Gov’t rules out auction for FSS slot; Telesat expected to win a comparative selection

Telesat Canada Inc officials are lauding a plan by the government to allot an important satellite slot by comparative process rather than auction. Industry Canada announced Nov. 10 that the orbital slot at 118.7° west would go to the winner with the best proposal, with a call for applications likely to be made before the end of the month. By deciding against auctioning the real estate, the department has clearly indicated that policy goals such as service to rural areas of the country is a priority. Telesat officials insist they’re well-placed to meet those goals, and are anxious to put forward their proposal for using the slot. "Telesat was founded on the premise that we would provide services to all Canadians," says Paul Bush, VP of corporate development at Telesat. "Any system that we have proposed to date, from fixed satellite to DBS, the Ka-band, has completely covered the country and it’s not just cream-skimming across the southern corridors of Canada, which some of our competitors do. It would be providing service to all Canadians, and that’ll definitely form part of our proposal."It’s a competition, and anything can happen in a competition," he adds. "But we think we’re well prepared and equipped to be able to move and respond." Insiders are giving the long-time satellite company greater odds of winning a comparative process – often referred to as a "beauty contest" – rather than an auction where having deep pockets is the main advantage. In expressions of interest filed with the government last December, well-financed companies such as Loral Space & Communications and GE American Communications Inc argued that Telesat should be barred from any auction of orbital positions. Besides the one spot at 118.7° west, Canada still has one more position up for grabs. A comparative process will ensure that Canadian interests are met up front, says Jan Skora, director general of Radiocommunications at Industry Canada. "Canadian ownership is a given," he says. "We’ve got our Canadian ownership and control regulations and in order to be licenced, you must prove to us that you’re Canadian-owned and -controlled." Factors governing the department’s choice of a winner will include covering the North, as well as under-served areas, in addition to other public benefits. When an auction process was put up as an option, Telesat objected strenuously that it was an inappropriate way to award satellite spots (RoW, April 17/00). Had a bidding war gone ahead, it would have been the first time Telesat would have had to compete on its home turf for satellite space. Many analysts now believe the company has the slot sewn up thanks to a long history of serving Canada’s under-served regions, and family ties with mega-conglomerate BCE Inc. Industry Canada’s decision also lifts Telesat from a quagmire of bureaucratic red tape that has delayed a decision on how to allocate the slot. The department announced Oct. 30/99 that the spot would be doled out, and Canada’s telecom players have been chafing at the bit ever since. A policy framework was initially expected to be released on Jan. 30. Skora says a call for applications is now expected for the end of this month, and that a final decision should be made in the next six to eight months. Bush noted in mid-April that time was pressing as satellite operators from the U.S. and Mexico were encroaching on Canadian orbital space, potentially causing serious radio interference problems. Auctions not well suited for orbital slots Auctioning mobile and fixed spectrum is growing in popularity, but the jury’s still out on whether auctions are the best approach for awarding orbital slots. Skora noted that there has yet to be a successful auction for fixed satellite slots, which was one factor in Industry Canada’s decision to stick with a comparative process.A high-profile DBS licence won by MCI Worldcom through auction in the U.S. in 1996 quickly became bogged down in legal wrangling as the company’s merger with British Telecom raised foreign ownership concerns. At the time, the licence was won with a bid of over US$600 million. At least one financial analyst is applauding the department’s decision, primarily because it will make Telesat a more attractive takeover target – assuming it wins this highly coveted orbital slot. Dvai Ghose, an analyst at CIBC World Markets, notes that in its recent reorganization (RoW, Oct 30/00 and NL, Nov. 6/00), BCE placed Telesat within its BCE Ventures group – a "tacit" sign that it would consider a sell-off of the non-core asset. Telesat’s further expansion will require significant capital expenditure, says Ghose, and Bell will want to sell at least some of the assets to defray the cost of building new infrastructure. The potential price tag for Telesat could reach as high as $800 million to $1 billion, he says, and the additional burden of having to win an auction for a new slot would have been a serious barrier to selling the company. Among the potential suitors, he says Stratos Global Corp has indicated to him a clear interest in purchasing Telesat’s MSAT and VSAT operations. However, Stratos has experienced a meltdown in its stock price since reporting that it would re-state its financials dating back two years, and is likely not in a position to bid for the company.

Gov’t rules out auction for FSS slot; Telesat expected to win a comparative selection

News | November 13, 2000

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