- The Washington Times - Tuesday, December 12, 2000

Satellite communications provider Intelsat will become the District's largest technology company when it turns private next year.
It employs more than 800 people, but Intelsat has flown under the radar of public notice and few have heard of the agency, created in 1964 when 11 nations signed a treaty establishing the organization. But digital clocks around its headquarters serve as a reminder that its low-profile days are numbered.
"It's been a quiet existence for us so far," Intelsat's Swedish-born Director-General Conny Kullman said.
Membership in Intelsat has grown to 144 countries, and Intelsat uses 19 satellites orbiting 22,000 miles above the Earth to transmit video, voice and data for companies from telecasters like CNN to Internet-service providers like WorldCom.
Intelsat's 144 member countries direct government-controlled telecommunications firms or signatories to sign onto the project and operate the organization on their behalf. Intelsat then markets services to customers in each member country through the 144 signatories, which support Intelsat financially and share its profits.
Abandoning that structure could both help and hinder Intelsat, analysts said.
But last month the 144-member countries decided Intelsat should turn private beginning July 18. Within one year of its transformation, Intelsat, which calls itself a 36-year-old startup, plans to make an initial public offering.
Currently, it has 850 employees, and 2000 revenue is expected to reach $1.1 billion.
But privatization will lead to changes at the company. Intelsat has grown up knowing signatories, which own the organization now and will maintain their ownership stakes after privatization, would likely buy its satellite services. The largest signatories sit on the agency's board of governors and help set Intelsat's rates.
Signatories accounted for 78 percent of Intelsat's business in 1999.
Once Intelsat terminates its intergovernmental status, analysts say it is less certain the company will be able to keep signatories on its roster of customers. That's because Intelsat marketed services to signatories at below-market costs, and it will have to raise prices to pay its bills after turning private, said Bank of America analyst J. Armand Mussey.
In addition, Intelsat won't be able to turn to signatories for money to fund its operations and capital-expenditures budgets, as it does now.
"I think when the signatories lose their voice in Intelsat, their interest in looking for other companies to do business with will grow. Everybody is talking to the signatories," said Kalpak Gude, vice president and associate general counsel for Connecticut-based PanAmSat, which also delivers video and data over its own network of 22 satellites.
Loral Space and Communications Ltd., in New York, and PanAmSat, 81 percent owned by Hughes Electronics Corp., are among Intelsat's chief rivals. PanAmSat has argued for years that Intelsat should be privately held because its status as an intergovernmental organization gave it an unfair advantage when it came to attracting business.
"They will try to make things as onerous as possible for Intelsat," Mr. Mussey said.
But Mr. Kullman, 50, thinks a transformed Intelsat will allow it to make decisions more quickly, respond to market conditions and be more competitive than it has been in the past. One example: While the board of governors has 28 members, its new board of directors will likely have just 17 representatives.
While critics say Intelsat has artificially low prices, Mr. Kullman thinks the company will be able to cut the cost of most services by 3 percent to 5 percent and turn the tables on its rivals.
"We will come like a bat out of hell after their customers. I see us as a stronger competitor after we come out of this," he said.
The new Intelsat plans to market its Internet services more vigorously. Intelsat will make an estimated $150 million through Internet service this year, but it hopes to increase that to $200 million by 2004.
Its privatization comes at a time when demand for commercial satellite service to transmit data, especially among broadcasters and Internet-service providers, continues to increase. Satellite companies will have $82 billion in revenue this year, according to the Satellite Industry Association.
As an indication of its aggressive stance, Intelsat plans to launch nine satellites in the next two years to give it more capacity to transmit video, voice and data.
It also plans to nearly double its work force to a projected 1,600 people. Many of its additional workers are likely to be engineers and sales and marketing staffers, who will accommodate the push to increase business.
"We need to step up the growth of the company," Mr. Kullman said.

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