Satellite communications attracted attention last week as one of the few ways to get voice, data, and video signals in and out of the hurricane-ravaged Gulf Coast. Interest grew even more when two of the top four commercial-satellite operators said they would merge in a deal valued at around $3.2 billion.

The combination of Intelsat Ltd. and PanAmSat Holding Corp. will create a satellite-industry powerhouse with 53 satellites and 2004 annual revenue of $1.83 billion, more than any other satellite operator. There are about 200 satellites in orbit, generating around $7 billion in annual revenue. The market is growing 4% a year.

Alabama Power uses a satellite dish linked by laptops and PCs to communicate with workers, IT analyst Tucker says.

PanAmSat carries mostly video, which accounts for 62% of its business. Intelsat derives only 17% of its revenue from video, carrying mostly voice and data traffic. "In the satellite business, you want to diversify your product portfolio," says Ramu Potarazu, Intelsat's chief operating officer. "If we complete this merger, customers gain a one-stop shop for data, video, and voice services."

Competition among satellite companies is fierce, and the industry faces challenges from optical fibers buried underground and new forms of wireless communications such as Wi-Fi. "Satellite communications will always be more expensive with less bandwidth than landline communications [technologies] like fiber," says Rachel Villain, a satellite analyst at IT research firm Euroconsult. "But it's always suitable and cost-effective for broadcasting or communicating to populations distributed over large areas."

There are opportunities for a dominant operator. Satellites already carry signals for companies that offer TV to consumers, and they see the growing deployment of high-definition television as an opportunity for new business. The ability of satellites to send signals into areas that are hard to reach by other forms of communications gives the industry a unique advantage that can overshadow issues of cost and bandwidth.

And there are still untapped markets. China, for example, is closed to outside satellite operators, Villain says. "The new operator could cover any place on Earth, but it requires regulatory approval from each country," she says. "Some countries aren't very open to competitive carriers coming in."

For Alabama Power and Mississippi Power, subsidiaries of Southern Co., satellites are the only way to communicate as they try to restore power to homes and businesses damaged by hurricane Katrina. The utilities are using 17 satellite dishes throughout the disaster zone for internal communications and to let more than 3,000 workers communicate with their families using voice-over-IP technology.

"We've learned that during storms, we lose cell sites and the phones go down," says Paul Tucker, lead IT functional support analyst for power delivery at Alabama Power. "We must be able to access operations and command workers in the field." In the past, they used fax machines and shuffled paper. Now they set up a satellite dish and connect it to a network of laptops and PCs. "All we need is a network card for the PC, and it's only a bit more expensive than the landline communications we would be trying to work with."

Satellite communications is proving its worth by providing communications in areas where little else works. Now its up to the Intelsat-PanAmSat combo to prove it's also a good business.