Canada's largest satellite company is mulling global acquisitions after the federal government said it would loosen foreign ownership restrictions in the telecom sector.
“We would be very receptive to finding smaller satellite operators and seeking to consolidate them, gaining the competitive benefits that flow from having greater scale,” said Daniel Goldberg, president and chief executive officer of privately held Telesat Holdings Inc.
An initial public offering is now also an option, added Mr. Goldberg, who has been Telesat's CEO since September, 2006, shortly before it was sold by BCE Inc. for $3.42-billion to the Public Sector Pension Investment Board and Loral Space & Communications Inc.
Canada's satellite sector garners little attention from either Bay Street or average Canadians. But the government's overtures in the federal budget to eliminating foreign ownership restrictions, combined with satellite's growing role in supplying rural areas with Internet service, may drag it back into the limelight.
The government said it will start liberalizing ownership restrictions in the Canadian satellite sector before it does the same for the broader telecommunications industry. This is largely because the satellite sector is much less politically contentious: None of the companies involved cross over into media or broadcasting, where there are cultural and heritage concerns.
The new policy is nothing but positive for Telesat, which has been competing against foreign rivals that can operate in Canada without being subject to the same ownership restrictions.
The ownership rules have put the company at a disadvantage, Mr. Goldberg said, since it has not been able to use its own equity for acquisitions and faces restrictions when it pursues foreign capital.
“If we wanted to acquire somebody, we would have to do it either by paying cash or by issuing non-voting stock,” Mr. Goldberg said in an interview on Friday.
But both of those options were all but impossible for Telesat. The company has more than $3-billion in debt, some of it taken on to start construction on two new satellites at a cost of roughly $300-million each.
Telesat, which now has an orbiting fleet of 12, has been seeking to add to that number and has eyed small satellite companies outside of North America in markets it already serves, such as Southeast Asia and Latin America, Mr. Goldberg said, declining to name specific targets.
Though industry sources doubt there will be any consolidation between large North American satellite players, the industry, long-considered dormant by mergers-and-acquisition lawyers, seems set for at least some action. And as governments invest billions in extending high-speed Internet services to remote or rural communities, satellite companies may also see growth.
Satellites can provide Internet and TV service to almost anywhere, since all that's required is an unobstructed view of the sky. But outdated technology on aging satellites means they often can't handle high-bandwidth Internet use, like video streaming and downloading. Service can also be interrupted or degraded by poor weather.
Laura Bradley, a principal at rural Internet consultancy Actionable Intelligence Inc., said she is skeptical about satellite's ability to deliver high-quality service, but added it remains the only economically viable option for some rural communities that can't get Internet through cable or wireless.
“The reality is satellite is becoming a more widespread accepted technology in Canada, even worldwide,” Ms. Bradley said. “There's an opportunity there.”
And the technology is improving, said John Maduri, CEO of Canada's largest rural Internet provider, Barrett Xplore Inc., based in Woodstock, N.B.
He said it's a fallacy that satellite technology has failed to advance, even as wired connections got faster. “Governments around the world are seeing satellite as the solution to getting 100-per-cent broadband penetration,” Mr. Maduri said.
Telesat had operating profit of $294-million last year on revenue of $787-million. Its satellites are used to distribute Internet and broadcast signals – BCE's Bell Canada unit is its biggest customer – and to establish secure communication links between government departments and foreign embassies.
