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SPECIALISTS IN SATELLITE, TELECOM AND AEROSPACE INVESTMENT BANKING 

FROM THE GROUND UP 
January 2011  Inside this Issue: 
Page 1: The Way We See It… Satellite, Telecom and Aerospace News Guest Article: Future Technology Intersections - an Investment and Leadership Opportunity The Future of FSS is Not Fixed
140 130

Near Earth Indices ‐ Last Twelve Months
Satellite Telecom NASDAQ New Media

Page 2:

120 110 100 90

Page 8:

Page 14: AT&T Goes Shopping Page 16: There’s Plenty of Room at the Top

80

Page 23: Near Earth Analysis: Market Comparables
70

Page 25: Near Earth Analysis: M&A Transactions

Dec‐ Jan‐ Feb‐ Mar‐ Apr‐ May‐ Jun‐ Jul‐ Aug‐ Sep‐ Oct‐ Nov‐ Dec‐ 09 10 10 10 10 10 10 10 10 10 10 10 10

See page 23 and 24 for details on index components

THE WAY WE SEE IT… 
Satellite:
Following its 3 Ka-band high throughput satellite order from Inmarsat in August, The Boeing Company has now won another 3 satellite order (one to be provided by subcontractor Orbital Sciences); this time from the Mexican government. Two of the birds are L-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 major supplier of commercial satellites. Avanti Communication’s HYLAS-1 and Eutelsat’s 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 the Comtech deal, as Veritas Capital bids $19.50 per share, or about $525 million for the microwave components builder. Harris Corporation continues its rollup of the oil and gas communications market, adding to recent pickup CapRock with an acquisition of Schlumberger GCS for $347.5 million. Hot on the heels of their acquisition of Crawford Satellite, the folks at Encompass Media announced plans to acquire the content distribution business of Ascent Media for $113 million – creating a powerhouse in satellite broadcast services.

Telecom:
In early December, Clearwire completed a $1.33 billion debt offering, but continued to face liquidity concerns about the expenses nd for the rollout of its 4G network. Subsequently, Clearwire’s majority owner Sprint let pass a January 2 option to invest an additional $760 million. Amidst all this turbulence, Clearwire Chairman Craig McCaw resigned without citing differences with management. The company was also in the market seeking bids for up to $2 billion of its spectrum holdings, and is laying off 15% of its employees to save cash. Clearwire clearly needs a white knight – but will it be T-Mobile, Sprint, or someone else? And, what will they want in return? Energy industry satcom provider RigNet completed a $60 million IPO at an offering price of $12 which rose nicely 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 up Lockheed Martin’s 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 of groundbreaking success, SpaceX launched their Dragon cargo module on a Falcon 9 and recovered it intact, in a first for a privately held enterprise. With 2 successful launches and the flight success for Dragon, SpaceX has jumped to a clear lead in NASA COTS business, but we suspect Orbital’s significant capabilities and launch experience will guarantee a two horse race. Finally, one of our favorite space vehicles, Boeing’s mysterious X-37B – the miniature unmanned space shuttle, successfully returned to a soft landing after a six month mission. Whatever the nature of the classified mission, it does point to a future of greater on-orbit servicing.

Hoyt Davidson hoyt@nearearthllc.com (212) 551-7960

John Stone john@nearearthllc.com (646) 290-7796

Ian Fichtenbaum ian@nearearthllc.com (646) 290-7794

Rich Pournelle rich@nearearthllc.com (646) 290-7794

Near Earth LLC From The Ground Up

Page 1/27 Volume 7, Issue 1

Please visit Near Earth’s new offices at 250 Park Avenue, 7th 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.

Near Earth LLC From The Ground Up

Page 2/27 Volume 7, Issue 1

Future Technology Intersections - an Investment and Leadership Opportunity
It was sometime early-1995. I’d just seen the first World Wide Web address broadcast on the bottom of the screen at the end of a television commercial. I remember thinking to myself, how foolish, why would anyone want to leave their television set, rush over to their computer, dial into their service provider (at a blistering 33.6Kbps), try to remember what the exact address was (consumer DNS resolution in those days left a lot to be desired) and then use one of the early web browsers to look up more information about the product that had just been advertised? I’d spent my career working in the high-tech networking business. I couldn’t imagine what ‘regular’ people would think when they saw an internet address broadcast on TV. How many of us remember the first cell phone we carried? Was it in a bag with a cigarette lighter power adapter like mine was? Did you opt for the super-high tech and equally expensive ‘brick’ phone route? Any longer-term mariners amongst you? Do you remember the state-ofthe-art in commercial navigation systems in the late 80’s and early 90’s? Loran-C systems with 9’ antennas dominated the commercial boating industry www.navcen.uscg.gov/?pageName=loranMain. Were you an early adopter of commercial marine grade GPS navigation systems? Remember spending $5K-$8K+ for those early units or even more if you opted for the 3’ differential whip antenna that allowed you to increase positional resolution during the days of Selective Availability www.pnt.gov/public/sa/? Beyond marine HF/VHF radios, how exciting was it when we could install an 8’ marine-grade cellular antenna that matched our VHF one, for good symmetry on the radar arch, and make cellular calls when we were away from the dock? What would your reaction have been to the person in 1998 who told you that, within 10 years, you would be able to hold all of the above technologies literally in the palm of your hand, use them globally, pay less than $300 for the equipment and roughly $150/month for the service to make it all possible? Even if you thought the technical confluence was plausible, would you have believed companies could actually make money in the process? Flash forward to 2011. With Moore’s Law continuing to drive the semiconductor industry more than 40 years after Dr. Moore’s prediction, organizations across the technology marketplace are delivering new capabilities and services at record pace. Emerging wireless standards like 4G www.wired.com/gadgetlab/2010/06/wired-explains-4g/ to enable the gigabit-class cellular market, Zigbee www.zigbee.org/Home.aspx to support highly adaptive and autonomous sensor and control networks,
Near Earth LLC From The Ground Up Page 3/27 Volume 7, Issue 1

How many of us remember the first cell phone we carried? Was it in a bag with a cigarette lighter power adapter like mine was?

Even if you thought the technical confluence was plausible, would you have believed companies could actually make money in the process?

Future Technology Intersections (cont.)
Personal Area Networks (PANs) standardized around IEEE 802.15 grouper.ieee.org/groups/802/15/ to support small group and radius ad-hoc wireless networks, all enabled by advancements in low-power Wi-Fi technologies 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, continuing advances in on-board processor and sensor technologies, and more efficient modulation, compression and coding schemes are enabling significantly lower cost and greater efficiency of point-to-point connectivity for next generation mobile applications, significantly enhanced satellite broadband services and the commercial communications on the move marketplaces. Geospatial Services are a prime example of where the combinations of advancements across technology sectors are enabling a brand new market. The preponderance of embedded GPS receivers in automobiles and smart phones for navigation, satellite and aerial imagery for commercial and consumer mapping and geo-location applications, and the emergence of web-based geospatial services underpin this new core market area. Another example is in the Unmanned Aerial Vehicle market where the combination of advances in automation, precision navigation, composite materials, communications, sensors and propulsion are improving the versatility, maintainability, survivability and affordability of UAVs. The result of which is an expanded market opportunity supporting inchoate civil and commercial applications. There is no shortage of new investment opportunity in the Space and technology marketplaces. Companies, organizations and individuals are continuing to advance, amongst many others, the state of the art in each of the aforementioned core market and sub-market areas. In addition to a standard checklist used to evaluate new investment opportunities including: • The extent of the investment and can the business meet the expense? • 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? It’s important to think about where a potential investment technology might intersect with another at some point in the future and either engender an adjacent opportunity or an altogether new market. As Steven L’Heureux
Near Earth LLC From The Ground Up Page 4/27 Volume 7, Issue 1

Geospatial Services are a prime example of where the combinations of advancements across technology sectors are enabling a brand new market

There is no shortage of new investment opportunity in the Space and technology marketplaces.

Future Technology Intersections (cont.)
discusses in his Special Report ‘Accelerating Revenue Growth’ www.slideshare.net/guestc4d058/accelerating-revenue-growthpresentation, market adjacency is all about creating growth by expanding the total addressable market. He goes on to talk about the fact that markets are characterized by a commonality in key attributes such as product needs, customers, cost structure and competitors. Slight variations in one or more of the characteristics create market segments within the same market. Significant differences in some, but not all attributes create separate, but adjacent markets. Many high-tech companies have notably increased revenue by expanding their core markets into adjacencies. Investment methodologies, risk and return analysis surrounding adjacencies are well understood. As organizations enter new or expand their core markets and seek either internal or external investment dollars to drive innovation, are they looking at where the technology may take them in terms of intersections down the road? A good example from above is in the combination of GPS receivers and smart phones to enable personal navigation applications. I don’t think anyone would have even tried to make the case, during development of the GPS constellation or the smart phone handset, that there was a future technology intersection between the two that would result in an application and market that would eventually combine them. Today, however, I think it’s critical that leaders try to anticipate those intersections with every opportunity. Beyond market adjacencies, it’s become commonplace to assume the intersection of technologies will create new business opportunities at some point in the future. It’s easy to take for granted, for example, that we can purchase a new vehicle or replacement audio head unit with integrated voice-controlled GPS navigation, DVD video player, satellite radio, RBDS/RDS traffic receiver, iPod control, auxiliary control interface for USB key media, and integrated Bluetooth mobile phone control. However, when each of the systems was originally developed, did the designers, leadership or investors forecast opportunity from the multiple intersections of those technologies? Are we asking different questions today during our investment discussions in light of the fact that these successful intersections happened? It’s important to develop metrics, or at least placeholders in our business plans, to capture the ‘unknown, unknowns’ in how users adapt, leverage and engage the technology or solution in ways that aren’t necessarily by design. Concurrent with making new, core or adjacent investment decisions, is it possible to anticipate future technology intersections that might maximize returns? Does the business plan look that far ahead? Has the organization considered incorporating that thought process into the research, design, marketing, engineering and fund raising efforts? Does the organization’s leadership have enough perspective about the new possibilities to sustain the vision and execute on the promise?
Page 5/27 Volume 7, Issue 1

As organizations enter new or expand their core markets … are they looking at where the technology may take them in terms of intersections down the road?

…is it possible to anticipate future technology intersections that might maximize returns? Does the business plan look that far ahead?

Near Earth LLC From The Ground Up

Future Technology Intersections (cont.)
To the last point, leadership is critically important. Anticipating future technology intersections, in the context of Geoffrey Moore’s technology adoption lifecycle model en.wikipedia.org/wiki/File:Technology-AdoptionLifecycle.png, demands leadership that is incontrovertibly comfortable leading across the entire lifecycle model, not just during the early and late majority phases when revenue rules the day. ‘Leaders’ that purport understanding innovation and/or the intersection of technologies or don’t take the time to understand the totality of the opportunity engendered are usually the same people that virtually hide while the technology crosses the chasm to the early adopters. They may be great at driving tactical opportunities in proven markets, which, depending on the health of the business, is equally if not more important, but will never be successful creating new business paradigms for technology intersections that capitalize on the progenerate market opportunities. I’m not suggesting abandoning proven business practices or core markets in favor of some nebulous future opportunity. Organizations should positively continue to innovate and drive opportunities in their core and adjacent market ecosystems and realize organic growth as a result. Investors should absolutely continue to use proven evaluation methods for new opportunities. I’m suggesting that organizations and investors consider adding to what they’re already doing in order to institutionalize the notion of capturing future technology intersection opportunities. Thinking about potential technology intersections in the areas highlighted earlier, and focusing on the Space Marketplace, here are some example questions to think about. How will 4G wireless, Zigbee and PANs change with the advent of 5th generation wireless technology? Do any of these technologies potentially apply to the next generation of satellite bus architectures? Are they leveraged as-is? What modifications are required to make them commercially survivable and safe to use in space? As innovation in the satellite market progresses, what happens when terrestrial communication standards are incorporated with Terabit-class satellite buses (internet protocol, wireless)? What do future on board processors look like and can we use terrestrial designs as a baseline? What happens to the video distribution market if content servers are deployed aboard spacecraft? What other applications could be hosted aboard the spacecraft to enable new or enhanced services on the ground? Does it make sense to trade these questions during the R&D phase of future satellite designs? What applications would be required to take advantage of these enhanced capabilities? Do they have to be different than their terrestrial counterparts? What happens to the Geospatial Services market when advancements in on-board spacecraft processing and UAV technologies progress to the
Near Earth LLC From The Ground Up Page 6/27 Volume 7, Issue 1

…institutionalize the notion of capturing future technology intersection opportunities

What other applications could be hosted aboard the spacecraft to enable new or enhanced services on the ground?

Future Technology Intersections (cont.)
point where users can control their own Geo-information? Can we overlay weather services or even user-controlled live weather data as part of this information? What do next generation UAVs look like? Can they incorporate similar advancements from the wireless market to provide enhanced functionality and services? How does the combination of next generation terrestrial wireless infrastructures, spacecraft that also incorporate terrestrial wireless and other terrestrial communications standards potentially impact future fleets of UAVs? What new applications and user communities are served as a result? How does a combination or subset of all the above support the next generation of Commercial Space companies like Virgin Galactic, Bigelow Aerospace, SpaceX, Scaled Composites and others in their quest to extend human presence beyond the boundaries of earth? What does the potential matrix of these opportunities look like? What do the dreamers or visionaries in your organization see as the potential for your technology in the future? Have you asked the question about technology intersections? Are you prepared for the answer? Can you afford not to be?

Have you asked the question about technology intersections? Are you prepared for the answer?

By Rick Sanford SpaceGroundAmalgam, LLC
Rick Sanford is the President of SpaceGroundAmalgam, LLC. He sits on the Board of the International Space 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 to founding SGA, LLC, he was the Chief Operating Officer of Cisco IRIS and the Director, Space and Intelligence for Cisco Systems, Inc. He may be reached via email at rick@spacegroundamalgam.com. SGA, LLC specializes in Global Market Creation, Market Transformation, Strategy Development, Business Development, Marketing and Implementation Planning in the areas of global space communications (government, civil, commercial), next generation command & control, intelligence and mobility.

Near Earth LLC From The Ground Up

Page 7/27 Volume 7, Issue 1

The Future of FSS is not Fixed
There has been no more important engine for growth in the satellite industry than the fixed satellite service (FSS) sector. The recent remarkable resilience of FSS during this global economic downturn has also been well noted: mid to high single digit revenue growth, stable to rising operating cash flow margins and high fill rates. The demand of the FSS operators for new satellites, launch services, ground facilities and customer premise equipment has also kept a broad swath of the satellite industry’s value chain profitably employed. In 2010, over 800 36-MHz transponder equivalents of capacity were added in 22 commercial satellite launches. This launch rate reflects the 21 new satellites ordered in 2008. Capacity additions in 2008 and 2009 were in the same general range of 750-850 36-MHz equivalents. But, note there were 40 new satellites ordered in 2009 that should be launching in the 2011-12 time frame; a significantly higher rate than recent levels. Does this mean boom times are ahead or are we just reaching another temporary peak in FSS capacity growth? Most predictions point to a near term peak in capacity replacement and additions with a gradual decline after 2011-12 in satellite orders and launches that bottoms out in 2018. If true, that will certainly have a material effect on the launch and manufacturing providers, or at least to the extent they are dependent on the commercial versus government market, 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 expansion for FSS and not all bad news. If you are an investor in FSS, you may be looking forward to the higher levels of free cash flow generated from the lower levels of capital expenditures. A period of reduced investment in new capacity could be great for an industry with some balance sheets far more levered than perhaps comfortable in this ever fragile global economy. What appears to be a peaking or maturing FSS industry could just be an industry in transition from one set of primary drivers to another set. But what about top line growth? Clearly, if the industry is looking forward to a period of lower capacity investment it is because its participants believe they will be able to comfortably handle demand growth for several years with markedly lower investment. That suggests expectations of low to moderate revenue growth and an increasing ability to predict near term demand. Does that sound like a fast moving, volatile, high technology industry or a large, profitable and increasingly predictable industry enjoying its mature years? It appears as if the engine of the satellite industry’s growth is approaching a cyclical peak, or even worse, a level of maturity that while financially enviable lacks some of the dynamism we have enjoyed in the past --- or is it? What appears to be a peaking or maturing FSS industry could just be an industry in transition from one set of primary drivers to another set.

Does this mean boom times are ahead or are we just reaching another temporary peak…?

Near Earth LLC From The Ground Up

Page 8/27 Volume 7, Issue 1

The Future of FSS is not Fixed
If the FSS industry as we know it today is peaking/maturing and perhaps evolving to something new, a couple of questions come to mind that we would like to address: 1. Why is traditional FSS peaking/maturing; why should future growth expectations be lower? 2. If you are an FSS operator, how do you position yourself for superior growth in a peaking/maturing and evolving market? Why is traditional FSS maturing First, 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. The current life began when video broadcasting and video contribution became the new demand drivers, quickly outpacing the secular decline in the trunking business. Today’s FSS market is driven by several applications, each with its own level of maturity and growth expectations. Here is a summary 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 trunking business. In the near term, cellular backhaul and Internet should continue to grow, but fiber, wireless and even non-FSS satellite solutions, such as contemplated by O3B, may eventually eat into much 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 and wireless penetration has been offset by rising average demand per user with richness of Internet media and applications. o New – Increasing deployments in developing economies, as Internet connectivity is no longer a luxury, but a necessity, has driven above average growth. Government growth has also been a major recent phenomenon and looks robust for the foreseeable future as there is less threat of terrestrial competition for Commson-the-Move applications and support of high bandwidth UAV and aerial applications. There is also the more recent emergence of direct to home Internet connectivity via satellite, especially with the high throughput satellites employing spot beams and Ka-band. Bandwidth requirements for this application could be one of the major drivers going forward. Video contribution (flat growth)
Page 9/27 Volume 7, Issue 1

…cellular backhaul and Internet should continue to grow, but fiber, wireless and even non-FSS satellite solutions… may eventually eat into much of this demand

Internet connectivity is no longer a luxury, but a necessity

Near Earth LLC From The Ground Up

The Future of FSS is not Fixed (cont.)
o Old/New - Growth has been relatively flat for several years with fiber transport cutting into any gains from video proliferation. Would expect declines in future years. • … the consumer market will support only so many economically viable channels and DTH operators Broadcasting (5-10% growth) o Old - Worldwide, roughly 27,000 channels are currently broadcast by satellite. These are standard definition channels and some analog holdovers. This number is up approximately 3,000 channels from a year ago. There are also approximately 120 direct-to-home (DTH) service operators, with 10 new DTH operators added last year. However, both channel growth and growth in DTH operators appear to be leveling off and would be expected to as the consumer market will support only so many economically viable channels and DTH operators. We believe ARPU growth is unlikely to support significant additional channel growth. For a back of the envelope demonstration consider a world with a billion households capable of paying $50 per month for video with half of that value going to the content providers. For 30,000 channels that works out to an average of $10 million of revenue per channel. Now, there are certainly many channels produced for less than $10 million per year, but as there is something like an 80/20 rule in effect in most media businesses (20% of the media getting 80% of the revenue) the major channels are probably taking the lion’s share of the revenue. The amount left to produce the long tail (the lower earning 80%) is far less than $10 million per channel. For the number of channels to double from here, ARPU in real terms would probably also have to double. Unlikely, and even if ARPU did double in real terms, much of the increase would go to supporting new services such as wireless or satellite Internet connectivity or the switch of some channels to higher definition or 3D formats. It should also be noted that this channel growth has not necessary driven demand for a like amount of transponder capacity as more efficient wave forms, modulation and compression technologies are allowing more bits to be squeezed into the same amount of spectrum. The number of transponders needed to handle broadcasting of standard definition video channels may be peaking as bandwidth efficiency upgrades have kept pace with channel growth. o New – But have no fear, high definition (HD) is here. Excluding the HD channels broadcast by DISH and DIRECTV, there are currently roughly 440 HD channels broadcast in North America and another 560 outside of North America. At 3x the bandwidth requirement for HD versus standard definition (SD) that represents a lot of potential incremental transponder demand. The key question is how many of the 27,000 SD channels will be converted to HD and over what time period. It is beyond our scope of expertise to opine on that answer other than to say, clearly the HD phenomenon has not played out yet, is well liked by consumers in a world of large flat screen TVs
Page 10/27 Volume 7, Issue 1

… But have no fear, high definition (HD) is here…

Near Earth LLC From The Ground Up

The Future of FSS is not Fixed
and is likely to be a major driver of transponder capacity for many years. However, at its current rate of adoption, growth has only been sufficient to enable single digit top line sales growth. There has been some hope that 3D video channels, which require 6x the bandwidth 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 came across a 3D demo at Costco over the Holiday period. It was set up on a huge screen with specially chosen content to highlight the 3D effects. All three took the glasses off within a few seconds saying it was nothing special and not worth wearing glasses to get. Granted it is hard to impress technophile U.S. children these days, but that was not a ringing endorsement. How should an FSS operator position itself for superior growth This is not the first time the FSS industry has appeared to peak and certainly not the first industry to reach a higher level of maturity. Such situations may mean the traditional market pie may not be growing as rapidly, but it does not at all mean clever companies are out of growth opportunities. There will be many avenues for growth, but each involves the FSS operator taking on a new set of risks. Here is our summary of the key options they face and some Near Earth commentary. • Growth through acquisition. Growth by acquisition is nothing new for most of the major FSS operators and there are a few juicy targets out there already, notably Telesat. However, with the top three operators already controlling such a large share of the market there could be some resistance to combinations of large operators. Even with ongoing consolidation, the total number of operators remains high as most nations dream of becoming “spacefaring” and having their own national satellite provider. These fleets of one to three satellites are very inefficient, but in many cases protected politically from consolidation and other economic realities - that is until times get tough or expensive satellites need to be replaced. The Asian market has been particularly fragmented and overdue for consolidation, however, the practical constraints 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 through a 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 risk investment. The same can also be said for the Africa/Middle East market. In short, while acquisitions are always an avenue for growth, there is little to suggest there will be heightened activity other than perhaps the emergence of one or two moderate consolidators in developing regions.

… There has been some hope that 3D video channels, which require 6x the bandwidth of SD, would provide the higher growth levels

… The Asian market has been particularly fragmented … however, the practical constraints on achieving a major roll-up in this region are considerable

Near Earth LLC From The Ground Up

Page 11/27 Volume 7, Issue 1

The Future of FSS is not Fixed (cont.)
• Growth through vertical integration. To some extent, this has been tried before, but with little sustainable success outside of government services. Operators have become efficient wholesalers and B2B service providers, but can lose their way when striving to get closer to end users, especially all the way down to consumers. Most operators realize this and have avoided any direct retail or B2C type activities. Interestingly, EchoStar is an example of the reverse: a B2C direct broadcast satellite company looking to become an FSS operator. Performance to date, suggests the reverse path has been just as hard and challenging. Part of the problem is the difference in mindset required for success in these two different types of business, as well as issues of incumbency, but there may also be strong resistance from the shareholder base. If you own an FSS stock and like 80% EBITDA margins, you may be quite shocked to learn management decreased that margin to 60% while chasing higher revenue growth. For all of the above reasons, we do not believe vertical integration is likely to be a major source of growth for the FSS operators. Growth through geographic market expansion. If you are a small operator, there is of course enormous theoretical room to expand your geographic coverage, other than the fact that most good C and Kuband slots have been developed. On the other hand, there are quite a few interesting Ka-band slots that could be developed and growing acceptance of this new band as evidenced by Inmarsat-5 and other such announcements. These Ka-band slots will be increasingly interesting to the larger operators as well. In many cases, however, it is becoming increasingly hard to get good orbital slots without strong political support from the countries and major customers within the footprint. The risks of developing some of these new slots and spectrum may be too high for many investors unless there are export credit agency loan supports or special joint venture relationships with in-country partners. We are already seeing such joint ventures as with New Dawn between Intelsat and an African investor group led by Convergence Partners. We do expect to see more such joint ventures in the future, as both sides gain and overall development risk and cost is reduced. Growth through provision of new services. As we discussed above, the FSS industry may be transitioning away from a video driven business and toward a business driven more by the need for Internet connectivity and the backhaul of cellular and data traffic. Purists will argue the superiority of a geosynchronous satellite’s point to multipoint broadcasting can never be topped by terrestrial alternatives. We would agree, but that does not alter the fact that the broadcasting of video may be peaking for the simple reason that linear broadcasting applications are peaking in this new world of time-shifted, deviceflexible, video on demand, IPTV, user generated, short form video
Page 12/27 Volume 7, Issue 1

… Operators have become efficient wholesalers and B2B service providers, but can lose their way when striving to get closer to end users

… it is becoming increasingly hard to get good orbital slots without strong political support

Near Earth LLC From The Ground Up

The Future of FSS is not Fixed (cont.)
content. What isn’t peaking is Internet and cellular traffic (other than because of infrastructure bottlenecks) and even if the satellite industry only gets a small slice of the total pie, it will make for one everlasting gobstopper (to borrow from Willy Wonka). This is what we see as the major 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, but companies such as ViaSat, Hughes, O3B and Avanti may also rise in global importance. For a “maturing” industry, it may be one hell of a ride to a new higher plateau.
By Hoyt Davidson Near Earth LLC

Near Earth LLC From The Ground Up

Page 13/27 Volume 7, Issue 1

AT&T Goes Shopping

First and foremost, what does AT&T have in mind for this new toy of theirs?

On December 20th, AT&T did a little Holiday shopping, picking up a nice chunk of “beachfront property” of lower 700 MHz spectrum from the folks at Qualcomm. Until now, Qualcomm has been using the spectrum for its MediaFLO 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 of unpaired spectrum licenses covering the U.S., and an extra 6 MHz in 12 metropolitan markets totaling an additional 70 million people – a total of 2.2 billion MHz-POPs of spectrum. With a deal of this size, there are bound to be conclusions to be had and consequences to anticipate – what might they be? First and foremost, what does AT&T have in mind for this new toy of theirs? Fortunately, in this case we really don’t have to do a lot of guesswork, since they were nice enough to tell us. As stated in their release, AT&T intends to use this spectrum for “supplemental downlink” capacity using carrier aggregation technology. Translated to English, this means simply that the spectrum in question will principally be used for streaming audio and video content – a use quite similar to the mediaFLO application, but with a critical difference: the transmissions will be unicast and not broadcast. Which leads us to the second important conclusion:

Broadcast video to handsets is dead. Stick a fork in it.

Broadcast video to handsets is dead. Stick a fork in it. With apologies to Month Python, it’s not pining for the fjords, it’s an ex-business model. Despite the backing of names like Verizon, AT&T, Qualcomm and even the vaunted ESPN, mobile TV in the U.S. has failed again, joining its brethren in Japan, Korea and casting severe doubts about the future of Sirius’ Backseat TV service and the yet to roll out ICO MIMS and Solaris mobile video services. As demonstrated by AT&T, the resources for providing mobile broadcast video simply have higher and greater uses – giving people customized video when they want it. The implications for fixed video providers like the cable and satellite MSOs are obvious – go unicast (i.e. video on demand) or be a dinosaur. And the mammals are taking over. The third implication takes a little math. While Qualcomm crowed in its announcement about the sale that it was getting a nice profit by selling spectrum 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 a significant retreat in prices from the FCC’s 2008 700 MHz auction. In that auction, a de facto national spectrum license went to Verizon Wireless for $1.10 per MHz-POP, but AT&T’s purchase only comes to $0.87 per MHzPOP, a 21% discount. Some of this discount probably reflects the unpaired nature of the spectrum, which makes it less suited for LTE (which requires carrier aggregation technology), but we think a significant

Near Earth LLC From The Ground Up

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AT&T Goes Shopping (cont.)
portion of the discount reflects an actual decline in valuations since March 2008. While many have continued to argue that spectrum valuations can only go up, here we have a real transaction comp that argues otherwise. Much of the basis for our position is that while demand for spectrum is indeed exploding (thank you Apple!), there is substantial supply overhang and the ability to pay for more spectrum is not boundless given the consumer resistance 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 • Terrestar’s and DBSD’s ATC holdings of 6 billion MHz-POPs each Now, we’re the first to acknowledge that these various flavors of spectrum have varying utility due to their associated regulatory constraints, but in the aggregate that’s a lot of spectrum (40 – 60 billion MHz-POPs). And the white space bands offer potentially even more. in the aggregate that’s a lot of spectrum… On the ability to pay issue, we note that the source of funds for spectrum purchases is the carriers themselves – who also have to fund maintenance capex, expansion capex and ultimately, dividends and interest for their security holders. While there has been marked improvement of late, the fact remains that the enterprise values of every substantial wireless carrier are below their values in March 2008. So, given this landscape, we find the discount AT&T received to be pretty reasonable – proving once again that trees do not grow to the sky.

while demand for spectrum is indeed exploding … there is substantial supply overhang and the ability to pay for more spectrum is not boundless …

By John Stone Near Earth LLC

Near Earth LLC From The Ground Up

Page 15/27 Volume 7, Issue 1

There’s Plenty of Room at the Top

…many commercial entities vying to participate in this market are also very established, large companies

Surely and steadily, commercial space activities have crept further along in both their development and their public prominence. Every few weeks brings a new headline to the news about a new accomplishment by Virgin Galactic or SpaceX or any of the many other ventures planning to do things no commercial company has done before. These are exciting times and it is equally exciting to have a front row seat for these developments and be able to see things as they get started. 2010 has been a great year and 2011 promises to hold more progress to come. For casual viewers, this narrative has been that of startups and entrepreneurs stepping up to offer services that have long been the exclusive domain of government. This is not entirely accurate, as many commercial entities vying to participate in this market are also very established, large companies that are now offering services that are more in keeping with the newer, fixed-price commercial procurement practices that NASA is seeking to adopt. However, there is another, more subtle, misconception about this new industry. At first glance, the ecosystem appears divided between aerospace firms providing systems and engineering services (e.g. Boeing, Lockheed Martin, Raytheon and so forth); and operators which seek to provide commercial services on platforms which they intend to develop (e.g. SpaceX, Orbital, Virgin Galactic and others). This duality entirely ignores many players, like satellite operators or payload integrators, which don’t fit into either category, but which we think will also play a large role in the evolution of this industry.

a larger picture of the kind of activities we will start seeing in the next few years as many new space companies enter commercial operation…

We would like to highlight some of these companies to give a larger picture of the kind of activities we will start seeing in the next few years as many new space companies enter commercial operation. This list certainly isn’t and isn’t meant to be comprehensive and we are probably leaving out many others of importance, but we think it’s a good start. United Launch Alliance When the United Launch Alliance was formed, it produced many howls from industry observers. After all, its formation represented the merger of the principal launch businesses of both Boeing (with Delta IV) and Lockheed Martin (with Atlas V), both of whom loom very large on the US aerospace stage. Although it eliminated competition, it was likely necessary due to the dropoff in launch demand in the first half of the 2000s. It was also just as well for operators, since the two launchers have not been particularly competitive on price, but not so good for US taxpayers, who are mostly captive to the ULA for their government launches, for exactly the same reasons.

Near Earth LLC From The Ground Up

Page 16/27 Volume 7, Issue 1

There’s Plenty of Room at the Top (cont.)
Change is arriving at ULA. It couldn’t hurt that space module mogul Robert Bigelow came to visit their facilities in Decatur, Alabama to talk about his plans for 24 launches per year. Nice if that happens, but we wouldn’t expect ULA to be counting on that just yet. A little better and slightly nearer are NASA’s plans to support commercial crew transport. With SpaceX having not enough launches of the Falcon 9 under their belt to alleviate reliability concerns, the ULA is filling the breech and NASA CCDev-2 participants are taking notice by including ULA rockets in almost all their proposals. And speaking of SpaceX – a little domestic competition is keeping ULA on its toes. In a recent Space News, one article reported that ULA was cutting costs and reviewing processes in pursuit of lower launch prices. We like where this is headed. It gets taxpayers a better deal while bringing sorely-needed competition and launch price pressure. In the meanwhile, demand from traditional defense customers and science missions is picking up, leaving ULA rather busy. The true test of ULA will come when competition for Delta/Atlas class DoD launches is opened up to other U.S. launch service providers such as SpaceX and Orbital. Space Systems / Loral From a distance, Space Systems / Loral looks a lot like a typical aerospace company. In reality, it is a most rare and possibly unique beast in the space ecosystem – a prime contractor with a customer base almost exclusively commercial. Actually, we can take that even one step further, as many of SS/L’s customers are themselves almost exclusively consumer oriented, such as those for DirecTV and Sirius XM, delinking themselves from the year-to-year swings in government spending. Having over sixty of its spacecraft on orbit, with more joining every year, certainly makes them a premier example of a commercial space company and one just as different from the traditional large aerospace companies as emerging NewSpace-type ventures are. So far, SS/L has been below the radar in its support of commercial space outside of its core telecom satellite manufacturing business. However, we find the few steps it’s taken outside of that business most intriguing. Early in 2010, SS/L was awarded a contract by NASA Ames to develop the propulsion system for LADEE, a lunar science mission. This followed SS/L’s provision of a Ka-band antenna for NASA’s Solar Dynamics Observatory, leveraging the commonalities between commercial telecom satellite systems and other types of spacecraft. We hope this work will continue and although we think that all satellite manufacturers (including Boeing, Lockheed, Orbital and the European manufacturers) will have a role to play, we think that the combination of SS/L’s technical heritage, experience and prowess and its unique commercial orientation could be a powerful asset in the years to come.

The true test of ULA will come when competition for Delta/Atlas class DoD launches is opened up to other U.S. launch service providers

…leveraging the commonalities between commercial telecom satellite systems and other types of spacecraft

Near Earth LLC From The Ground Up

Page 17/27 Volume 7, Issue 1

There’s Plenty of Room at the Top (cont.)
The Satellite Operators Being frequent attendees of both space and satellite conferences, we are sometimes taken aback by how separate their worlds often are. On closer consideration, this shouldn’t be too surprising. The satellite industry is focused on telecom and broadcast markets while space is focused on aerospace systems and services; two different industries which happen to connect in some key areas. But just because the operators are focused on telecom markets, doesn’t mean they can’t play a role in other areas. For instance, we’ve covered the hosted payload phenomenon here before (See article in August 2009’s newsletter “Bumming a Ride to Orbit”). It’s gotten a lot of attention by Intelsat, SES, Iridium and others and will certainly continue to play a role in their business plans. Their satellites are convenient platforms for technology demonstration, earth observation and space situational awareness. Civil space agencies and commercial entities just can’t 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 provided by robotic vehicles while benefiting from the renewed focus on debris removal and mitigation. Operators will also be a source of institutional knowledge, providing expertise on operations and procurement of commercial spacecraft. Finally, operators will continue to push the limits of the capabilities of their spacecraft, demanding greater power, more bandwidth, greater frequency agility, even pushing the limits of satellite propulsion systems and other bus components. Although pursued by satellite operators for the benefit of their customers, these improvements will benefit all. Ground systems are just the type of business that yearns for a provider of shared services… Universal Space Network and Telesat When the space age was getting started, everything had to be built from scratch. Not only did this include building the satellite itself, but often very costly ground systems to monitor, track and control the satellite wherever it was in the sky. In many cases, these systems are a large portion of the costs. But it doesn’t really make economic sense for each operator to have dedicated ground systems. Ground systems are just the type of business that yearns for a provider of shared services. Although a number of satellite operators and aerospace firms offer outsourced 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 endto-end satellite control, monitoring and operations services to a wide variety of both large and small clients. USN and SSC operates a worldwide network of ground stations, already providing services for a wide variety of civil, commercial and defense satellites. Telesat leverages its existing network used for its own satellites to take care of others’, and it does it very well. Even the largest of operators, like Echostar and DirecTV
Near Earth LLC From The Ground Up Page 18/27 Volume 7, Issue 1

Operators may also be eventual adopters and beneficiaries of inorbit services, such as refueling, refurbishing and relocation services

There’s Plenty of Room at the Top (cont.)
use outsourced services nowadays and it is in no small measure due to the technical competency and range of services these companies offer. Except in the case of unique constellations or systems, or in the case of sensitive 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 little more than that of a home computer, many users will be able to benefit from the economies of scale and reduced capital expenditure. In a new commercial space market, this area should see lots of growth. Although there are other participants in this area (such as SES, SED Calian) and room for new entrants, we think these two are positioned particularly well. Component builders Travel down the long list of components and subsystems that go into most communications satellites and you’ll usually find for each item one or two major, 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 is a very significant producer of reaction wheels, Aerojet and AMPAC ISP dominates propulsion systems while Harris Corporation essentially owns the market for very large mesh antennas. A list like this can go on and on. Our point isn’t to highlight these vendors or their products in any way that is bad or good (although we are certain they all make excellent products), only to highlight that relatively small markets for highly complex items naturally result in vendor concentration with high barriers to entry. While this is good for those companies that have positioned themselves and their wares in these privileged positions, we can’t help wondering the extent this stifles technical innovation and increases costs for satellite manufacturers across the board. For up-and-coming developers of space components, getting over subcontractor incumbency and space heritage requirements can be frustrating barriers to entry. New markets and expanded markets have been known to shake things up and we think this presents a distinct opportunity for new entrants. New customers and platforms needing to compete in a more aggressive commercial environment may look to adopt newer, more cost-effective and higher performance technologies at a more rapid pace than current customers. With more opportunities and more avenues of gaining space heritage (through small satellites, suborbital platforms, upper stages or secondary payloads), we think this may be the time to get into developing new, more agile technologies. Particularly interesting will be the providers of cross-platform components, such as radiation-hardened electronics, solar panels, robotic mechanisms, ion propulsion systems or new star sensors or deployable composite reflectors, although the list doesn’t stop here.

With remote presence now available essentially anywhere in the world … many users will be able to benefit

…platforms needing to compete in a more aggressive commercial environment may look to adopt newer, more costeffective and higher performance technologies

Near Earth LLC From The Ground Up

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There’s Plenty of Room at the Top (cont.)
The Boeing Company No, we weren’t lying when we said we’d wouldn’t be looking at the large, traditional aerospace firms in this article. So why are we talking about Boeing here? We’ll get to that soon. Early in 2010, Boeing and its development partner, Bigelow Aerospace, unveiled the CST-100 crew spacecraft, their entrant in the new commercial space race and winner of NASA CCDev development money. Later in the year, we heard of a partnership between Boeing and Space Adventures, the travel brokerage firm made famous for sending centi-millionaires to the Space Station, an announcement which sent commentators wagging about Boeing getting into the space passenger business just as it would develop a new airliner. Some inevitable comments were made about luggage lost in space, but let’s leave those aside… From our usual perspective, we see Boeing as a giant defense and space contractor, through its Defense, Space and Security (DSS) division. Were it 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 very prominent Commercial Airplanes division. This dual nature of Boeing distills the very distinct dichotomy in the world of aerospace – between that of government contractors working on a diversity of unique defense systems, often on cost-plus contracts, and that of developers of commercial aircraft, which serve a worldwide market for air travel and transport. This is a fact of life in the aerospace business and makes for very different cultures on either side of the divide. By all accounts, the CST-100 is a project of the DSS side of Boeing and likely to remain so for some time, owing to the institutional engineering expertise available there. But from a sales and marketing point of view, we wonder how much the Defense side of Boeing can learn from the Commercial Airplane side. While it’ll be a long while before selling spacecraft is anything like selling aircraft, if ever, the fact remains that competitively offering large aerospace systems to commercial clients around the globe is what Boeing Commercial Airplanes does best. There may even be sales synergies. A recent leaked cable from the US embassy in Turkey indicated that the Turkish government wanted the US government (through NASA) to send an astronaut into space in exchange for ordering Boeing aircraft. It doesn’t appear that anything like that came out of the request but with the CST-100, Boeing could offer its own rides as sales incentives. We’d like to see Airbus try to match that. As long as Boeing avoids the same supply chain and procurement problems that have dogged the 787 Dreamliner, taking a commercial aircraft approach to space may be a way to go. Channel Partners New businesses and platforms don’t exist in a vacuum. If successful, they cultivate an ecosystem of brokers, agents, value added resellers and other
Near Earth LLC From The Ground Up Page 20/27 Volume 7, Issue 1

Some inevitable comments were made about luggage lost in space, but let’s leave those aside…

…competitively offering large aerospace systems to commercial clients around the globe is what Boeing Commercial Airplanes does best

There’s Plenty of Room at the Top (cont.)
components of a mature sales channel. In the satellite industry, this has meant the employment of transponder brokers and exchanges and bundling of specialized managed networking and teleporting services as the needs of users demand. For something like Virgin Galactic, it means engaging travel agents to include once-in-a-lifetime vacations to beyond the upper atmosphere as part of their portfolio of destinations. If we are going to start getting commercial spacecraft with government as an initial anchor tenant and user, it won’t be long before someone comes up with a way to make good economic use of spare capacity. While the passenger partnership between Boeing and Space Adventure got a lot of press, we think there are lots of opportunities on the payload side. SpaceX is looking for clients of its freeflying DragonLab vehicle and Bigelow’s potential sovereign clients will want to find favorite-son users of whatever modules they lease. Businesses can surely be made on the back of providing end-to-end turnkey integration and payload management services - the kind of things NASA didn’t and couldn’t offer to users because of its role as a government agency. A good start would be to make better use of the International Space Station, which is sorely underutilized and is yearning for the right operations and the right economic incentives to start producing the kinds of results that it is now uniquely able and positioned to do. One firm, NanoRacks, has already entered this space and already has dedicated rack space on ISS from which it is marketing micro-gravity research services. Users Commercial 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 user communities. One pillar has been telecom and broadcast, which has been responsible for much of the commercial satellite industry. The other pillar has been government, which has provided the demand for a multitude of activities, from science and exploration of the universe, to communications, surveillance, navigation and intelligence in pursuit of national security. A new commercial spaceflight industry, while initially government-dominated, will eventually need to open into new markets and sectors of the civil economy, much as satellite telecom has largely done and 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. This market exists now but we wonder how big this will be in the short term. On the other hand, we are intrigued at the opening up of other markets, particularly those that use the unique zero-gravity environment for R&D into materials science and biotechnology. No doubt this is still in its infancy, but it is enticing to look at the tens of billions of dollars spent in the R&D budgets of Johnson & Johnson, 3M, Pfizer, Amgen,
Page 21/27 Volume 7, Issue 1

If we are going to start getting commercial spacecraft … it won’t be long before someone comes up with a way to make good economic use of spare capacity.

we are intrigued at the opening up of other markets, particularly those that use the unique zero-gravity environment for R&D into materials science and biotechnology…

Near Earth LLC From The Ground Up

There’s Plenty of Room at the Top (cont.)
the discovery of significant value through commercial applied microgravity research could open the floodgates to a whole new user community … GlaxoSmithKline and many other very large organizations. The space agencies of the world have laid the scientific groundwork for much of this over the decades - now it’s time for applied researchers to pick up the ball and run with it. While our expertise is in telecom and aerospace, and thus don’t feel it’s our perogative to make any analysis of what demand from biotech and pharma could look like, it would seems to us that the discovery of significant value through commercial applied micro-gravity research could open the floodgates to a whole new user community. Whatever the scale and nature of this demand, assisting and servicing this user base may well be a significant ongoing opportunity for commercial providers able to deliver efficient and useful turnkey operational platforms. If those are successful and economically sustainable, who knows where we can go next. We all know there’s plenty of room at the top.

By Ian Fichtenbaum Near Earth LLC

Near Earth LLC From The Ground Up

Page 22/27 Volume 7, Issue 1

NEAR EARTH ANALYSIS: MARKET COMPARABLES
Public Market Valuation Analysis of Selected Companies in the NEAR EARTH MEDIA INDEX
($ in millions, except per share data) Stock Price: Market Value of Equity Enterprise Value (a) Enterprise Value as a Multiple of: LTM Sales LTM EBITDA LTM EBIT Price as a Multiple of: LTM EPS Trailing EPS (b) Forward EPS (b)

1/7/11 Satellite Broadcast (DBS and DARS) British Sky Broadcasting (f) Dish Network Corp DirecTV Group Inc. Sirius XM Radio

BSY.L DISH DTV SIRI

£ $ $ $

7.47 21.14 41.86 1.61

$20,347.10 $9,366.08 $36,236.11 $6,317.38

$23,160.09 $13,222.36 $44,419.11 $9,028.49 Mean

2.5x 1.1x 1.9x 3.3x 2.2x

5.9x 4.2x 7.1x 11.6x 7.2x

18.0x 6.1x 11.9x 17.7x 13.4x

19.3x 8.3x 20.1x 23.1x 17.7x

29.7x 9.9x 17.7x n/m 19.1x

24.6x 8.9x 13.6x n/m 15.7x

CMCSA MCCC TWC CVC

Cable Television Comcast Corporation Mediacom Communications Corp. Time Warner Cable Inc. Cablevision Systems Corp

$ $ $ $

22.70 8.60 66.75 34.64

$63,787.00 $585.83 $23,736.30 $10,394.42

$90,439.00 $3,859.48 $44,230.30 $21,288.13 Mean

2.4x 2.6x 2.4x 2.6x 2.5x

6.3x 7.1x 6.6x 8.1x 7.0x

11.6x 12.8x 12.4x 13.3x 12.5x

17.7x 0.8x 16.6x 22.7x 14.5x

18.0x 35.8x 18.7x 26.4x 24.7x

15.5x 10.2x 15.0x 17.6x 14.6x

TVL SBGI FSCI

Television LIN TV Corp. Sinclair Broadcast Group Fisher Communications Inc

$ $ $

5.10 7.95 24.96

$280.25 $638.78 $219.40

$912.82 $1,852.24 $283.88 Mean

2.3x 2.6x 1.8x 2.2x

5.9x 5.6x 9.0x 6.9x

9.8x 8.9x n/m 9.3x

9.6x 11.7x n/m n/m

8.6x 8.4x n/m n/m

12.4x 8.7x n/m 10.6x

CMLS ETM

Radio Cumulus Media Inc. Entercom Communications

$ $

4.26 11.08

$179.05 $411.18

$770.03 $1,096.50 Mean

2.9x 2.8x 2.9x

10.0x 10.5x 10.2x

11.5x 11.9x 11.7x

5.8x 8.6x n/m

n/m 9.6x 9.6x

n/a 8.5x 8.5x

MSFT AAPL YHOO GOOG ERTS

New Media Microsoft Corporation Apple Inc. Yahoo! Inc. Google Inc. Electronic Arts Inc.

$ $ $ $ $

28.30 336.12 16.90 616.44 16.05

$245,304.40 $307,875.84 $22,001.43 $196,786.14 $5,296.50

$213,455.40 $256,864.84 $19,353.75 $165,528.14 $3,639.50 Mean

3.4x 3.9x 3.0x 6.0x 1.0x 3.5x

8.0x 13.3x 14.3x 14.7x 33.1x 16.7x

8.8x 14.0x 28.1x 16.8x n/m 16.9x

13.1x 22.0x 25.1x 24.8x n/m 21.2x

11.6x 17.4x 19.7x 21.3x 25.1x 19.0x

10.5x 14.9x 21.4x 18.3x 19.1x 16.8x

GEOY DGI

Satellite Imagery GeoEye DigitalGlobe Inc.

$ $

40.60 30.46

$897.67 $1,388.06

$983.30 $1,545.66 Mean

3.1x 5.0x 4.0x

5.9x 9.3x 7.6x

9.9x 25.9x 17.9x

25.1x n/m 25.1x

21.6x n/m 21.6x

21.6x n/m 21.6x

High Mean Low

MEDIA SERVICES INDEX 6.0x 33.1x 28.1x 2.7x 9.8x 13.8x 1.0x 4.2x 6.1x

25.1x 18.3x 0.8x

35.8x 17.6x 8.4x

24.6x 13.4x 8.5x

(b) EPS estimates from Thompson First Call. Near Earth does not estimate EPS and does not condone or v alidate these estimates. (c ) Conv erted to US $ from Euro at an ex change rate of 1.291 US $ per Euro. (d ) Conv erted to US $ from C$ at an ex change rate of 1.0078 US $ per C$. (f) Conv erted to US $ from British Pound at an ex change rate of 1.555 US $ per British Pound. Member of NEAR EARTH SATELLITE INDEX

n/m Not Meaningful. n/a Not Av ailable

Near Earth LLC From The Ground Up

Page 23/27 Volume 7, Issue 1

NEAR EARTH ANALYSIS: MARKET COMPARABLES
Public Market Valuation Analysis of Selected Companies in the NEAR EARTH TELECOM INDEX
($ in millions, except per share data) Stock Price: Market Value of Equity Enterprise Value (a) Enterprise Value as a Multiple of: LTM Sales LTM EBITDA LTM EBIT Price as a Multiple of: LTM EPS Trailing EPS (b) Forward EPS (b)

1/7/11 Fixed Satellite Services (FSS) ETL.PA Eutelsat Communications ( c) SESG.PA SES Global S.A. ( c)

€ €

28.39 18.22

$8,066.74 $9,398.98

$11,279.47 $14,427.42 Mean

8.1x 6.3x 7.2x

10.6x 9.0x 9.8x

17.2x 15.0x 16.1x

22.1x 16.3x 19.2x

20.1x 14.9x 17.5x

18.1x 13.9x 16.0x

ISAT.L IRDM ORBC GSAT

Mobile Satellite Services (MSS) Inmarsat (f) Iridium Communications Inc. ORBCOMM Inc. Globalstar Inc.

£ $ $ $

6.72 8.25 2.89 1.42

$4,809.61 $579.56 $123.13 $436.42

$6,130.51 $474.92 $37.30 $1,004.47 Mean

5.3x 1.4x 1.0x 14.9x 5.7x

9.6x 5.0x 3.9x n/m 6.2x

14.7x 10.7x n/m n/m 12.7x

25.2x 27.1x n/m n/m 26.1x

12.9x 27.5x n/m n/m 20.2x

10.7x 15.6x n/m n/m 13.1x

CMTL GCOM GILT HUGH ISYS VSAT

Satellite Ground Segment Comtech Telecommunications Globecomm Systems Inc. Gilat Satellite Networks Hughes Communications, Inc. Integral Systems Inc. ViaSat Inc.

$ $ $ $ $ $

27.92 10.15 5.78 41.29 11.41 44.85

$772.27 $219.14 $234.21 $901.36 $200.47 $1,836.16

$369.57 $188.16 $111.72 $1,398.18 $230.02 $2,102.13 Mean

0.4x 0.8x 0.6x 1.4x 1.3x 2.8x 1.2x

2.5x 10.3x 7.7x 6.9x n/m 16.3x 8.7x

2.8x 17.4x n/m 17.7x n/m n/m 12.6x

10.0x 26.0x 6.2x n/m n/m n/m 14.0x

14.0x 19.2x 6.9x n/m n/m 30.5x 17.6x

19.3x 15.4x n/m 16.7x n/a 30.3x 20.4x

ORB CDV.TO MDA.TO OHB.DE

Satellite Space Segment Orbital Sciences COM DEV International (d) McDonald Dettwiler and Associates (d) OHB Technologies (c )

$ $ $ €

17.80 2.45 49.65 16.52

$1,032.40 $188.05 $2,049.53 $371.10

$879.43 $187.61 $2,229.42 $362.36 Mean

0.7x 0.8x 2.2x 0.7x 1.1x

10.2x 10.2x 12.0x 8.5x 10.2x

13.8x 26.2x 14.9x 13.1x 17.0x

29.0x 32.9x 17.3x 15.1x 23.6x

25.8x n/m 15.2x 21.2x 20.7x

21.2x 11.7x 13.4x 17.2x 15.9x

AMT CCI SBAC

Towers American Tower Crown Castle SBA Communications

$ $ $

50.50 42.60 39.66

$20,180.31 $12,393.19 $4,546.23

$24,573.73 $19,021.27 $7,167.95 Mean

13.0x 10.4x 11.8x 11.8x

20.5x 17.6x 20.4x 19.5x

32.0x 33.9x n/m 33.0x

n/m n/m n/m n/m

n/m n/m n/m n/m

n/m n/m n/m n/m

S T VZ

General Telecom Sprint Nextel Corporation AT&T Verizon Communications, Inc.

$ $ $

4.68 28.85 35.93

$13,974.48 $170,499.46 $101,566.21

$29,606.48 $236,518.46 $195,468.21 Mean

0.9x 1.9x 1.8x 1.5x

5.1x 5.6x 5.4x 5.4x

n/m 10.5x 10.1x 10.3x

n/m 8.1x 18.5x 13.3x

n/m 12.6x 16.0x 14.3x

n/m 11.5x 15.9x 13.7x

High Mean Low

TELECOM SERVICES INDEX (excludes Towers stocks) 14.9x 16.3x 26.2x 32.9x 30.5x 2.8x 7.7x 14.2x 19.5x 21.5x 0.4x 2.5x 2.8x 6.2x 6.9x

30.3x 17.7x 10.7x

(b) EPS estimates from Thompson First Call. Near Earth does not estimate EPS and does not condone or v alidate these estimates. (c ) Conv erted to US $ from Euro at an ex change rate of 1.291 US $ per Euro. (d ) Conv erted to US $ from C$ at an ex change rate of 1.0078 US $ per C$. (f) Conv erted to US $ from British Pound at an ex change rate of 1.555 US $ per British Pound. Member of NEAR EARTH SATELLITE INDEX

n/m Not Meaningful. n/a Not Av ailable

Near Earth LLC From The Ground Up

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NEAR EARTH ANALYSIS: M&A TRANSACTIONS
Selected Satellite, Telecom, Media & Aerospace Transactions
(US$ in millions unless noted) Date Announced Acquiror Satellite Operators 12/05/06 Abertis Telecom 12/18/06 Telesat (new) 06/19/07 BC Partners 08/02/07 Abertis Telecom 09/23/09 GHL Acquisition Corp 10/01/09 ViaSat, Inc Equity Value (a) 1,000.0 3,491.0 5,000.0 199.0 500.0 568.0 Transaction Value (b) 1,838.0 3,990.0 16,400.0 199.0 517.3 500.0 Mean 223.6 130.0 34.7 35.0 130.0 545.2 Mean 621.5 7.6 110.0 15.0 525.0 347.5 Mean 4,930.0 425.0 416.0 26.6 171.9 55.0 765.4 815.0 46.0 505.5 Mean 127.2 2,325.1 47.6 3,622.0 274.0 Mean 145.0 1,002.0 309.0 5,800.0 428.2 Mean 89,000.0 2,757.0 28,100.0 509.0 Mean £30.67 271.0 113.2 £22.91 € 163.0 64.5 Mean 3,957.7 23,724.1 704.3 Mean Transaction Value/ LTM LTM Sales EBITDA 7.3x 7.1x 7.7x 5.8x 1.6x 2.4x 5.3x 1.5x 0.5x 1.0x 0.9x 1.9x 1.5x 0.6x 1.2x 0.6x 1.6x 0.8x 1.5x 2.0x 0.6x 1.4x 0.9x 1.4x 0.7x 1.4x 1.1x 2.5x 1.3x 1.7x 2.2x 1.3x 1.9x 3.7x 0.8x 4.0x 2.6x 2.6x 10.1x 12.0x 11.9x 12.1x 14.8x 12.2x 4.3x 4.1x 2.9x 0.4x 2.9x 3.0x 2.3x 2.8x 1.0x 1.1x 1.1x 1.9x 3.4x 3.5x 1.8x 2.9x 9.7x 13.4x 11.3x 7.9x 5.6x 6.6x 9.1x 16.0x n/d n/d 6.0x 10.6x 14.1x 11.7x 6.3x n/d n/d n/d 9.7x 8.5x 6.1x 11.0x 6.8x 12.1x 23.3x n/d n/d 31.4x n/d n/d 17.3x 17.0x n/m 21.9x n/m 18.7x n/d 20.3x n/d 17.9x n/d 26.6x n/m 22.2x 10.7x 9.7x 8.3x 4.4x 8.3x 6.9x n/m 7.5x 3.9x 8.2x n/d 6.6x n/m 10.8x 6.2x 8.5x Target EutelSat (32% share) Telesat/Skynet Combined Intelsat Hispasat (28.4% share) Iridium Satellite LLC WildBlue Coimmunications, Inc.

Ground Equipment & Systems Integrators 05/12/08 Comtech Telecommunications Cor Radyne 05/09/09 Rockwell Collins Datapath, Inc. 03/05/10 Integral Systems CVG-Avtec Systems, Inc. 06/16/10 Teledyne Technologies, Inc. Intelek plc 10/13/10 Gilat Satellite Networks Wavestream Corporation 11/26/10 Veritas Capital CPI International, Inc. Satellite Managed Network Services 03/19/07 CIP Canada Investment Inc. 06/01/09 Globecomm Systems Inc. 11/23/09 Inmarsat plc 03/08/10 Globecomm Systems Inc. 05/21/10 Harris Corporation 11/08/10 Harris Corporation Aerospace and Defense 05/12/08 Finmeccanica SPA 05/13/08 Cobham plc 06/04/08 Cobham plc 12/16/08 Sierra Nevada Corporation 12/23/09 OM Group 03/05/10 Orbital Sciences Corp. 06/30/10 The Boeing Company 10/13/10 Veritas Capital 12/08/10 GeoEye, Inc. 12/20/10 Raytheon Company Video Distribution 04/23/07 Motorola 12/07/07 Macrovision Corp 03/12/09 Harmonic Inc. 10/01/09 Cisco Systems Inc. 05/06/10 Harmonic Inc. Towers 03/17/06 03/17/06 05/08/06 10/06/06 07/21/08 General Telecom 03/06/06 08/07/08 01/10/09 12/24/09 Telematics 11/21/08 12/02/08 07/01/09 01/22/10 06/29/10 11/08/10 Radio 07/29/08 07/30/08 05/29/09

201.9 130.0 34.7 28.0 130.0 393.1

Stratos Global Corporation Telaurus Communications LLC Segovia, Inc. Carrier to Carrier Telecom BV CapRock Communications Schlumberger GCS

293.3 7.6 110.0 15.0 525.0 347.5

DRS Technologies Inc M/A-COM Sparta Inc SpaceDev, Inc. EaglePicher Technologies LLC GD Advanced Information Systems Argon ST, Inc Lockheed Martin EIG SPADAC Inc. Applied Signal Technology, Inc.

3,358.0 425.0 416.0 31.7 171.9 55.0 807.1 815.0 46.0 539.0

Terayon Communication Systems Inc. Gemstar-TV Guide Intl Inc Scopus Video Networks TANDBERG ASA Omneon, Inc.

139.7 2,842.1 78.3 3,322.0 274.0

Crown Castle SBA Communications Corp Crown Castle Crown Castle SBA Communications Corp (Wireless) AT&T (new) Verizon Wireless Verizon Wireless Sprint Nextel Corp.

Trintel Communications AAT Communications Corp Mountain Union Telecom LLC Global Signal Optasite Towers

145.0 1,002.0 309.0 4,000.0 253.2

Bell South Rural Cellular Corp Alltel Wireless Virgin Mobile USA

67,000.0 728.0 5,900.0 348.0

EMS Technologies Inc. Sierra Wireless Inc. Inmarsat plc Francisco Partners Gemalto NV Novatel Wireless, Inc.

Satamatics Global Ltd. Wavecom SA SkyWave Mobile (19%) Cybit Cinterion Wireless Modules GmbH Enfora Inc.

£30.67 306.0 113.2 £22.85 € 163.0 64.5

Sirius Satellite Radio Inc. Bain Capital Cox Enterprises, Inc

XM Satellite Radio Holdings Inc. Clear Channel Cox Radio

2,301.7 17,923.8 381.5

(a) When Equity Value w as not disclosed, Transaction Value w as used (b) Calculated as Value of Equity plus interest bearing liabilities and preferred stock, less cash & equivalents n/d Not Disclosed n/m Not Meaningful

Near Earth LLC From The Ground Up

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ABOUT NEAR EARTH LLC
Near Earth is a specialized Investment Bank which brings the highest quality senior level attention to companies in the greater commercial satellite/space, telecom, aerospace and technology industries. Near Earth provides a full range of capital raising, advisory and consulting services to companies 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 investment or portfolio divestment. For more information about our current assignments or about Near Earth LLC, please visit our website at www.nearearthllc.com or contact us at our location below:

Headquarters 250 Park Avenue, 7th Floor New York, NY 10177 Telephone (212) 551-7960

Near Earth LLC From The Ground Up

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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. The report is aimed at institutional investors and investment professionals, and satellite, media and telecom industry professionals. This report is not to be construed as a recommendation or solicitation to buy or sell securities. The report was written without regard for the investment objectives, financial situation, or particular needs of any specific recipient, and it should not be regarded by recipients as a substitute for the exercise of their own judgment. The content contained 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 the markets or developments mentioned. The authors of this report are employees of Near Earth, LLC, which is a member of FINRA. The opinions expressed in this report accurately reflect the personal views of the authors but do not necessarily reflect the opinions of Near Earth itself or its other officers, directors, or employees. The portions of this report produced by non-Near Earth employees are provided simply as an accommodation to readers. Near Earth is under no obligation to confirm the accuracy of statements written by others and reproduced within this report. Near Earth and/or its directors, officers and employees may have, or have had, interests in the securities or other investment opportunities related to the companies or industries discussed herein. Employees and/or directors of Near Earth may serve or have served as officers or directors of companies mentioned in the report. Near Earth does, and seeks to do, business with companies mentioned in this report. As a result, Near Earth may have conflicts of interest that could affect the objectivity of this report. This report is subject to change without notice and Near Earth assumes no responsibility to update or keep current the information contained herein. Near Earth accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this report. No part of this report may be reproduced or distributed in any manner, via the Internet or otherwise, without the specific written permission of Near Earth. Near Earth accepts no liability whatsoever for the actions of third parties in this respect.

Near Earth LLC From The Ground Up

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