from the ground up - january_2011

8/7/2019 From The Ground Up - january_2011

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Near Earth LLC Page 1/27From The Ground Up Volume 7, Issue 1

SPECIALISTSINSATELLITE,TELECOMANDAEROSPACEINVESTMENTBANKINGFROMTHEGROUNDUP

January2011

THEWAYWESEEITSatellite:Following its 3 Ka-band high throughput satellite order from Inmarsat in August, The Boeing Company has now won another 3satellite order (one to be provided by subcontractor Orbital Sciences); this time from the Mexican government. Two of the birds areL-Band MSS satellites essentially twins to the SkyTerra birds they already have completed, while the third is a C/Ku hybrid bird.As demand for higher throughput satellites and new spectral bands increases we would expect to see Boeing re-emerge as a majorsupplier of commercial satellites. Avanti Communications HYLAS-1 and Eutelsats KA-SAT satellite both launch successfully,heralding a new era of Ka broadband services over Europe. CPI International finally finds a home after the collapse of theComtech deal, as Veritas Capital bids $19.50 per share, or about $525 million for the microwave components builder. HarrisCorporation continues its rollup of the oil and gas communications market, adding to recent pickup CapRock with an acquisition ofSchlumberger GCS for $347.5 million. Hot on the heels of their acquisition of Crawford Satellite, the folks at Encompass Mediaannounced plans to acquire the content distribution business of Ascent Media for $113 million creating a powerhouse in satellitebroadcast services.

Telecom:In early December, Clearwire completed a $1.33 billion debt offering, but continued to face liquidity concerns about the expensesfor the rollout of its 4G network. Subsequently, Clearwires majority owner Sprint let pass a January 2

ndoption to invest an

additional $760 million. Amidst all this turbulence, Clearwire Chairman Craig McCaw resigned without citing differences withmanagement. The company was also in the market seeking bids for up to $2 billion of its spectrum holdings, and is laying off 15% ofits employees to save cash. Clearwire clearly needs a white knight but will it be T-Mobile, Sprint, or someone else? And, whatwill they want in return? Energy industry satcom provider RigNet completed a $60 million IPO at an offering price of $12 which rosenicely in the aftermarket.

Aerospace:M&A activity has been red hot in the geospatial and signals intelligence world, proving how net-centric warfare is changing the

aerospace and defense landscape. Following a cue from the Argon ST acquisition earlier this year, Veritas Capital picks upLockheed Martins Enterprise Integration Group for $815 million, GeoEye acquires imaging analytics firm SPADAC for $46 million,and Raytheon made a bid for Applied Signal Technology at $38 a share, or about $500 million. Continuing their record ofgroundbreaking success, SpaceX launched their Dragon cargo module on a Falcon 9 and recovered it intact, in a first for a privatelyheld enterprise. With 2 successful launches and the flight success for Dragon, SpaceX has jumped to a clear lead in NASA COTSbusiness, but we suspect Orbitals significant capabilities and launch experience will guarantee a two horse race. Finally, one of ourfavorite space vehicles, Boeings mysterious X-37B the miniature unmanned space shuttle, successfully returned to a soft landingafter a six month mission. Whatever the nature of the classified mission, it does point to a future of greater on-orbit servicing.

Hoyt [email protected]

(212) 551-7960

John [email protected]

(646) 290-7796

Ian [email protected]

(646) 290-7794

Rich [email protected]

(646) 290-7794

InsidethisIssue:Page 1: The Way We See It

Satellite, Telecom and Aerospace News

Page 2: Guest Article:Future Technology Intersections - anInvestment and Leadership Opportunity

Page 8: The Future of FSS is Not Fixed

Page 14: AT&T Goes Shopping

Page 16: Theres Plenty of Room at the Top

Page 23: Near Earth Analysis: Market Comparables

Page 25: Near Earth Analysis: M&A Transactions

See Last Page for Important DisclosureMember FINR

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Satellite Telecom NASDAQ NewMedia

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Please visit Near Earths new offices at

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Floor, New York, New York, 10077

Between 46th & 47th Streets, across from the Helmsley Building, 2 blocks from Grand Central Terminal

Near Earth LLC is pleased to announce an affiliation with Viriathus Capital

www.viriathus.com

a New York-based advisory firm for emerging growth companies and a specialist in PIPES

placements (Private Investment in Public Equity Securities)

Near Earth LLC is the recognized expert for specialized investment banking and advisory services to

management and boards in the satellite, telecom and aerospace sectors. Near Earth also makes its

capabilities available to hedge funds, private equity firms and government. Our boutique level of service

and dedicated industry focus differentiate our services.


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Future Technology Intersections - an Investment and Leadership Opportunity

It was sometime early-1995. Id just seen the first World Wide Webaddress broadcast on the bottom of the screen at the end of a televisioncommercial. I remember thinking to myself, how foolish, why wouldanyone want to leave their television set, rush over to their computer, dialinto their service provider (at a blistering 33.6Kbps), try to remember what

the exact address was (consumer DNS resolution in those days left a lotto be desired) and then use one of the early web browsers to look up moreinformation about the product that had just been advertised? Id spent mycareer working in the high-tech networking business. I couldnt imaginewhat regular people would think when they saw an internet addressbroadcast on TV.

How many of us remember the first cell phone we carried? Was it in a bagwith a cigarette lighter power adapter like mine was? Did you opt for thesuper-high tech and equally expensive brick phone route?

Any longer-term mariners amongst you? Do you remember the state-of-the-art in commercial navigation systems in the late 80s and early 90s?Loran-C systems with 9 antennas dominated the commercial boatingindustry www.navcen.uscg.gov/?pageName=loranMain. Were you anearly adopter of commercial marine grade GPS navigation systems?Remember spending $5K-$8K+ for those early units or even more if youopted for the 3 differential whip antenna that allowed you to increasepositional resolution during the days of Selective Availabilitywww.pnt.gov/public/sa/? Beyond marine HF/VHF radios, how exciting wasit when we could install an 8 marine-grade cellular antenna that matchedour VHF one, for good symmetry on the radar arch, and make cellularcalls when we were away from the dock?

What would your reaction have been to the person in 1998 who told youthat, within 10 years, you would be able to hold all of the abovetechnologies literally in the palm of your hand, use them globally, pay lessthan $300 for the equipment and roughly $150/month for the service tomake it all possible? Even if you thought the technical confluence wasplausible, would you have believed companies could actually make moneyin the process?

Flash forward to 2011. With Moores Law continuing to drive thesemiconductor industry more than 40 years after Dr. Moores prediction,organizations across the technology marketplace are delivering newcapabilities and services at record pace.

Emerging wireless standards like 4Gwww.wired.com/gadgetlab/2010/06/wired-explains-4g/ to enable thegigabit-class cellular market, Zigbee www.zigbee.org/Home.aspx tosupport highly adaptive and autonomous sensor and control networks,

How many of usremember the firstcell phone wecarried? Was it ina bag with acigarette lighterpower adapter likemine was?

Even if youthought thetechnicalconfluence wasplausible, wouldyou have believedcompanies couldactually make

money in theprocess?


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Future Technology Intersections (cont.)

Personal Area Networks (PANs) standardized around IEEE 802.15grouper.ieee.org/groups/802/15/to support small group and radius ad-hocwireless networks, all enabled by advancements in low-power Wi-Fitechnologies are quickly advancing businesses in their core markets.

In the Satellite market, the emergence of 100+Gbit class COMSATs,

proliferation of sub-meter resolution commercial imaging, continuingadvances in on-board processor and sensor technologies, and moreefficient modulation, compression and coding schemes are enablingsignificantly lower cost and greater efficiency of point-to-point connectivityfor next generation mobile applications, significantly enhanced satellitebroadband services and the commercial communications on the movemarketplaces.

Geospatial Services are a prime example of where the combinations ofadvancements across technology sectors are enabling a brand newmarket. The preponderance of embedded GPS receivers in automobiles

and smart phones for navigation, satellite and aerial imagery forcommercial and consumer mapping and geo-location applications, and theemergence of web-based geospatial services underpin this new coremarket area.

Another example is in the Unmanned Aerial Vehicle market where thecombination of advances in automation, precision navigation, compositematerials, communications, sensors and propulsion are improving theversatility, maintainability, survivability and affordability of UAVs. Theresult of which is an expanded market opportunity supporting inchoate civiland commercial applications.

There is no shortage of new investment opportunity in the Space andtechnology marketplaces. Companies, organizations and individuals arecontinuing to advance, amongst many others, the state of the art in eachof the aforementioned core market and sub-market areas. In addition to astandard checklist used to evaluate new investment opportunitiesincluding:

The extent of the investment and can the business meet theexpense?

How long will it take to repay the investment? When will the investment begin to yield returns?

What is the return on investment? Would the money be better employed elsewhere? What is the average rate of return? The net present value? The

internal rate of return?

Its important to think about where a potential investment technology mightintersect with another at some point in the future and either engender anadjacent opportunity or an altogether new market. As Steven LHeureux

GeospatialServices are aprime example ofwhere thecombinations ofadvancementsacross technologysectors areenabling a brandnew market

There is noshortage of newinvestmentopportunity in theSpace andtechnologymarketplaces.


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discusses in his Special Report Accelerating Revenue Growthwww.slideshare.net/guestc4d058/accelerating-revenue-growth-presentation, market adjacency is all about creating growth by expandingthe total addressable market. He goes on to talk about the fact thatmarkets are characterized by a commonality in key attributes such asproduct needs, customers, cost structure and competitors. Slight

variations in one or more of the characteristics create market segmentswithin the same market. Significant differences in some, but not allattributes create separate, but adjacent markets. Many high-techcompanies have notably increased revenue by expanding their coremarkets into adjacencies. Investment methodologies, risk and returnanalysis surrounding adjacencies are well understood.

As organizations enter new or expand their core markets and seek eitherinternal or external investment dollars to drive innovation, are they lookingat where the technology may take them in terms of intersections down theroad? A good example from above is in the combination of GPS receivers

and smart phones to enable personal navigation applications. I dont thinkanyone would have even tried to make the case, during development ofthe GPS constellation or the smart phone handset, that there was a futuretechnology intersection between the two that would result in an applicationand market that would eventually combine them. Today, however, I thinkits critical that leaders try to anticipate those intersections with everyopportunity.

Beyond market adjacencies, its become commonplace to assume theintersection of technologies will create new business opportunities atsome point in the future. Its easy to take for granted, for example, that wecan purchase a new vehicle or replacement audio head unit withintegrated voice-controlled GPS navigation, DVD video player, satelliteradio, RBDS/RDS traffic receiver, iPod control, auxiliary control interfacefor USB key media, and integrated Bluetooth mobile phone control.However, when each of the systems was originally developed, did thedesigners, leadership or investors forecast opportunity from the multipleintersections of those technologies? Are we asking different questionstoday during our investment discussions in light of the fact that thesesuccessful intersections happened?

Its important to develop metrics, or at least placeholders in our businessplans, to capture the unknown, unknowns in how users adapt, leverageand engage the technology or solution in ways that arent necessarily bydesign. Concurrent with making new, core or adjacent investmentdecisions, is it possible to anticipate future technology intersections thatmight maximize returns? Does the business plan look that far ahead?Has the organization considered incorporating that thought process intothe research, design, marketing, engineering and fund raising efforts?Does the organizations leadership have enough perspective about thenew possibilities to sustain the vision and execute on the promise?

As organizationsenter new orexpand their coremarkets arethey looking atwhere thetechnology maytake them in termsof intersectionsdown the road?

is it possible toanticipate futuretechnologyintersections thatmight maximizereturns? Does thebusiness plan look

that far ahead?


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To the last point, leadership is critically important. Anticipating futuretechnology intersections, in the context of Geoffrey Moores technologyadoption lifecycle model en.wikipedia.org/wiki/File:Technology-Adoption-Lifecycle.png, demands leadership that is incontrovertibly comfortableleading across the entire lifecycle model, not just during the early and latemajority phases when revenue rules the day. Leaders that purport

understanding innovation and/or the intersection of technologies or donttake the time to understand the totality of the opportunity engendered areusually the same people that virtually hide while the technology crossesthe chasm to the early adopters. They may be great at driving tacticalopportunities in proven markets, which, depending on the health of thebusiness, is equally if not more important, but will never be successfulcreating new business paradigms for technology intersections thatcapitalize on the progenerate market opportunities.

Im not suggesting abandoning proven business practices or core marketsin favor of some nebulous future opportunity. Organizations should

positively continue to innovate and drive opportunities in their core andadjacent market ecosystems and realize organic growth as a result.Investors should absolutely continue to use proven evaluation methods fornew opportunities. Im suggesting that organizations and investorsconsider adding to what theyre already doing in order to institutionalizethe notion of capturing future technology intersection opportunities.

Thinking about potential technology intersections in the areas highlightedearlier, and focusing on the Space Marketplace, here are some examplequestions to think about.

How will 4G wireless, Zigbee and PANs change with the advent of 5thgeneration wireless technology? Do any of these technologies potentiallyapply to the next generation of satellite bus architectures? Are theyleveraged as-is? What modifications are required to make themcommercially survivable and safe to use in space?

As innovation in the satellite market progresses, what happens whenterrestrial communication standards are incorporated with Terabit-classsatellite buses (internet protocol, wireless)? What do future on boardprocessors look like and can we use terrestrial designs as a baseline?What happens to the video distribution market if content servers aredeployed aboard spacecraft? What other applications could be hostedaboard the spacecraft to enable new or enhanced services on the ground?Does it make sense to trade these questions during the R&D phase offuture satellite designs? What applications would be required to takeadvantage of these enhanced capabilities? Do they have to be differentthan their terrestrial counterparts?

What happens to the Geospatial Services market when advancements inon-board spacecraft processing and UAV technologies progress to the

institutionalizethe notion ofcapturing futuretechnologyintersectionopportunities

What otherapplications couldbe hosted aboardthe spacecraft toenable new orenhanced serviceson the ground?


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point where users can control their own Geo-information? Can we overlayweather services or even user-controlled live weather data as part of thisinformation?

What do next generation UAVs look like? Can they incorporate similaradvancements from the wireless market to provide enhanced functionality

and services? How does the combination of next generation terrestrialwireless infrastructures, spacecraft that also incorporate terrestrialwireless and other terrestrial communications standards potentially impactfuture fleets of UAVs? What new applications and user communities areserved as a result?

How does a combination or subset of all the above support the nextgeneration of Commercial Space companies like Virgin Galactic, BigelowAerospace, SpaceX, Scaled Composites and others in their quest toextend human presence beyond the boundaries of earth?

What does the potential matrix of these opportunities look like? What dothe dreamers or visionaries in your organization see as the potential foryour technology in the future? Have you asked the question abouttechnology intersections? Are you prepared for the answer? Can youafford not to be?

By Rick SanfordSpaceGroundAmalgam, LLC

Rick Sanford is the President of SpaceGroundAmalgam, LLC. He sits on the Board of the InternationalSpace University and also serves as the Vice President Strategic Programs for Odyssey Moon Limited.Mr. Sanford has over 20 years of experience in the global networking and satellite marketplaces. Prior tofounding SGA, LLC, he was the Chief Operating Officer of Cisco IRIS and the Director, Space andIntelligence for Cisco Systems, Inc. He may be reached via email at [email protected].

SGA, LLC specializes in Global Market Creation, Market Transformation, Strategy Development, BusinessDevelopment, Marketing and Implementation Planning in the areas of global space communications(government, civil, commercial), next generation command & control, intelligence and mobility.

Have you askedthe question abouttechnologyintersections? Areyou prepared forthe answer?


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The Future of FSS is not Fixed

There has been no more important engine for growth in the satelliteindustry than the fixed satellite service (FSS) sector. The recentremarkable resilience of FSS during this global economic downturn hasalso been well noted: mid to high single digit revenue growth, stable torising operating cash flow margins and high fill rates. The demand of the

FSS operators for new satellites, launch services, ground facilities andcustomer premise equipment has also kept a broad swath of the satelliteindustrys value chain profitably employed. In 2010, over 800 36-MHztransponder equivalents of capacity were added in 22 commercial satellitelaunches. This launch rate reflects the 21 new satellites ordered in 2008.Capacity additions in 2008 and 2009 were in the same general range of750-850 36-MHz equivalents. But, note there were 40 new satellitesordered in 2009 that should be launching in the 2011-12 time frame; asignificantly higher rate than recent levels. Does this mean boom timesare ahead or are we just reaching another temporary peak in FSScapacity growth?

Most predictions point to a near term peak in capacity replacement andadditions with a gradual decline after 2011-12 in satellite orders andlaunches that bottoms out in 2018. If true, that will certainly have amaterial effect on the launch and manufacturing providers, or at least tothe extent they are dependent on the commercial versus governmentmarket, but may or may not negatively affect other sectors of the industry.First of all, this is not of course, the first such cycle of capacity expansionfor FSS and not all bad news. If you are an investor in FSS, you may belooking forward to the higher levels of free cash flow generated from thelower levels of capital expenditures. A period of reduced investment in

new capacity could be great for an industry with some balance sheets farmore levered than perhaps comfortable in this ever fragile globaleconomy.

But what about top line growth? Clearly, if the industry is looking forwardto a period of lower capacity investment it is because its participantsbelieve they will be able to comfortably handle demand growth for severalyears with markedly lower investment. That suggests expectations of lowto moderate revenue growth and an increasing ability to predict near termdemand. Does that sound like a fast moving, volatile, high technologyindustry or a large, profitable and increasingly predictable industry

enjoying its mature years? It appears as if the engine of the satelliteindustrys growth is approaching a cyclical peak, or even worse, a level ofmaturity that while financially enviable lacks some of the dynamism wehave enjoyed in the past --- or is it? What appears to be a peaking ormaturing FSS industry could just be an industry in transition from one setof primary drivers to another set.

Does this meanboom times areahead or are wejust reachinganother temporarypeak?

What appears tobe a peaking ormaturing FSSindustry could justbe an industry intransition from oneset of primarydrivers to another

set.


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If the FSS industry as we know it today is peaking/maturing and perhapsevolving to something new, a couple of questions come to mind that wewould like to address:

1. Why is traditional FSS peaking/maturing; why should future growthexpectations be lower?

2. If you are an FSS operator, how do you position yourself for superiorgrowth in a peaking/maturing and evolving market?

Why is traditional FSS maturingFirst, it should be noted that the FSS industry is already in its second life;the first being one driven be international trunking of telephone traffic. Thecurrent life began when video broadcasting and video contribution becamethe new demand drivers, quickly outpacing the secular decline in thetrunking business. Todays FSS market is driven by several applications,each with its own level of maturity and growth expectations. Here is asummary of the major contributors along with commentary on near term

growth expectations of old and new applications.

Traffic trunking (flat growth)o Old - The traditional voice telephony part of this business has been

declining for decades.o New - Increasing levels of cellular backhaul and Internet data

transport have been offsetting the decline in the legacy trunkingbusiness. In the near term, cellular backhaul and Internet shouldcontinue to grow, but fiber, wireless and even non-FSS satellitesolutions, such as contemplated by O3B, may eventually eat intomuch of this demand.

Private networks (15% growth)o Old Driven largely by corporate VSAT networks, loss of

addressable market in developed countries due to fiber andwireless penetration has been offset by rising average demand peruser with richness of Internet media and applications.

o New Increasing deployments in developing economies, asInternet connectivity is no longer a luxury, but a necessity, hasdriven above average growth. Government growth has also been amajor recent phenomenon and looks robust for the foreseeablefuture as there is less threat of terrestrial competition for Comms-

on-the-Move applications and support of high bandwidth UAV andaerial applications. There is also the more recent emergence ofdirect to home Internet connectivity via satellite, especially with thehigh throughput satellites employing spot beams and Ka-band.Bandwidth requirements for this application could be one of themajor drivers going forward.

Video contribution (flat growth)

Internetconnectivity is nolonger a luxury, buta necessity

cellular backhauland Internetshould continue togrow, but fiber,wireless and even

non-FSS satellitesolutions mayeventually eat intomuch of thisdemand


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The Future of FSS is not Fixed (cont.)

o Old/New - Growth has been relatively flat for several years withfiber transport cutting into any gains from video proliferation. Wouldexpect declines in future years.

Broadcasting (5-10% growth)o Old - Worldwide, roughly 27,000 channels are currently broadcast

by satellite. These are standard definition channels and someanalog holdovers. This number is up approximately 3,000 channelsfrom a year ago. There are also approximately 120 direct-to-home(DTH) service operators, with 10 new DTH operators added lastyear. However, both channel growth and growth in DTH operatorsappear to be leveling off and would be expected to as theconsumer market will support only so many economically viablechannels and DTH operators. We believe ARPU growth is unlikelyto support significant additional channel growth. For a back of theenvelope demonstration consider a world with a billion householdscapable of paying $50 per month for video with half of that value

going to the content providers. For 30,000 channels that works outto an average of $10 million of revenue per channel. Now, there arecertainly many channels produced for less than $10 million peryear, but as there is something like an 80/20 rule in effect in mostmedia businesses (20% of the media getting 80% of the revenue)the major channels are probably taking the lions share of therevenue. The amount left to produce the long tail (the lower earning80%) is far less than $10 million per channel. For the number ofchannels to double from here, ARPU in real terms would probablyalso have to double. Unlikely, and even if ARPU did double in realterms, much of the increase would go to supporting new services

such as wireless or satellite Internet connectivity or the switch ofsome channels to higher definition or 3D formats. It should also benoted that this channel growth has not necessary driven demandfor a like amount of transponder capacity as more efficient waveforms, modulation and compression technologies are allowing morebits to be squeezed into the same amount of spectrum. Thenumber of transponders needed to handle broadcasting of standarddefinition video channels may be peaking as bandwidth efficiencyupgrades have kept pace with channel growth.

o New But have no fear, high definition (HD) is here. Excluding theHD channels broadcast by DISH and DIRECTV, there are currently

roughly 440 HD channels broadcast in North America and another560 outside of North America. At 3x the bandwidth requirement forHD versus standard definition (SD) that represents a lot of potentialincremental transponder demand. The key question is how many ofthe 27,000 SD channels will be converted to HD and over what timeperiod. It is beyond our scope of expertise to opine on that answerother than to say, clearly the HD phenomenon has not played outyet, is well liked by consumers in a world of large flat screen TVs

the consumer

market will supportonly so manyeconomicallyviable channelsand DTH operators

But have nofear, high definition(HD) is here


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and is likely to be a major driver of transponder capacity for manyyears. However, at its current rate of adoption, growth has onlybeen sufficient to enable single digit top line sales growth. Therehas been some hope that 3D video channels, which require 6x thebandwidth of SD, would provide the higher growth levels desired.Initial results have not been that stellar, especially for sales of 3D

enabled TV sets. As anecdotal evidence, my three children cameacross a 3D demo at Costco over the Holiday period. It was set upon a huge screen with specially chosen content to highlight the 3Deffects. All three took the glasses off within a few seconds saying itwas nothing special and not worth wearing glasses to get. Grantedit is hard to impress technophile U.S. children these days, but thatwas not a ringing endorsement.

How should an FSS operator position itself for superior growthThis is not the first time the FSS industry has appeared to peak andcertainly not the first industry to reach a higher level of maturity. Such

situations may mean the traditional market pie may not be growing asrapidly, but it does not at all mean clever companies are out of growthopportunities. There will be many avenues for growth, but each involvesthe FSS operator taking on a new set of risks. Here is our summary of thekey options they face and some Near Earth commentary.

Growth through acquisition. Growth by acquisition is nothing new formost of the major FSS operators and there are a few juicy targets outthere already, notably Telesat. However, with the top three operatorsalready controlling such a large share of the market there could besome resistance to combinations of large operators. Even with ongoing

consolidation, the total number of operators remains high as mostnations dream of becoming spacefaring and having their own nationalsatellite provider. These fleets of one to three satellites are veryinefficient, but in many cases protected politically from consolidationand other economic realities - that is until times get tough or expensivesatellites need to be replaced. The Asian market has been particularlyfragmented and overdue for consolidation, however, the practicalconstraints on achieving a major roll-up in this region are considerable.If it is to happen, we believe it will be far more likely to happen througha primarily Asian controlled entity, perhaps with private equity backing.This is especially true as the magic operating efficiency level of 12

15 satellites has not been achieved by any purely Asian operator.Funding such an efficiency gain would make for a lower riskinvestment. The same can also be said for the Africa/Middle Eastmarket. In short, while acquisitions are always an avenue for growth,there is little to suggest there will be heightened activity other thanperhaps the emergence of one or two moderate consolidators indeveloping regions.

There has beensome hope that 3Dvideo channels,which require 6xthe bandwidth ofSD, would providethe higher growthlevels

The Asianmarket has beenparticularlyfragmented however, thepracticalconstraints onachieving a majorroll-up in thisregion areconsiderable


12/27



Growth through vertical integration. To some extent, this has been triedbefore, but with little sustainable success outside of governmentservices. Operators have become efficient wholesalers and B2Bservice providers, but can lose their way when striving to get closer toend users, especially all the way down to consumers. Most operatorsrealize this and have avoided any direct retail or B2C type activities.

Interestingly, EchoStar is an example of the reverse: a B2C directbroadcast satellite company looking to become an FSS operator.Performance to date, suggests the reverse path has been just as hardand challenging. Part of the problem is the difference in mindsetrequired for success in these two different types of business, as well asissues of incumbency, but there may also be strong resistance fromthe shareholder base. If you own an FSS stock and like 80% EBITDAmargins, you may be quite shocked to learn management decreasedthat margin to 60% while chasing higher revenue growth. For all of theabove reasons, we do not believe vertical integration is likely to be amajor source of growth for the FSS operators.

Growth through geographic market expansion. If you are a smalloperator, there is of course enormous theoretical room to expand yourgeographic coverage, other than the fact that most good C and Ku-band slots have been developed. On the other hand, there are quite afew interesting Ka-band slots that could be developed and growingacceptance of this new band as evidenced by Inmarsat-5 and othersuch announcements. These Ka-band slots will be increasinglyinteresting to the larger operators as well. In many cases, however, it isbecoming increasingly hard to get good orbital slots without strongpolitical support from the countries and major customers within the

footprint. The risks of developing some of these new slots andspectrum may be too high for many investors unless there are exportcredit agency loan supports or special joint venture relationships within-country partners. We are already seeing such joint ventures as withNew Dawn between Intelsat and an African investor group led byConvergence Partners. We do expect to see more such joint venturesin the future, as both sides gain and overall development risk and costis reduced.

Growth through provision of new services. As we discussed above, theFSS industry may be transitioning away from a video driven business

and toward a business driven more by the need for Internetconnectivity and the backhaul of cellular and data traffic. Purists willargue the superiority of a geosynchronous satellites point to multi-point broadcasting can never be topped by terrestrial alternatives. Wewould agree, but that does not alter the fact that the broadcasting ofvideo may be peaking for the simple reason that linear broadcastingapplications are peaking in this new world of time-shifted, device-flexible, video on demand, IPTV, user generated, short form video

it is becomingincreasingly hardto get good orbitalslots withoutstrong politicalsupport

Operators havebecome efficientwholesalers andB2B serviceproviders, but canlose their waywhen striving toget closer to endusers


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content. What isnt peaking is Internet and cellular traffic (other thanbecause of infrastructure bottlenecks) and even if the satellite industryonly gets a small slice of the total pie, it will make for one everlastinggobstopper (to borrow from Willy Wonka). This is what we see as themajor source of growth for the FSS industry for ensuing decades.Companies that position themselves to capture this market will be the

winners. The large FSS incumbents have many advantages, butcompanies such as ViaSat, Hughes, O3B and Avanti may also rise inglobal importance. For a maturing industry, it may be one hell of aride to a new higher plateau.

By Hoyt DavidsonNear Earth LLC


14/27


AT&T Goes Shopping

On December 20th, AT&T did a little Holiday shopping, picking up a nicechunk of beachfront property of lower 700 MHz spectrum from the folksat Qualcomm. Until now, Qualcomm has been using the spectrum for itsMediaFLO mobile video service, which it is shutting down in March 2011.

For the princely sum of $1.93 billion, AT&T walked away with 6 MHz ofunpaired spectrum licenses covering the U.S., and an extra 6 MHz in 12metropolitan markets totaling an additional 70 million people a total of2.2 billion MHz-POPs of spectrum. With a deal of this size, there arebound to be conclusions to be had and consequences to anticipate whatmight they be?

First and foremost, what does AT&T have in mind for this new toy oftheirs? Fortunately, in this case we really dont have to do a lot ofguesswork, since they were nice enough to tell us. As stated in theirrelease, AT&T intends to use this spectrum for supplemental downlink

capacity using carrier aggregation technology. Translated to English, thismeans simply that the spectrum in question will principally be used forstreaming audio and video content a use quite similar to the mediaFLOapplication, but with a critical difference: the transmissions will be unicastand not broadcast. Which leads us to the second important conclusion:

Broadcast video to handsets is dead. Stick a fork in it. With apologies toMonth Python, its not pining for the fjords, its an ex-business model.Despite the backing of names like Verizon, AT&T, Qualcomm and eventhe vaunted ESPN, mobile TV in the U.S. has failed again, joining itsbrethren in Japan, Korea and casting severe doubts about the future of

Sirius Backseat TV service and the yet to roll out ICO MIMS and Solarismobile video services. As demonstrated by AT&T, the resources forproviding mobile broadcast video simply have higher and greater uses giving people customized video when they want it. The implications forfixed video providers like the cable and satellite MSOs are obvious gounicast (i.e. video on demand) or be a dinosaur. And the mammals aretaking over.

The third implication takes a little math. While Qualcomm crowed in itsannouncement about the sale that it was getting a nice profit by sellingspectrum for $1.93 billion that it had only paid $683 million for between

2003 and 2008, the fact of the matter is that the sale price represents asignificant retreat in prices from the FCCs 2008 700 MHz auction. In thatauction, a de factonational spectrum license went to Verizon Wireless for$1.10 per MHz-POP, but AT&Ts purchase only comes to $0.87 per MHz-POP, a 21% discount. Some of this discount probably reflects theunpaired nature of the spectrum, which makes it less suited for LTE(which requires carrier aggregation technology), but we think a significant

First and foremost,what does AT&Thave in mind forthis new toy oftheirs?

Broadcast video tohandsets is dead.Stick a fork in it.


15/27


AT&T Goes Shopping (cont.)

portion of the discount reflects an actual decline in valuations since March2008.

While many have continued to argue that spectrum valuations can only goup, here we have a real transaction comp that argues otherwise. Much ofthe basis for our position is that while demand for spectrum is indeed

exploding (thank you Apple!), there is substantial supply overhang and theability to pay for more spectrum is not boundless given the consumerresistance to higher ARPU.

On the supply side, we have the following sources: Potential re-auction of the 700 MHz D (public safety) block that

failed (3 billion MHz-POPs) Clearwire selling excess spectrum (potentially over 20 billion or

more MHz-POPs) Spectrumco AWS spectrum holdings (5.3 billion MHz-POPs) Nextwave WCS, BRS and AWS spectrum holdings (3.9 billion

MHz-POPs) Lightsquared wholesaling capacity on their anticipated 4G network Terrestars and DBSDs ATC holdings of 6 billion MHz-POPs each

Now, were the first to acknowledge that these various flavors of spectrumhave varying utility due to their associated regulatory constraints, but inthe aggregate thats a lot of spectrum (40 60 billion MHz-POPs). And thewhite space bands offer potentially even more.

On the ability to pay issue, we note that the source of funds for spectrumpurchases is the carriers themselves who also have to fund

maintenance capex, expansion capex and ultimately, dividends andinterest for their security holders. While there has been markedimprovement of late, the fact remains that the enterprise values of everysubstantial wireless carrier are below their values in March 2008.

So, given this landscape, we find the discount AT&T received to be prettyreasonable proving once again that trees do not grow to the sky.

By John StoneNear Earth LLC

in the aggregatethats a lot ofspectrum

while demand forspectrum is indeed

exploding thereis substantialsupply overhangand the ability topay for morespectrum is notboundless


16/27


Theres Plenty of Room at the Top

Surely and steadily, commercial space activities have crept further alongin both their development and their public prominence. Every few weeksbrings a new headline to the news about a new accomplishment by VirginGalactic or SpaceX or any of the many other ventures planning to do

things no commercial company has done before. These are exciting timesand it is equally exciting to have a front row seat for these developmentsand be able to see things as they get started. 2010 has been a great yearand 2011 promises to hold more progress to come.

For casual viewers, this narrative has been that of startups andentrepreneurs stepping up to offer services that have long been theexclusive domain of government. This is not entirely accurate, as manycommercial entities vying to participate in this market are also veryestablished, large companies that are now offering services that are morein keeping with the newer, fixed-price commercial procurement practices

that NASA is seeking to adopt.

However, there is another, more subtle, misconception about this newindustry. At first glance, the ecosystem appears divided betweenaerospace firms providing systems and engineering services (e.g. Boeing,Lockheed Martin, Raytheon and so forth); and operators which seek toprovide commercial services on platforms which they intend to develop(e.g. SpaceX, Orbital, Virgin Galactic and others). This duality entirelyignores many players, like satellite operators or payload integrators, whichdont fit into either category, but which we think will also play a large role inthe evolution of this industry.

We would like to highlight some of these companies to give a largerpicture of the kind of activities we will start seeing in the next few years asmany new space companies enter commercial operation. This list certainlyisnt and isnt meant to be comprehensive and we are probably leaving outmany others of importance, but we think its a good start.

United Launch AllianceWhen the United Launch Alliance was formed, it produced many howlsfrom industry observers. After all, its formation represented the merger ofthe principal launch businesses of both Boeing (with Delta IV) and

Lockheed Martin (with Atlas V), both of whom loom very large on the USaerospace stage. Although it eliminated competition, it was likelynecessary due to the dropoff in launch demand in the first half of the2000s. It was also just as well for operators, since the two launchers havenot been particularly competitive on price, but not so good for UStaxpayers, who are mostly captive to the ULA for their governmentlaunches, for exactly the same reasons.

manycommercialentities vying toparticipate in thismarket are alsovery established,large companies

a larger picture ofthe kind ofactivities we willstart seeing in thenext few years asmany new spacecompanies entercommercialoperation


17/27


Theres Plenty of Room at the Top (cont.)

Change is arriving at ULA. It couldnt hurt that space module mogul RobertBigelow came to visit their facilities in Decatur, Alabama to talk about hisplans for 24 launches per year. Nice if that happens, but we wouldntexpect ULA to be counting on that just yet. A little better and slightlynearer are NASAs plans to support commercial crew transport. WithSpaceX having not enough launches of the Falcon 9 under their belt to

alleviate reliability concerns, the ULA is filling the breech and NASACCDev-2 participants are taking notice by including ULA rockets in almostall their proposals. And speaking of SpaceX a little domestic competitionis keeping ULA on its toes. In a recent Space News, one article reportedthat ULA was cutting costs and reviewing processes in pursuit of lowerlaunch prices. We like where this is headed. It gets taxpayers a better dealwhile bringing sorely-needed competition and launch price pressure. In themeanwhile, demand from traditional defense customers and sciencemissions is picking up, leaving ULA rather busy. The true test of ULA willcome when competition for Delta/Atlas class DoD launches is opened upto other U.S. launch service providers such as SpaceX and Orbital.

Space Systems / LoralFrom a distance, Space Systems / Loral looks a lot like a typicalaerospace company. In reality, it is a most rare and possibly unique beastin the space ecosystem a prime contractor with a customer base almostexclusively commercial. Actually, we can take that even one step further,as many of SS/Ls customers are themselves almost exclusivelyconsumer oriented, such as those for DirecTV and Sirius XM, delinkingthemselves from the year-to-year swings in government spending. Havingover sixty of its spacecraft on orbit, with more joining every year, certainlymakes them a premier example of a commercial space company and one

just as different from the traditional large aerospace companies asemerging NewSpace-type ventures are.

So far, SS/L has been below the radar in its support of commercial spaceoutside of its core telecom satellite manufacturing business. However, wefind the few steps its taken outside of that business most intriguing. Earlyin 2010, SS/L was awarded a contract by NASA Ames to develop thepropulsion system for LADEE, a lunar science mission. This followedSS/Ls provision of a Ka-band antenna for NASAs Solar DynamicsObservatory, leveraging the commonalities between commercial telecomsatellite systems and other types of spacecraft. We hope this work will

continue and although we think that all satellite manufacturers (includingBoeing, Lockheed, Orbital and the European manufacturers) will have arole to play, we think that the combination of SS/Ls technical heritage,experience and prowess and its unique commercial orientation could be apowerful asset in the years to come.

The true test ofULA will comewhen competitionfor Delta/Atlasclass DoDlaunches isopened up to otherU.S. launch

service providers

leveraging thecommonalitiesbetweencommercialtelecom satellitesystems and othertypes of spacecraft


18/27



The Satellite OperatorsBeing frequent attendees of both space and satellite conferences, we aresometimes taken aback by how separate their worlds often are. On closerconsideration, this shouldnt be too surprising. The satellite industry isfocused on telecom and broadcast markets while space is focused onaerospace systems and services; two different industries which happen to

connect in some key areas. But just because the operators are focused ontelecom markets, doesnt mean they cant play a role in other areas. Forinstance, weve covered the hosted payload phenomenon here before(See article in August 2009s newsletter Bumming a Ride to Orbit). Itsgotten a lot of attention by Intelsat, SES, Iridium and others and willcertainly continue to play a role in their business plans. Their satellites areconvenient platforms for technology demonstration, earth observation andspace situational awareness. Civil space agencies and commercialentities just cant ignore such a convenient new route to orbit.

Operators may also be eventual adopters and beneficiaries of in-orbit

services, such as refueling, refurbishing and relocation services providedby robotic vehicles while benefiting from the renewed focus on debrisremoval and mitigation. Operators will also be a source of institutionalknowledge, providing expertise on operations and procurement ofcommercial spacecraft. Finally, operators will continue to push the limits ofthe capabilities of their spacecraft, demanding greater power, morebandwidth, greater frequency agility, even pushing the limits of satellitepropulsion systems and other bus components. Although pursued bysatellite operators for the benefit of their customers, these improvementswill benefit all.

Universal Space Network and TelesatWhen the space age was getting started, everything had to be built fromscratch. Not only did this include building the satellite itself, but often verycostly ground systems to monitor, track and control the satellite whereverit was in the sky. In many cases, these systems are a large portion of thecosts. But it doesnt really make economic sense for each operator tohave dedicated ground systems. Ground systems are just the type ofbusiness that yearns for a provider of shared services.

Although a number of satellite operators and aerospace firms offeroutsourced engineering services, we highlight Universal Space Network

(along with its partner and parent company, Swedish Space Corporation)and operator Telesat as being particularly prominent in providing full end-to-end satellite control, monitoring and operations services to a widevariety of both large and small clients. USN and SSC operates aworldwide network of ground stations, already providing services for awide variety of civil, commercial and defense satellites. Telesat leveragesits existing network used for its own satellites to take care of others, and itdoes it very well. Even the largest of operators, like Echostar and DirecTV

Operators mayalso be eventualadopters andbeneficiaries of in-orbit services,such as refueling,refurbishing andrelocation services

Ground systemsare just the type ofbusiness thatyearns for aprovider of sharedservices


19/27



use outsourced services nowadays and it is in no small measure due tothe technical competency and range of services these companies offer.

Except in the case of unique constellations or systems, or in the case ofsensitive national assets, we think outsourcing ground systems operations

just makes sense. With remote presence now available essentially

anywhere in the world and the cost of setting up a monitoring terminal littlemore than that of a home computer, many users will be able to benefitfrom the economies of scale and reduced capital expenditure. In a newcommercial space market, this area should see lots of growth. Althoughthere are other participants in this area (such as SES, SED Calian) androom for new entrants, we think these two are positioned particularly well.

Component buildersTravel down the long list of components and subsystems that go into mostcommunications satellites and youll usually find for each item one or twomajor, sometimes exclusive, vendors. For instance, solar panels are

dominated by Spectrolab (a division of Boeing) and Emcore while Saft,EaglePicher and ABSL are some of the leaders in batteries. Honeywell isa very significant producer of reaction wheels, Aerojet and AMPAC ISPdominates propulsion systems while Harris Corporation essentially ownsthe market for very large mesh antennas. A list like this can go on and on.Our point isnt to highlight these vendors or their products in any way thatis bad or good (although we are certain they all make excellent products),only to highlight that relatively small markets for highly complex itemsnaturally result in vendor concentration with high barriers to entry. Whilethis is good for those companies that have positioned themselves andtheir wares in these privileged positions, we cant help wondering the

extent this stifles technical innovation and increases costs for satellitemanufacturers across the board. For up-and-coming developers of spacecomponents, getting over subcontractor incumbency and space heritagerequirements can be frustrating barriers to entry.

New markets and expanded markets have been known to shake things upand we think this presents a distinct opportunity for new entrants. Newcustomers and platforms needing to compete in a more aggressivecommercial environment may look to adopt newer, more cost-effectiveand higher performance technologies at a more rapid pace than currentcustomers. With more opportunities and more avenues of gaining space

heritage (through small satellites, suborbital platforms, upper stages orsecondary payloads), we think this may be the time to get into developingnew, more agile technologies. Particularly interesting will be the providersof cross-platform components, such as radiation-hardened electronics,solar panels, robotic mechanisms, ion propulsion systems or new starsensors or deployable composite reflectors, although the list doesnt stophere.

With remotepresence nowavailableessentiallyanywhere in theworld manyusers will be ableto benefit

platformsneeding tocompete in a moreaggressivecommercialenvironment maylook to adoptnewer, more cost-effective and

higherperformancetechnologies


20/27



The Boeing CompanyNo, we werent lying when we said wed wouldnt be looking at the large,traditional aerospace firms in this article. So why are we talking aboutBoeing here? Well get to that soon. Early in 2010, Boeing and itsdevelopment partner, Bigelow Aerospace, unveiled the CST-100 crewspacecraft, their entrant in the new commercial space race and winner of

NASA CCDev development money. Later in the year, we heard of apartnership between Boeing and Space Adventures, the travel brokeragefirm made famous for sending centi-millionaires to the Space Station, anannouncement which sent commentators wagging about Boeing gettinginto the space passenger business just as it would develop a new airliner.Some inevitable comments were made about luggage lost in space, butlets leave those aside

From our usual perspective, we see Boeing as a giant defense and spacecontractor, through its Defense, Space and Security (DSS) division. Wereit not for the fact that we often travel by air too, we would almost overlook

the side of Boeing most of the rest of the world knows it by, its veryprominent Commercial Airplanes division. This dual nature of Boeingdistills the very distinct dichotomy in the world of aerospace betweenthat of government contractors working on a diversity of unique defensesystems, often on cost-plus contracts, and that of developers ofcommercial aircraft, which serve a worldwide market for air travel andtransport. This is a fact of life in the aerospace business and makes forvery different cultures on either side of the divide.

By all accounts, the CST-100 is a project of the DSS side of Boeing andlikely to remain so for some time, owing to the institutional engineering

expertise available there. But from a sales and marketing point of view, wewonder how much the Defense side of Boeing can learn from theCommercial Airplane side. While itll be a long while before sellingspacecraft is anything like selling aircraft, if ever, the fact remains thatcompetitively offering large aerospace systems to commercial clientsaround the globe is what Boeing Commercial Airplanes does best. Theremay even be sales synergies. A recent leaked cable from the US embassyin Turkey indicated that the Turkish government wanted the USgovernment (through NASA) to send an astronaut into space in exchangefor ordering Boeing aircraft. It doesnt appear that anything like that cameout of the request but with the CST-100, Boeing could offer its own rides

as sales incentives. Wed like to see Airbus try to match that. As long asBoeing avoids the same supply chain and procurement problems thathave dogged the 787 Dreamliner, taking a commercial aircraft approach tospace may be a way to go.

Channel PartnersNew businesses and platforms dont exist in a vacuum. If successful, theycultivate an ecosystem of brokers, agents, value added resellers and other

Some inevitablecomments weremade aboutluggage lost inspace, but letsleave thoseaside

competitivelyoffering largeaerospacesystems tocommercial clientsaround the globe iswhat BoeingCommercialAirplanes doesbest


21/27



components of a mature sales channel. In the satellite industry, this hasmeant the employment of transponder brokers and exchanges andbundling of specialized managed networking and teleporting services asthe needs of users demand. For something like Virgin Galactic, it meansengaging travel agents to include once-in-a-lifetime vacations to beyondthe upper atmosphere as part of their portfolio of destinations. If we are

going to start getting commercial spacecraft with government as an initialanchor tenant and user, it wont be long before someone comes up with away to make good economic use of spare capacity.

While the passenger partnership between Boeing and Space Adventuregot a lot of press, we think there are lots of opportunities on the payloadside. SpaceX is looking for clients of its freeflying DragonLab vehicle andBigelows potential sovereign clients will want to find favorite-son users ofwhatever modules they lease. Businesses can surely be made on theback of providing end-to-end turnkey integration and payloadmanagement services - the kind of things NASA didnt and couldnt offer to

users because of its role as a government agency. A good start would beto make better use of the International Space Station, which is sorelyunderutilized and is yearning for the right operations and the righteconomic incentives to start producing the kinds of results that it is nowuniquely able and positioned to do. One firm, NanoRacks, has alreadyentered this space and already has dedicated rack space on ISS fromwhich it is marketing micro-gravity research services.

UsersCommercial infrastructure and services are nothing without users,customer demand and markets. The space and satellite industries have

long rested on two major pillars of economic demand and usercommunities. One pillar has been telecom and broadcast, which has beenresponsible for much of the commercial satellite industry. The other pillarhas been government, which has provided the demand for a multitude ofactivities, from science and exploration of the universe, tocommunications, surveillance, navigation and intelligence in pursuit ofnational security. A new commercial spaceflight industry, while initiallygovernment-dominated, will eventually need to open into new markets andsectors of the civil economy, much as satellite telecom has largely doneand how satellite imaging is now on its way to accomplishing.

Much has been made of the new travel and leisure side of spaceflight;that is, providing avenues for tourists to experience space travel. Thismarket exists now but we wonder how big this will be in the short term. Onthe other hand, we are intrigued at the opening up of other markets,particularly those that use the unique zero-gravity environment for R&Dinto materials science and biotechnology. No doubt this is still in itsinfancy, but it is enticing to look at the tens of billions of dollars spent inthe R&D budgets of Johnson & Johnson, 3M, Pfizer, Amgen,

If we are going tostart gettingcommercialspacecraft itwont be longbefore someonecomes up with away to make goodeconomic use ofspare capacity.

we are intrigued atthe opening up ofother markets,particularly thosethat use the uniquezero-gravityenvironment forR&D into materialsscience andbiotechnology


22/27



GlaxoSmithKline and many other very large organizations. The spaceagencies of the world have laid the scientific groundwork for much of thisover the decades - now its time for applied researchers to pick up the balland run with it. While our expertise is in telecom and aerospace, and thusdont feel its our perogative to make any analysis of what demand frombiotech and pharma could look like, it would seems to us that the

discovery of significant value through commercial applied micro-gravityresearch could open the floodgates to a whole new user community.Whatever the scale and nature of this demand, assisting and servicing thisuser base may well be a significant ongoing opportunity for commercialproviders able to deliver efficient and useful turnkey operational platforms.If those are successful and economically sustainable, who knows wherewe can go next. We all know theres plenty of room at the top.

By Ian FichtenbaumNear Earth LLC

the discovery ofsignificant valuethroughcommercialapplied micro-gravity researchcould open thefloodgates to awhole new usercommunity


23/27


NEAR EARTH ANALYSIS: MARKET COMPARABLES

Public Market Valuation Analysis of Selected Companies in the NEAR EARTH MEDIA INDEX($ in mil lions, except per share data) Stock Price: Enterprise Value as a Multiple of: Price as a Multiple of:

1/7/11

Market

Value of

Equity

Enterprise

Value (a)

LTM

Sales

LTM

EBITDA

LTM

EBIT

LTM

EPS

Trailing

EPS (b)

Forward

EPS (b)

Satellite Broadcast (DBS and DARS)

BSY.L British Sky Broadcasting (f) 7.47 $20,347.10 $23,160.09 2.5x 5.9x 18.0x 19.3x 29.7x 24.6x

DISH Dish Network Corp 21.14$ $9,366.08 $13,222.36 1.1x 4.2x 6.1x 8.3x 9.9x 8.9x

DTV DirecTV Group Inc. 41.86$ $36,236.11 $44,419.11 1.9x 7.1x 11.9x 20.1x 17.7x 13.6x

SIRI Sirius XM Radio 1.61$ $6,317.38 $9,028.49 3.3x 11.6x 17.7x 23.1x n/m n/mMean 2.2x 7.2x 13.4x 17.7x 19.1x 15.7x

Cable Television

CMCSA Comcast Corporation 22.70$ $63,787.00 $90,439.00 2.4x 6.3x 11.6x 17.7x 18.0x 15.5x

MCCC Mediacom Communications Corp. 8.60$ $585.83 $3,859.48 2.6x 7.1x 12.8x 0.8x 35.8x 10.2x

TWC Time Warner Cable Inc. 66.75$ $23,736.30 $44,230.30 2.4x 6.6x 12.4x 16.6x 18.7x 15.0x

CVC Cablevision Systems Corp 34.64$ $10,394.42 $21,288.13 2.6x 8.1x 13.3x 22.7x 26.4x 17.6x

Mean 2.5x 7.0x 12.5x 14.5x 24.7x 14.6x

Television

TVL LIN TV Corp. 5.10$ $280.25 $912.82 2.3x 5.9x 9.8x 9.6x 8.6x 12.4x

SBGI Sinclair Broadcast Group 7.95$ $638.78 $1,852.24 2.6x 5.6x 8.9x 11.7x 8.4x 8.7x

FSCI Fisher Communications Inc 24.96$ $219.40 $283.88 1.8x 9.0x n/m n/m n/m n/m

Mean 2.2x 6.9x 9.3x n/m n/m 10.6x

Radio

CMLS Cumulus Media Inc. 4.26$ $179.05 $770.03 2.9x 10.0x 11.5x 5.8x n/m n/a

ETM Entercom Communications 11.08$ $411.18 $1,096.50 2.8x 10.5x 11.9x 8.6x 9.6x 8.5x

Mean 2.9x 10.2x 11.7x n/m 9.6x 8.5x

New Media

MSFT Microsoft Corporation 28.30$ $245,304.40 $213,455.40 3.4x 8.0x 8.8x 13.1x 11.6x 10.5x

AAPL Apple Inc. 336.12$ $307,875.84 $256,864.84 3.9x 13.3x 14.0x 22.0x 17.4x 14.9x

YHOO Yahoo! Inc. 16.90$ $22,001.43 $19,353.75 3.0x 14.3x 28.1x 25.1x 19.7x 21.4x

GOOG Google Inc. 616.44$ $196,786.14 $165,528.14 6.0x 14.7x 16.8x 24.8x 21.3x 18.3x

ERTS Electronic Arts Inc. 16.05$ $5,296.50 $3,639.50 1.0x 33.1x n/m n/m 25.1x 19.1x

Mean 3.5x 16.7x 16.9x 21.2x 19.0x 16.8x

Satellite Imagery

GEOY GeoEye 40.60$ $897.67 $983.30 3.1x 5.9x 9.9x 25.1x 21.6x 21.6x

DGI DigitalGlobe Inc. 30.46$ $1,388.06 $1,545.66 5.0x 9.3x 25.9x n/m n/m n/m

Mean 4.0x 7.6x 17.9x 25.1x 21.6x 21.6x

MEDIA SERVICES INDEX

High 6.0x 33.1x 28.1x 25.1x 35.8x 24.6x

Mean 2.7x 9.8x 13.8x 18.3x 17.6x 13.4x

Low 1.0x 4.2x 6.1x 0.8x 8.4x 8.5x

(b) EPS estimates from Thompson First Call. Near Earth does not estimate EPS and does not condone or validate these estimates. n/m Not Meaningful.

(c ) Converted to US $ from Euro at an exchange rate of 1.291 US $ per Euro. n/a Not Available

(d ) Converted to US $ from C$ at an exchange rate of 1.0078 US $ per C$.

(f) Converted to US $ from British Pound at an exchange rate of 1.555 US $ per British Pound.

Member o f NEAR EARTH SATELLITE INDEX


24/27


NEAR EARTH ANALYSIS: MARKET COMPARABLES

Public Market Valuation Analysis of Selected Companies in the NEAR EARTH TELECOM INDEX($ in mil lions, except per share data) Stock Price: Enterprise Value as a Multiple of: Price as a Multiple of:

1/7/11

Market

Value of

Equity

Enterprise

Value (a)

LTM

Sales

LTM

EBITDA

LTM

EBIT

LTM

EPS

Trailing

EPS (b)

Forward

EPS (b)

Fixed Satellite Services (FSS)

ETL.PA Eutelsat Communications ( c) 28.39 $8,066.74 $11,279.47 8.1x 10.6x 17.2x 22.1x 20.1x 18.1x

SESG.PA SES Global S.A. ( c) 18.22 $9,398.98 $14,427.42 6.3x 9.0x 15.0x 16.3x 14.9x 13.9x

Mean 7.2x 9.8x 16.1x 19.2x 17.5x 16.0x

Mobile Satellite Services (MSS)

ISAT.L Inmarsat (f) 6.72 $4,809.61 $6,130.51 5.3x 9.6x 14.7x 25.2x 12.9x 10.7x

IRDM Iridium Communications Inc. 8.25$ $579.56 $474.92 1.4x 5.0x 10.7x 27.1x 27.5x 15.6x

ORBC ORBCOMM Inc. 2.89$ $123.13 $37.30 1.0x 3.9x n/m n/m n/m n/m

GSAT Globalstar Inc. 1.42$ $436.42 $1,004.47 14.9x n/m n/m n/m n/m n/m

Mean 5.7x 6.2x 12.7x 26.1x 20.2x 13.1x

Satellite Ground Segment

CMTL Comtech Telecommunications 27.92$ $772.27 $369.57 0.4x 2.5x 2.8x 10.0x 14.0x 19.3x

GCOM Globecomm Systems Inc. 10.15$ $219.14 $188.16 0.8x 10.3x 17.4x 26.0x 19.2x 15.4x

GILT Gilat Satellite Networks 5.78$ $234.21 $111.72 0.6x 7.7x n/m 6.2x 6.9x n/m

HUGH Hughes Communications, Inc. 41.29$ $901.36 $1,398.18 1.4x 6.9x 17.7x n/m n/m 16.7x

ISYS Integral Systems Inc. 11.41$ $200.47 $230.02 1.3x n/m n/m n/m n/m n/a

VSAT ViaSat Inc. 44.85$ $1,836.16 $2,102.13 2.8x 16.3x n/m n/m 30.5x 30.3x

Mean 1.2x 8.7x 12.6x 14.0x 17.6x 20.4x

Satellite Space Segment

ORB Orbital Sciences 17.80$ $1,032.40 $879.43 0.7x 10.2x 13.8x 29.0x 25.8x 21.2x

CDV.TO COM DEV International (d) 2.45$ $188.05 $187.61 0.8x 10.2x 26.2x 32.9x n/m 11.7xMDA.TO McDonald Det twi ler and Associates (d) 49.65$ $2,049.53 $2,229.42 2.2x 12.0x 14.9x 17.3x 15.2x 13.4x

OHB.DE OHB Technologies (c ) 16.52 $371.10 $362.36 0.7x 8.5x 13.1x 15.1x 21.2x 17.2x

Mean 1.1x 10.2x 17.0x 23.6x 20.7x 15.9x

Towers

AMT American Tower 50.50$ $20,180.31 $24,573.73 13.0x 20.5x 32.0x n/m n/m n/m

CCI Crown Castle 42.60$ $12,393.19 $19,021.27 10.4x 17.6x 33.9x n/m n/m n/m

SBAC SBA Communications 39.66$ $4,546.23 $7,167.95 11.8x 20.4x n/m n/m n/m n/m

Mean 11.8x 19.5x 33.0x n/m n/m n/m

General Telecom

S Sprint Nextel Corporation 4.68$ $13,974.48 $29,606.48 0.9x 5.1x n/m n/m n/m n/m

T AT&T 28.85$ $170,499.46 $236,518.46 1.9x 5.6x 10.5x 8.1x 12.6x 11.5x

VZ Verizon Communications, Inc. 35.93$ $101,566.21 $195,468.21 1.8x 5.4x 10.1x 18.5x 16.0x 15.9x

Mean 1.5x 5.4x 10.3x 13.3x 14.3x 13.7x

TELECOM SERVICES INDEX (excludes Towers stocks)

High 14.9x 16.3x 26.2x 32.9x 30.5x 30.3x

Mean 2.8x 7.7x 14.2x 19.5x 21.5x 17.7xLow 0.4x 2.5x 2.8x 6.2x 6.9x 10.7x

(b) EPS estimates from Thompson First Call. Near Earth does not estimate EPS and does not condone or validate these estimates. n/m Not Meaningful.

(c ) Converted to US $ from Euro at an exchange rate of 1.291 US $ per Euro. n/a Not Available

(d ) Converted to US $ from C$ at an exchange rate of 1.0078 US $ per C$.

(f) Converted to US $ from British Pound at an exchange rate of 1.555 US $ per British Pound.

Member o f NEAR EARTH SATELLITE INDEX


25/27


NEAR EARTH ANALYSIS: M&A TRANSACTIONSSelected Satellite, Telecom, Media & Aerospace Transactions(US$ in millions unless noted)

Transaction Value/

Date

Announced Acquiror Target

Equity

Value (a)

Transaction

Value (b)

LTM

Sales

LTM

EBITDA

Satellite Operators

12/05/06 Abertis Telecom EutelSat (32% share) 1,000.0 1,838.0 7.3x 9.7x

12/18/06 Telesat (new) Telesat/Skynet Combined 3,491.0 3,990.0 7.1x 13.4x

06/19/07 BC Partners Intelsat 5,000.0 16,400.0 7.7x 11.3x

08/02/07 Abertis Telecom Hispasat (28.4% share) 199.0 199.0 5.8x 7.9x

09/23/09 GHL Acquisition Corp Iridium Satellite LLC 500.0 517.3 1.6x 5.6x

10/01/09 ViaSat, Inc WildBlue Coimmunications, Inc. 568.0 500.0 2.4x 6.6xMean 5.3x 9.1x

Ground Equipment & Systems Integrators

05/12/08 Comtech Telecommunications Co Radyne 201.9 223.6 1.5x 16.0x

05/09/09 Rockwell Collins Datapath, Inc. 130.0 130.0 0.5x n/d

03/05/10 Integral Systems CVG-Avtec Systems, Inc. 34.7 34.7 1.0x n/d

06/16/10 Teledyne Technologies, Inc. Intelek plc 28.0 35.0 0.9x 6.0x

10/13/10 Gilat Satellite Networks Wavestream Corporation 130.0 130.0 1.9x 10.6x

11/26/10 Veritas Capital CPI International, Inc. 393.1 545.2 1.5x 14.1x

Mean 0.6x 11.7x

Satellite Managed Network Services

03/19/07 CIP Canada Investment Inc. Stratos Global Corporation 293.3 621.5 1.2x 6.3x

06/01/09 Globecomm Systems Inc. Telaurus Communications LLC 7.6 7.6 0.6x n/d

11/23/09 Inmarsat plc Segovia, Inc. 110.0 110.0 1.6x n/d

03/08/10 Globecomm Systems Inc. Carrier to Carrier Telecom BV 15.0 15.0 0.8x n/d

05/21/10 Harris Corporation CapRock Communications 525.0 525.0 1.5x 9.7x

11/08/10 Harris Corporation Schlumberger GCS 347.5 347.5 2.0x 8.5x

Mean 0.6x 6.1x

Aerospace and Defense05/12/08 Finmeccanica SPA DRS Technologies Inc 3,358.0 4,930.0 1.4x 11.0x

05/13/08 Cobham plc M/A-COM 425.0 425.0 0.9x 6.8x

06/04/08 Cobham plc Sparta Inc 416.0 416.0 1.4x 12.1x

12/16/08 Sierra Nevada Corporation SpaceDev, Inc. 31.7 26.6 0.7x 23.3x

12/23/09 OM Group EaglePicher Technologies LLC 171.9 171.9 1.4x n/d

03/05/10 Orbital Sciences Corp. GD Advanced Information Systems 55.0 55.0 1.1x n/d

06/30/10 The Boeing Company Argon ST, Inc 807.1 765.4 2.5x 31.4x

10/13/10 Veritas Capital Lockheed Martin EIG 815.0 815.0 1.3x n/d

12/08/10 GeoEye, Inc. SPADAC Inc. 46.0 46.0 1.7x n/d

12/20/10 Raytheon Company Applied Signal Technology, Inc. 539.0 505.5 2.2x 17.3x

Mean 1.3x 17.0x

Video Distribution

04/23/07 Motorola Terayon Communication Systems Inc. 139.7 127.2 1.9x n/m

12/07/07 Macrovision Corp Gemstar-TV Guide Intl Inc 2,842.1 2,325.1 3.7x 21.9x

03/12/09 Harmonic Inc. Scopus Video Networks 78.3 47.6 0.8x n/m

10/01/09 Cisco Systems Inc. TANDBERG ASA 3,322.0 3,622.0 4.0x 18.7x

05/06/10 Harmonic Inc. Omneon, Inc. 274.0 274.0 2.6x n/d

Mean 2.6x 20.3x

Towers

03/17/06 Crown Castle Trintel Communications 145.0 145.0 10.1x n/d

03/17/06 SBA Communications Corp AAT Communications Corp 1,002.0 1,002.0 12.0x 17.9x

05/08/06 Crown Castle Mountain Union Telecom LLC 309.0 309.0 11.9x n/d

10/06/06 Crown Castle Global Signal 4,000.0 5,800.0 12.1x 26.6x

07/21/08 SBA Communications Corp Optasite Towers 253.2 428.2 14.8x n/m

Mean 12.2x 22.2x

General Telecom (Wireless)

03/06/06 AT&T (new) Bell South 67,000.0 89,000.0 4.3x 10.7x

08/07/08 Verizon Wireless Rural Cellular Corp 728.0 2,757.0 4.1x 9.7x

01/10/09 Verizon Wireless Alltel Wireless 5,900.0 28,100.0 2.9x 8.3x

12/24/09 Sprint Nextel Corp. Virgin Mobile USA 348.0 509.0 0.4x 4.4x

Mean 2.9x 8.3x

Telematics

11/21/08 EMS Technologies Inc. Satamatics Global Ltd. 30.67 30.67 3.0x 6.9x

12/02/08 Sierra Wireless Inc. Wavecom SA 306.0 271.0 2.3x n/m

07/01/09 Inmarsat plc SkyWave Mobile (19%) 113.2 113.2 2.8x 7.5x

01/22/10 Francisco Partners Cybit 22.85 22.91 1.0x 3.9x

06/29/10 Gemalto NV Cinterion Wireless Modules GmbH 163.0 163.0 1.1x 8.2x

11/08/10 Novatel Wireless, Inc. Enfora Inc. 64.5 64.5 1.1x n/d

Mean 1.9x 6.6x

Radio

07/29/08 Sirius Satellite Radio Inc. XM Satellite Radio Holdings Inc. 2,301.7 3,957.7 3.4x n/m

07/30/08 Bain Capital Clear Channel 17,923.8 23,724.1 3.5x 10.8x

05/29/09 Cox Enterprises, Inc Cox Radio 381.5 704.3 1.8x 6.2x

Mean 2.9x 8.5x

(a) When Equity Value w as not disclosed, Transaction Value was used

( b) Calc ulated as Value of Equity plus inter es t bearing liabilities and pref er red stoc k, les s cas h & equiv alents n/d Not Dis clos ed

n/m Not Meaningful


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ABOUT NEAR EARTH LLC

Near Earth is a specialized Investment Bank which brings the highest quality senior levelattention to companies in the greater commercial satellite/space, telecom, aerospace andtechnology industries.

Near Earth provides a full range of capital raising, advisory and consulting services tocompanies and their Boards. We also provide financial advisory services, valuation, structuring,and due diligence support to private equity, hedge and distressed debt funds. Please contact us

if you would like our assistance with a contemplated satellite, telecom or aerospace investmentor portfolio divestment.

For more information about our current assignments or about Near Earth LLC, please visit ourwebsite at www.nearearthllc.com or contact us at our location below:

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New York, NY 10177Telephone (212) 551-7960


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IMPORTANT DISCLOSURES AND INFORMATION ABOUT THE USE OF THIS DOCUMENT:

Near Earth, LLC ("Near Earth") has published this report solely for informational purposes. Thereport is aimed at institutional investors and investment professionals, and satellite, media andtelecom industry professionals. This report is not to be construed as a recommendation orsolicitation to buy or sell securities. The report was written without regard for the investmentobjectives, financial situation, or particular needs of any specific recipient, and it should not beregarded by recipients as a substitute for the exercise of their own judgment. The contentcontained herein is based on information obtained from sources believed to be reliable, but is

not guaranteed as being accurate, nor is it a complete statement or summary of any of themarkets or developments mentioned.

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Near Earth and/or its directors, officers and employees may have, or have had, interests in thesecurities or other investment opportunities related to the companies or industries discussedherein. Employees and/or directors of Near Earth may serve or have served as officers ordirectors of companies mentioned in the report. Near Earth does, and seeks to do, businesswith companies mentioned in this report. As a result, Near Earth may have conflicts of interestthat could affect the objectivity of this report.

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