Tech-Savvy INTELSAT Takes Marketing 101

The telecommunications pioneer goes back to business basics to survive against lean and mean competitors

P> Most shareholders would be happy with a 16 percent guaranteed return on investment.


But at Washington, D.C.-based INTELSAT, which launches satellites and provides data, voice and video services for companies worldwide, a 16 percent return isn't enough.

Shareholders have ordered a radical transformation of the organization. The engineering and technical skill that built the $800 million, government-backed INTELSAT can't keep up with new competitors. "We need to get our people out of the back rooms and into the front rooms," talking to customers and selling, said INTELSAT spokesman Tony Trujillo. The organization has even hired the first sales and marketing executive in its 32-year history.

The International Telecommunications Satellite Organization operates 24 satellites worldwide. In 1964, government-sponsored cabinets and ministries from 11 nations signed an agreement that launched the INTELSAT treaty group. The U.S. Congress laid the foundation for Communications Satellite Corp. of Bethesda, Md., the U.S. corporate representative.

In the last 30 years, INTELSAT's membership has ballooned to 136, but many of those signatories have lost their monopolies. Just as AT&T, Basking Ridge, N.J., has had to streamline its organization to run more efficiently after losing its monopoly, INTELSAT's members have had to learn to do more with less. And they want INTELSAT to do the same.

But the satellite company doesn't have a stellar record at downsizing. An initial effort in December 1994 was a fiasco. More than 100 senior employees -- out of 160 who were eligible -- exercised a generous early retirement benefits package in early 1995, leaving INTELSAT with diminished leadership and expensive payments. "You factor those kinds of considerations into the equation," Trujillo said. "We kept some of the retiring employees past December 1994 because of the expertise they provided during the transition period."

Despite the pains that come from downsizing, INTELSAT knows it has no choice. It shows all the signs that it is serious about getting closer to customers and delivering quality service. It has established three regional service centers around the world and is considering launching a private subsidiary that would provide video broadcasting and business services. The company will deploy small groups of employees to Bombay, London and Singapore by the summer and later plans to open service centers in Africa and Latin America.

Through the centers, "we can serve our customers on a real-time basis in time zones around the world and provide them assistance, which will include marketing. We can meet with our customers on a daily basis," if needed, said Irving Goldstein, director general of INTELSAT.

Showing their seriousness, INTELSAT's signatories also revamped the organization's senior leadership. They hired executives with strong commercial experience. In 1992, they elected Goldstein, the former chairman and CEO of COMSAT, to a six-year term as director general. Goldstein, who sits on the board of Computer Associates International Inc., Islandia, N.Y., hired Bruno d'Avanzo, a former vice president and managing director at Olivetti and Co. S.p.A., Ivrea, Italy, as executive vice president and COO of INTELSAT in 1994. Last August, INTELSAT named Gary Smith, a telecommunications executive, as its first vice president of sales and marketing.

But can all the personnel changes in INTELSAT's senior leadership catalyze its transformation? Like many government-backed organizations, INTELSAT makes decisions only by consensus. Maury Mechanic, vice president of World Systems for COMSAT World Systems, described INTELSAT as "a mini-U.N. It can be very bureaucratic, slow and cumbersome."

Even Goldstein doesn't believe in setting deadlines for his organization's makeover. "It's an activity that never ends.... It will take at least a couple more years," he said. In 1998, INTELSAT's signatories will get their chance to voice their opinion on Goldstein's performance when they reconsider him for another six-year term.

An entire satellite-based communications market has developed around 650-employee INTELSAT, but an intensely competitive group of companies also has sprung up. "Meeting basic communications needs for a global market was not very competitive" when INTELSAT began, Trujillo said. "That's changed.... The growth in demand for telecommunications around the world is burgeoning. The pie is getting larger. I'll be honest with you. INTELSAT's share in that pie is getting smaller," although the organization has grown from $486 million in 1990 to an estimated $800 million in 1995.

INTELSAT's competitors include domestic satellite systems and fiber optic cable companies, which have benefited from the declining costs to launch and produce satellites. One competitor is 12-year-old PanAmSat Corp., the Greenwich, Conn., operator of four satellites that provide coverage for 98 percent of the world's population. It has more than 300 customers, including many U.S. broadcasters and network operators who want to provide international access to their programming, such as The Walt Disney Co., Orlando, Fla., and Viacom International Inc., New York. In September, the $64 million PanAmSat made an initial public offering for $17 per share. The company's stock now trades around $24.

Brian Barish, stock analyst at Lazard, Freres and Co., New York, said PamAmSat specializes in broadcast media for television stations, which require higher bandwidth than INTELSAT's telephony communications business. "But if INTELSAT wanted to get into broadcast media, they could compete."

Orion Network Systems Inc., a privately held Rockville, Md., satellite company started in January 1995, already lists more than 50 customers, including Fortune 500 companies, and has one satellite in operation. Steve Salamoff, vice president of marketing at the 150-employee company, said Orion competes against INTELSAT's members.

"I've got all kinds of competition: fiber optic cable companies, commercial satellite services, medium altitude systems, regional and domestic" providers, and many others, said INTELSAT's Goldstein. "The issue is not who is the competition but how are we serving our customers and how can we serve them better in the future," he explained.

INTELSAT's Revenues

YearRevenues

1990$486 million

1991 Not available

1992$616 million

1993$658 million

1994$706 million

1995$800 million (estimated)

Source: INTELSAT


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