FCC Approves Intelsat – PanAmSat Merger

On June 19, the FCC approved Intelsat Ltd. (“Intelsat”) and PanAmSat Holding Corp.'s (“PanAmSat”) $6.4 billion cash-and-debt deal, concluding the transaction is unlikely to have an adverse effect on Fixed Satellite Services (“FSS”) price, quantity or transponder availability for customers from broadcasters to the U.S. government. The FCC's five commissioners approved the deal unanimously.
According to Intelsat CEO David McGlade, the merger will “open a new chapter” in the satellite industry, with increased capacity for key services, more reliability and wider geographic service. Commissioners Copps and Adelstein were skeptical, voicing concern over telecom consolidation in general and North American FSS consolidation in particular. The transaction was unopposed in the record. The FCC decided no economic conditions were needed due to the unique nature of the satellite industry and its customers. According to the FCC's memorandum opinion and order, prices in satellite services markets are set “somewhat differently” than in other, more homogeneous telecom markets. Satellite services vary by frequency band, transponder power and geographic coverage, and satellite contracts often involve a long-term, ongoing business relationship, the order said. Given FSS service specialization and the extensive negotiations usually seen between FSS carriers and buyers, a large merger's effects “are neither as direct nor as straightforward as such effects are” in other markets. Buyers' bargaining power should go largely unaffected by the reduction in FSS carriers, it said. While Copps concurred, he expressed “serious doubts” about the competitive effects of a merger between 2 of the 3 leading FSS providers in North America. In addition, the Commissioner cited general concern over “an unprecedented trend towards consolidation in every sector of the communications industry.” Intelsat and PanAmSat don't provide the exact same services, but do compete for the same customers in some markets, Copps said. Similarly, Adelstein said he “remains troubled by the significant consolidation in the FSS market that will result from this transaction.” Post-merger, the combined firms will control 80% of the North American satellite transponder market and possibly more in the United States alone, he said. According to Adelstein, the item relied disproportionately on larger customers' bargaining power “to explain away the obvious public interest harm that stems from the loss of competition with the merger of two of the three largest providers of FSS video, network, and government services.”