Following decades of rivalry, two Luxembourg-based satellite competitors are considering a merger in order to take on a space industry upstart – billionaire Elon Musk.
If the merger is successful, SES and Intelsat will form Europe’s largest satellite firm. They are both residents of the Grand Duchy of Luxembourg, one of the world’s tiniest countries.
SES, based in the Duchy’s Betzdorf Castle, announced on Wednesday that a merger was being discussed, following rumours that the two were in advanced negotiations for a deal worth more than US$10 billion, including debt.
Both firms utilise “geostationary” satellites, which are enormous spacecraft that orbit 36 000 kilometres above the Earth. These satellites have brought in billions of dollars by beaming TV from orbit throughout the years. But, new technologies, such as a wave of low-Earth orbit — or “LEO” — satellites that zip about 500km over our heads and deliver low-latency broadband Internet, have lately challenged SES and Intelsat’s business models.
Musk’s Starlink, operated by SpaceX, is by far the largest LEO system. SES has also moved its operations closer to Earth, with a new fleet of satellites flying 8 000 kilometres above the Earth in what is known as “medium-Earth orbit.”
Nevertheless, with Musk and other entrants like London-based OneWeb threatening their market share, the “two old-school giants,” according to Société Générale analyst Alexander Peterc, had to do more to compete. It will not be easy to join forces: any agreement will confront substantial regulatory, financial, and technological difficulties.
Pivoted
When internet streaming began to eat away at the TV satellite broadcasting sector, SES and Intelsat shifted their focus to a new market: connecting remote government and commercial clients to satellite Internet.
The revenue stream is now being questioned as well. The cost of sending data is decreasing, and Luxembourg firms are under pressure to compete with Starlink and OneWeb, who have already launched hundreds of LEO satellites, as well as Amazon.com, which is poised to enter the market.
It’s a critical juncture in the corporations’ finances. Following years of stagnant revenue – Intelsat emerged from bankruptcy last year with $7 billion in debt — both are now anticipating a bonanza, having surrendered precious radio frequency spectrum rights to US phone firms implementing 5G.
That agreement, which resulted in a bitter court struggle between the corporations, enabled them to pay off their debts and pave the way for a merger. After the exact terms of the spectrum transactions are worked out, SES will receive $4 billion and Intelsat will receive about $5 billion.
SES and Intelsat are only the most recent satellite conglomerates to enter the merry-go-round of mergers.
Although cheaper launches and deep-pocketed investors like Musk have upended the industry’s economics, other key participants have already sought to combine investments and risk. Viasat of California is paying $4 billion for Inmarsat Holdings of the United Kingdom, and Eutelsat of France is paying $3.4 billion for OneWeb.
If SES and Intelsat proceed with their agreement, a lengthy and complicated review procedure would begin.
According to estimates by Bryan Garnier analyst Thomas Coudry, the new entity would account for around 40% of the worldwide fixed satellite services market and 90% of American broadcasting.
This would provide its own set of issues, since antitrust investigations may span anywhere from one to two years, according to Peterc – a timeframe in which SpaceX and Amazon are expected to launch hundreds, if not thousands, more satellites.
“They will lose time if they want to do anything on the LEO front, so that is definitely an issue,” Peterc said of SES and Intelsat’s dilemma. Moreover, forced antitrust remedies might impair the benefits of a deal, according to Bryan Gardnier’s Coudry in a client note on Thursday.
SES has more than 70 satellites in orbit, and Intelsat has 52. Combining them will be tricky, as the fleets run on multiple kinds of spectrum
There is also no precedence for how regulatory investigations would play out: Viasat is still waiting for clearance for its Inmarsat purchase, which was announced 16 months ago, and Eutelsat’s OneWeb agreement, which was agreed last July, has yet to finalise.
Lastly, because the Luxembourg government owns the majority of SES, the merger would require the approval of the state.
SES currently owns more than 70 satellites in orbit, whereas Intelsat has 52. Integrating them will be difficult since the fleets use different types of spectrum and are subject to complicated global laws.
While experts believe that combining operations might result in billions of dollars in gains, the new business may need to invest equally significant sums in a “constellation” to compete OneWeb, SpaceX, and Amazon in order to return to growth.
Although Musk has stated that his Starlink fleet may require expenditures of $20 billion to $30 billion to remain competitive — and has even mentioned the possibility of bankruptcy — the changes he and others have precipitated have already altered the sector.
This puts SES and Intelsat in a difficult position in the future. “If they go into LEO now, they’ll be behind: they’ll be last in line for LEO spectrum and orbital rights,” Peterc said, noting that they’d be “at the bottom of the pecking order” after SpaceX, OneWeb, and Amazon.
Yet, fortunately, while SES and Intelsat navigate the perplexing complications of extraterrestrial asset and regulatory sprawl, there is one thing that might make negotiations easier: their Luxembourg headquarters are only a 25-minute drive away.
