The Communications Satellite Corp. announced yesterday an $84 million loss in the second quarter as a result of a major restructuring of the financially troubled company.
"We have made the decision to sell all of our manufacturing businesses, to dispose of two direct broadcast satellites and to restructure the approach to our remaining profitable businesses," said Irving Goldstein, Comsat chairman. In a turnaround from a diversification strategy the company launched more than three years ago, Comsat said it will stick to its traditional business of arranging for companies like American Telephone & Telegraph Co. to use the international satellite network, known as Intelsat.
Industry observers said the sale is an effort to defend its congressionally authorized monopoly over the use of the international satellite system by U.S. communications companies. Some members of Congress have questioned Comsat's recent entry into new ventures.
The company, which expects a loss for 1987, will also continue to "build on ... . strengths in the government systems and entertainment distribution businesses," said Goldstein.
As part of the restructuring Comsat announced it will sell Amplica Inc., a marginally profitable subsidiary that makes equipment for the defense electronics industry and two other money-losing electronic-equipment product lines. Comsat has taken a $46 million writeoff on the businesses mainly to reflect the difference in their book value and the anticipated sales price but also to account for year-to-date and anticipated losses. No buyers have yet been found for the businesses.
The company also took a $32 million writeoff on two satellites that were once destined for direct satellite broadcast TV service in the United States. Comsat has lost more than $100 million on the satellites in previous years and has now written their book value down to zero. In addition, the company took a $16 million writeoff on two subsidiaries it is selling to Contel Corp. The third-largest independent telephone company is buying the divisions as part of its agreement to dissolve a $2.3 billion merger with Comsat.
Comsat, a regulated company, has been battered by adverse regulatory decisions over the last year, by Contel's decision to cancel the merger and by scrutiny on Capitol Hill of the role Comsat plays as both a monopoly in international satellite communications and a competitor with the very companies whose business it controls. One subsidiary Comsat is selling to Contel provides international telephone and data service to businesses, while Comsat gives companies like AT&T access to Intelsat to provide the same service.
Capitol Hill staffers and telecommunications analysts said yesterday the company is trying to minimize conflicts of interest between competitive businesses and its monopoly role to help deflect any efforts to change its status.
"They've come in here and talked about the pending sale to Contel and said they want to mitigate any conflicts," said one staffer to Rep. Edward J. Markey (D-Mass), chairman of the House telecommunications subcommittee. "I can't say on the record it will succeed." The subcommittee is investigating Comsat's role as competition in the telecommunications field proliferates.
Analysts said yesterday that Comsat's move to concentrate on l business clearly within its jurisdiction makes sense. "Those are good businesses," said John S. Bain, an analyst with Shearson Lehman Bros. It also gives the company an excuse to ask for protection of its business, he said. But Bain said the company faces a tough road ahead.
"The fact is that Comsat's got some problems long term," he said. "Satellite technology has not grown the way we thought it would." Instead, fiber optic cables that use thin glass strands to transmit information are increasingly popular and are qualitatively superior to satellites for telephone calling, he said.
"They've been shell shocked over the last year," said James Mason McCabe, an analyst who follows the company for Nomura Securities. "All the other things they've been in they haven't done well -- they are going to get back to doing what they do best."
Comsat spokesman Richard McGraw denied yesterday that the company had a master plan to protect its monopoly business that was bestowed on Comsat in 1962 by Congress. "That's absolutely untrue," he said. "We're selling off businesses that don't make money and that makes good business sense." McGraw conceded the moves do have "the added benefit" of protecting the company's monopoly .