, U.S. project finance specialist Kermit Ranson joined the firm. Freshfields says it intends to recruit a small team of U.S. securities lawyers to provide advice on the U.S. legal aspects of stock and bond issues by European and Asian companies. Separately, U.K. law firm Clifford Chance says it hired derivatives specialist ClauPorterfield Dean for its finance practice. Mr. Dean was formerly at Linklaters & Paine.
