Comsat Corporation Business Information, Profile, and History

Company Perspectives:

Comsat has refocused on its core strengths in international satellite communications services and network services and technology. Our goal is to increase profit, reduce debt and return significant value to the shareholders. We are building our future with a solid base of assets, strong cash flows from our satellite services, an operating presence in high-growth international markets and the advanced technology of Comsat Laboratories.

History of Comsat Corporation

The first commercial satellite operator, Comsat Corporation has ownership in two global satellite systems, Intelsat and Inmarsat, and a strong presence in personal and business satellite communications services. Comsat was responsible for launching the first commercial communications satellite, Early Bird, in 1965 and from that historic achievement went on to launch numerous satellites in the decades to follow. Based in Bethesda, Maryland, the company was formed by the U.S. Congress to spearhead the country's interests in commercial satellite communications.

The First Ten Years

Comsat's unique position in the business world was carved out by the passage of the Communications Satellite Act of 1962, completed by the U.S. Congress on August 27, 1962. Signed by President John F. Kennedy four days later, the Communications Satellite Act established a national policy for the creation of a commercial communications satellite system in cooperation with other nations. Additionally, the act authorized the formation of a new, private company to represent the United States in the development and operation of the planned global satellite system. That company was Communications Satellite Corporation, or Comsat, a start-up company unlike any other business venture in the world. Its origins were singular, predicated on the decision by political leaders during the early 1960s to establish a commercial satellite network rather than spearheading such an undertaking through government agencies. Comsat, as the company was envisioned in August 1962, would be the first commercial satellite operator, a company operating in the private sector that would propel the United States into the commercial satellite arena and promote the commercial interests of the nation's businesses and population in satellite communications. Although unfettered in many respects from government control, Comsat would operate under the supervision of the Federal Communications Commission (FCC) as it endeavored, in the words of the Communications Satellite Act, "to provide global coverage at the earliest practicable date." Those words represented the marching orders for what Newsweek heralded as "the biggest new company ever created."

The incorporators of Comsat were nominated by Kennedy and confirmed by the U.S. Senate in October 1962. Responsible for forming the company and selecting its management, the group of individuals tapped by Kennedy included top executives from across the country, partners of prestigious law firms, bank presidents, newspaper publishers, and labor leaders--12 individuals in all. On February 1, 1963, the distinguished board of incorporators accomplished their first major task when they incorporated Comsat. Later in the month, they secured a $5 million line of credit with commercial banks for the company's start-up costs. Next, in March 1963, the company's incorporators filled Comsat's top two executive posts. After trimming down a list of 50 candidates to eight finalists, the incorporators selected Leo D. Welch, the soon-to-retire chairman of Standard Oil Company, as chairman and chief executive officer, and Dr. Joseph V. Charyk, Under Secretary of the Air Force for the previous three years, as president and chief operating officer. Each had specific roles to play for the company. Welch, with an extensive background in banking and international business, would be responsible for finances and negotiating international agreements, while Charyk, an aeronautical engineer with aerospace experience at Lockheed Aircraft and Ford Motor Co., would spend much of his time with technical studies, including the pressing decision of what type of satellite to use. After being informed of his appointment, Charyk referred to Comsat as "a pioneering enterprise [that] will be judged as a demonstration of the free-enterprise system." Welch sounded nonplussed, calling the business venture "rather a unique project," before adding, "it's rather far out."

With management in place, there was a sense of urgency to press forward and carry out the mission set forth in the Communications Satellite Act, which stipulated that the global commercial communications satellite system be established "as expeditiously as practicable." In accordance with the spirit of the law, a steady stream of historic milestones punctuated Comsat's first decade of existence, beginning in April 1964 when the company awarded its first hardware contract to Hughes Aircraft Company for the production of the first commercial communications satellites. Comsat ordered the creation of an experimental-operational satellite to test the feasibility of placing a satellite in geosynchronous orbit, that is, a satellite able to mirror the rotation of the earth and thus remain in a fixed position over a particular point on the earth's surface. As work got underway, the groundbreaking satellite became known as "Early Bird," gaining its official designation later as "Intelsat I."

While Hughes Aircraft worked toward making Early Bird a reality, Welch and Charyk concerned themselves with tasks familiar to all executives operating in the private sector. Comsat was a private corporation operating independently from the U.S. Government, and, consequently, did not receive any money from federal coffers. Like any other company aspiring to succeed, Comsat needed money. To raise the cash for the capital expenditures to complete their prodigious task, Welch and Charyk sold shares in the company in an initial public offering (IPO) in June 1964, netting proceeds of $196 million. The IPO was a resounding success, as investors scrambled to pick up shares in the company, paying $20 a share to own a piece of history and invest in what promised to be a lucrative market worth billions of dollars.

In August 1964, The International Telecommunications Satellite Consortium (Intelsat) was formed, a multi-national organization representing the interests of member countries in a global commercial communications satellite system. Comprising 15 countries at its outset, Intelsat became a chief source of revenue for Comsat in the decades to follow. Comsat, the U.S. member of Intelsat, was selected as manager of Intelsat on behalf of the 15 countries involved.

A year after Hughes Aircraft began work on Early Bird, the satellite was ready to be launched. In April 1965, Early Bird took to the skies, soared 22,300 miles above the earth, and was successfully emplaced in geosynchronous orbit over the coast of Brazil, becoming the world's first commercial communications satellite. The benefits for commercial use were meaningful, enabling live, transatlantic television broadcast and increasing by nearly two-thirds the telephone capacity across the Atlantic Ocean. The success of Early Bird, or Intelsat I, paved the way for successive generations of Intelsat satellites and filled in one piece of the puzzle that Welch and Charyk were charged with completing. Having secured satellite coverage between the United States and Europe, the two Comsat leaders next moved to provide satellite coverage for the rest of the world.

One month after the successful launch of Intelsat I, the FCC awarded Comsat the sole responsibility for the design, construction, and operation of three initial U.S. earth stations for international communications. The three earth stations, with their giant satellite antennas, were the first of 65 earth stations constructed during Comsat's first decade of business. In November 1965, work began on the second generation of Intelsat satellites. Comsat awarded a contract to Hughes Aircraft for the Intelsat II satellites, which were expected to provide early communications support for NASA's Apollo moon-landing program. Before the first Intelsat II was launched, construction of the next generation of satellites began when Comsat contracted TRW Systems, Inc. to build six Intelsat III satellites. With five times the capacity of Intelsat IIs, the Intelsat III satellites were slated to provide the final link connecting global satellite coverage.

Comsat's first major setback occurred in October 1966 when the first of the Intelsat II satellites failed to reach geosynchronous orbit. The second launch in January 1967 was successful, however, providing the first full-time satellite coverage over the Pacific Ocean. Construction of Intelsat IV satellites, which had five times the capacity of Intelsat IIIs, began in October 1968 under the auspices of Hughes Aircraft, but the most important event of the late 1960s occurred in July 1969 when an Intelsat III satellite was successfully emplaced in geosynchronous orbit over the Indian Ocean, providing full global satellite coverage for the first time.

Search for Identity in the 1970s and 1980s

In less than seven years, Comsat had achieved the major thrust of the Communications Satellite Act of 1962, compiling a laudable list of pioneering feats that ranked high in the history of the communications industry. From nothing, a new breed of competitor had been created and a new, potentially massive industry had been born, but the question facing Comsat as it prepared to enter its second decade of existence was: What to do next? Comsat Laboratories, located in Clarksburg, Maryland, was completed and occupied by a staff of 300--half of which where professional scientists and engineers--in September 1969, giving the company a research and development facility to advance the technology of satellite communications, but what direction would that advancement take the company? To Charyk, who took control of the company following Welch's departure and presided over its fortunes until the mid-1980s, fell the responsibility of running Comsat like a publicly-held corporation rather than a research and development entity focused wholly on advancing science and technology. Consistent profits would have to be made to please shareholders and new businesses would have to be developed to complement the company's satellite communications business, as attention shifted from historic achievements in the sky to the more mundane objective of achieving solid financial growth. As it turned out, operating Comsat as a profitable, diversified business proved harder to accomplish than establishing a global satellite communications system.

Comsat's entire business revolved around its global satellite network, Intelsat, until the mid-1970s, when unwelcomed news arrived that intensified the need to establish other business ventures. In late 1975, after deliberating over the issue for nearly a decade, the FCC decided that Comsat was nothing more than a utility, subject to the same rate regulations as other, more conventional utilities. The FCC's decision dealt a considerable blow to Comsat, barring the company from using high rates to recover development costs and start-up expenses on new projects and strictly regulating the company's rate of return. In the wake of the ruling, Comsat's net income dropped steadily, slipping from $4.62 per share in 1975 to $3.83 in 1976 and down to $3.12 in 1977.

Fortunately for Comsat, the company had begun to take its first measured steps into new business ventures just prior to the FCC's announcement. In 1975, through a subsidiary named Comsat General, the company formed Satellite Business Systems in a joint venture with IBM and Aetna Life & Casualty. Satellite Business Systems was created to provide extensive private communications networks to customers with widely dispersed facilities, enabling corporate clientele to transmit messages via satellite and bypass entirely the Bell telephone system. The problem for Comsat was that Satellite Business Systems would not be operational for a number of years and its start-up costs were hefty, leaving the company with no response to its dwindling profits. The company did find an answer in 1976, however, by starting its Marisat system, which provided maritime communications for the U.S. Navy, shipping companies, and offshore drilling operators. Also in 1976, Comsat established itself as a competitor in the domestic market with its Comstar system, which provided satellite services to AT&T. The revenues generated from Comstar and Marisat were sorely needed, bringing in roughly $69 million in sales of the company's $185 million total sales volume and lifted earnings to $4.28 per share, or $34 million.

Satellite Business Systems was hindered from the start by escalating start-up costs, and remained inoperative for years, dragging Comsat's revenues and profits downward. During the early 1980s, as work plodded forward with the joint venture, Comsat looked elsewhere for business opportunities and in 1982 found one that presented considerable potential for growth. In June 1982, the FCC dramatically extended the boundaries restricting satellite operators by approving direct broadcasting from satellites to homeowners' rooftops, ushering in the age of direct broadcast systems and opening up the consumer market to operators such as Comsat. In October 1982, Comsat formed Satellite Television Corporation to enter what was projected to be a $6 billion-a-year market. Headed, by Irving Goldstein, who joined Comsat in 1966, Satellite Television Corporation also was slated to market Comsat's own programming to the more than 20 million customers that the satellite television services were expected to attract. The foray into satellite television services was expected to ultimately be a $1 billion undertaking for Comsat.

By the mid-1980s, Comsat's record of diversification could be characterized as representing considerable potential, but delivering little in the way of positive, financial growth. In 1984, the company pulled out of its partnership with IBM Aetna Life in Satellite Business Systems after losing $50 million during the previous decade. In 1985, Comsat sold a company, Environmental Research and Technology, Inc., it had acquired in 1979 for less than the original purchase price, and, more devastating, plans were scrubbed for its direct pay-television venture, resulting in an after-tax write-off of $13.5 million. Long criticized for moving slowly and inexpertly, Comsat stood as a 22-year-old company that was still groping for the right answers. The company had ploughed millions of dollars into ventures, yet rarely garnered any appreciable return for its investments. As a reporter from Forbes noted, Comsat had "spent regulated profits on diversified losses."

Charyk's 22-year tenure of control ended in 1985, making room for the promotion of Goldstein, the former head of the satellite pay-television business, from president to chairman and chief executive officer. Goldstein promised wholesale changes, vowing to reverse Comsat's historical trend of diversifying imprudently. "We're going to see a new corporate ethic," he declared to reporters, "that stresses competitive markets and making money." To support his claim, Goldstein pointed to a contract with NBC to distribute programming to affiliate stations that was expected to generate up to $400 million in revenues during the ensuing decade. For further evidence, he pointed to a contract with Holiday Inns to provide hotel-room entertainment via a nationwide satellite that had the potential to bring in $200 million in revenues during the ensuing decade.

1990s and the Road Ahead

Industry pundits sat back and waited to see if Comsat could deliver on its promises, expectations, and potential. During the late 1980s, the company moved heavily into the entertainment business, seeking the sizeable profits that eluded it for nearly all of its existence. The leap into the entertainment business was precipitated in part by the burgeoning growth during the late 1980s of fiber-optic networks, which threatened Comsat's primary business. Consequently, the need to diversify became more intense as the 1980s drew to a close, leading to the company's acquisition of 62 percent of the Denver Nuggets, a National Basketball Association franchise in 1989. The remainder of the Denver of Nuggets was purchased in 1992. In 1991, Comsat acquired a partial stake in On Command Video Corp., a California-based company that developed and marketed a proprietary video entertainment system to hotels, and grouped the acquisition with its Denver Nuggets property in what would eventually be a subsidiary named Ascent Entertainment Group, Inc. In 1994, the scope of this subsidiary was widened with the acquisition of Beacon Communications Group, a film and television production company based in Los Angeles, and strengthened further with the acquisition in 1995 of the Quebec Nordiques, a National Hockey League franchise. The Nordiques were subsequently moved to Denver, Colorado and renamed the Avalanche, winning the Stanley Cup during their inaugural year.

Comsat entered the mid-1990s supported by three primary business segments: international communications, technology services, and entertainment. The composition of the company's operations soon changed, however, when new management, led by president and chief executive officer Betty C. Alewine and chairman C.J. Silas, took over in mid-1996. Financially, the company was exhibiting the same symptoms that had dogged it for decades. Revenues were climbing steadily, but profitability continued to be a problem. Money managers believed the company's stock should have been trading at $55 per share, but Comsat's share price hovered below $30. Further, the company's bottom line provided clear signs that something was wrong. Between 1995 and 1996, revenues rose 18 percent to eclipse the $1 billion mark for the first time, but the company's net income plummeted 77 percent, dropping from $37.8 million to $8.6 million. The lackluster financial totals prompted Alewine and Silas to restructure the company, leading to the divestiture of its entertainment segment (Ascent Entertainment Group) and its manufacturing subsidiary, Comsat RSI, from the company's fold.

Refocused on international satellite services and digital networking services, Comsat entered the late 1990s facing the same fundamental challenge it had been struggling to overcome for decades. Sputtering profitability and a depressed stock value haunted the company. As the company prepared for the beginning of the 21st century, there were two promising avenues of growth that fueled hope for a brighter, more profitable future. In 1996, the company introduced Planet 1, a personal portable satellite telephone that served as a satellite terminal enabling data and voice transmissions via Comsat's network of earth stations and satellites. On another front, Comsat was enjoying encouraging success with its digital communications networks for multinational and national corporations. Between 1992 and 1996, Comsat established 14 operating companies in 12 markets stretching around the globe that provided its business customers with communications services in areas where communications needs outpaced the capabilities of existing public telecommunications networks. Revenues generated from these international companies increased nearly tenfold in three years, reaching $58 million in 1996. With Planet 1 and international digital communications networks providing hope for the future, Comsat headed into the late 1990s, confident that its new, promising business opportunities would at last deliver robust financial growth.

Principal Subsidiaries: Comsat Argentina, S.A.; Comsat Brasil, Ltda.; Comsat Capital I, L.P.; Comsat de Bolivia, S.R.L.; Comsat Columbia, S.A.; Comsat Guatemala, S.A.; Comsat Dijital Hizmetleri Ticaret Anonim Sirketi (Turkey); Comsat do Brasil Equipamentos de Telecommunicacoes Ltda. (Brazil); Comsat Enhanced Services, inc.; Comsat General Corporation; Comsat General Telematics, Inc.; Comsat Iletisim Hizmetleri Ticaret Anonim Sirketi (Turkey); Comsat Investments, Inc.; Comsat Mobile India, Inc.; Comsat Mobile Investments, Inc.; Comsat Overseas, Inc.; Comsat Personal Communications, Inc.; Comsat Peru S.A.; Comsat Technology, Inc.

Principal Divisions: Satellite Services; Network Services and Technology.