Online satellite exchanges link buyers and sellers in a gray market

Journal Record, The (Oklahoma City), Nov 17, 2000 by Theresa Foley N.Y. Times News Service

It can seem like a bizarre bazaar, one with its own language and its own laws of supply and demand.

Consider this classified ad: "If you hold an ITU slot position that you need to fill in less than six months -- this is the ideal bird to acquire -- and to drift to your orbital slot now."

So reads a posting on the London Satellite Exchange, an online trading market for telecommunications satellites and equipment, which began operating in early September. A little translation of the jargon may be required to understand exactly what you would get for your $25 million, the posted offering price for this "ideal bird."

The ITU is the International Telecommunications Union in Geneva, the world's administrator and registrar of satellites, and "orbital slot" refers to one of the increasingly valuable satellite parking spots some 22,300 miles above the equator. The satellite can be moved, or drifted, to whatever parking space above the earth that the buyer might already have rights to.

And how much is this satellite actually worth? On the face of it, probably not the $25 million being sought, said Stephane Chenard, chief satellite analyst at Euroconsult, a consulting firm based in Paris.

Although the listing does not identify the satellite, the sales broker has said it is an older Russian Gorizont. Launched between May 1992 and November 1999, the Gorizonts are a class of Russian-built satellites whose useful life, in many cases, is not expected to go much beyond the end of this year.

"They're junk," Chenard said. "A second-hand Gorizont is completely obsolescent technology operating in bands designed for Russia. People would use it only if they have no other choice."

So why have several serious potential buyers already expressed interest, according to the seller, a brokerage firm in Texas? Probably because, under the ITU's use-it-or-lose-it policy, having a barely functioning piece of junk is better than letting an authorized parking space sit empty.

Satellite parking slots are assigned on a first-come basis. A nation registers a plan with the ITU to launch a satellite and then has up to seven years to put the spacecraft in place. Nations, in turn, typically license private or state-owned operators to use the slots, giving them deadlines for having their satellites in position.

Because of the vagaries of satellite construction and launching -- from delays to cost overruns to scuttled launchings to purely speculative registrations -- there are usually about a half-dozen slots around the globe that need to be occupied in short order or the owners will lose their parking permits. And if a new satellite cannot be put in place in time, the owners feel increased pressure to find some functioning satellite to at least temporarily hold the space, said Frank Genin, chief executive of the London Satellite Exchange.

"One of our clients in South America has a slot that has to be filled by mid-July" of next year, Genin said. "He needs four months to drift a satellite from, for example, Russia to South America. So time is short. If you arrive three to four days after the ITU authorization expires, you are dead."

Euroconsult says that 21 used satellites have been sold in private transactions since 1985, drawing an average price of $8 million per year of remaining lifetime, which is about half the typical price of a brand new satellite in orbit. While an online exchange is typically meant to bring price efficiencies, analysts say the London Satellite Exchange may be just as useful in simply helping buyers and sellers find one another in the gray market for dying birds.

"Various people, particularly the Russians, have played with placeholders to protect slots," said Chenard, the Euroconsult analyst.

"You only need one or two satellites to protect three or four slots. You just juggle them among the slots, and by the time you have to answer a question on whether a slot is occupied, you have a satellite there. The Russians have been safeguarding 11 slots with six or seven satellites."

The Gorizont satellite now on the market is owned by Intersputnik, an international satellite organization composed mainly of former Soviet bloc countries. But the broker is the Space Development, a company in Spring, Texas, near Houston. Diane Maxwell, a Space Development project director, said that several interested parties had stepped forward to negotiate for the satellite and that her company planned to list a second Intersputnik satellite for sale soon.

Used satellites are not the only items on the satellite exchange, which also handles leases for excess transmission capacity on satellites already in orbit, ground equipment and even launch vehicles. A discounted 130-dish network of satellite antennas made by Gilat Satellite Networks, still in the original packing material, has been listed on the site for weeks.

Another seller that is registered on the London exchange is the Russian Satellite Communications. The company, which is based in Moscow and is 100 percent owned by the Russian government, has a fleet of 11 older Gorizonts and several new Express satellites. Russian Satellite is trying to raise cash to replace its aging satellite fleet.