Satellite Venture Attracts Big-Name Investors.

Think of it as AAA in outer space.

AssureSat Inc. of El Segundo is planning to launch two satellites in the coming years that will be stationed in orbit for use as backups if and when one of its clients' communications satellites malfunctions.

AssureSat Chairman Mark Fowler is currently finishing up the third and final round of financing for the company. And while details of the funding were not disclosed, the capital requirements for such an endeavor are massive -- not the kind of venture one launches out of his garage. AssureSat's two satellites will cost roughly $500 million to build and launch.

To make the plan fly, the company has enlisted some deep-pocketed backers, including Securitas Capital, an investment vehicle for Swiss Reinsurance Co. and Credit Suisse Group, which has an equity stake in the company.

"There is in fact very little downside to this kind of investment," said Fowler. "Ninety-five percent of the money goes into building the two satellites, which will serve as collateral. They will only become more valuable once they are parked in orbit."

Some observers, however, are skeptical about the need for an in-orbit back-up service for communications satellites.

"The premise is that we'll continue to have satellite outages, and Urn not so sure that's a reasonable assumption," said Paul Nisbet, president of JSA Research Inc., an institutional research firm specializing in the aerospace industry. "The major satellite manufacturers, such as Hughes Electronics, are improving the reliability of the satellites. and we're seeing a new generation of launch vehicles which will reduce the number of launch failures over the next two years."

For example, DirecTV, which uses five satellites to transmit television programs to its subscribers, has not had one disruption of its services due to satellite problems in the six years that it has been broadcasting, according to company spokesman Bob Marsocci.

Nevertheless, Fowler believes that with 1 percent of the 215 stationary communication satellites in outer space experiencing some kind of failure each year, and with one out of eight launches failing, there won't be a shortage of customers for AssureSat's services.

"That's one important difference between an Internet startup and us," said Fowler. "We don't need to convince investors there's a market out there for our product, because there is clearly a need for the services we offer. Satellite communications have become vital to the operations of almost all Fortune 500 companies, and some of the more advanced satellites may have $1 billion worth of contracts attached to them."

Early sales

Thus far, the company has signed two clients, Long Beach-based Sea Launch, which contracts with companies to put satellites in orbit, and Loral Skynet, a satellite services operator and subsidiary of Loral Space & Communications Inc., which will build AssureSat's two satellites.

The first satellite is set for launch in 2002, with the second one following in 2003. According to Fowler, plans are underway for a third satellite to be launched in 2004.

AssureSat was founded in 1998 and is headed by a coterie of former top executives from the satellite unit of Hughes Electronics Corp. The chief executive is Jerald Farrell, former president and chief executive of Hughes Communications Inc. The chief operating officer is Bruce Lederman, former lead outside counsel for Hughes Communications.

They believe that, as satellites become an ever-more-critical aspect of global communications, operators will want to have readily available backups handy in case their own satellites malfunction.

"When a satellite fails, the operator needs to find another satellite to take over its function, which can be very expensive and time consuming, and they can loose hundreds of millions in contracts in the process, said Fowler.

Envisioned logistics

To prevent an extensive loss of service after a satellite failure, one of AssureSat's satellites can quickly be moved into place, tuned to the proper frequency and put into service until the operator has found a way to reroute the signal.

In addition, AssureSat's satellites can also be called up when a satellite launch goes awry. In such cases, the backup could be moved into the orbit plotted for the client's satellite and services provided until the operator has an alternative in place.

With numerous botched launches in the last few years, including some by Boeing Co., Lockheed Martin Corp. and Sea Launch, satellite operators may indeed welcome the prospect of having an alternative at the ready in case their own satellite doesn't make it into outer space.

Although the hardware itself can be insured, capacity on a satellite is typically sold in advance to corporations and communications companies. Thus, if a satellite operator fails to deliver the contracted services, the company stands to loose hundreds of millions in fees and quite possibly its customer base.

"(AssureSat) has a strong business plan and a very well-respected management team, said Clayton Mowry, executive director of the Satellite Industry Association in Alexandria, Va. "Their's is a fresh approach to what is seen as a major issue facing the satellite communication industry. Historically, telecommunications satellites have been very reliable, but with the Galaxy IV mishap (in 1998), when the paging network went down, there was no good emergency plan in place and people were caught by surprise."

PanAmSat Corp., the company that operated the satellite responsible for the pagers disaster two years ago, is one of the largest satellite operators in the United States. It now has its own spare satellite in orbit as a backup.