In the frenetic telecommunications industry, where companies spring up like April grass, only a few firms have managed to develop and retain a truly distinct corporate character. AT&T; Corp. is the distinguished, slightly dotty patriarch, looking to regain the vibrancy of youth. MCI WorldCom Inc. is the pushy parvenu gunning for the top spot.

Then there is Comsat Corp. If Maryland's most prominent telecommunications company were a person, it would be an aging playboy with a glamorous past and a squandered inheritance.

Conceived in the shoot-for-the-sky days of the Kennedy administration and created by an act of Congress, Comsat was charged with helping to establish a global satellite communications system. In this role, the company helped shape the way Americans see the world, making international events such as the Vietnam War seem as immediate and close as the local news. Comsat has even picked up two Emmy awards for its contributions to television.

Furthermore, Comsat seemed ideally situated to take advantage an enormous opportunity. The telecommunications industry was about to take off, and Comsat controlled access to the world's best satellite systems. If it used this birthright wisely, Comsat stood to become one of the most successful and important communications companies around.

It didn't turn out that way. Hurt by its own bad decisions and missed chances, Comsat stumbled from one ill-defined venture to another as the rest of the industry whizzed by.

"I think Comsat could never really come to grips with the company it wanted to be strategically, and it missed tremendous opportunities," said Michael Alpert, a former Comsat executive who now is an industry consultant in Washington.

So the dispirited playboy ripped up his little black book and got hitched. In the last two years, Comsat has jettisoned various ambitious projects and focused on its core satellite business. Then, on Sept. 20, Comsat announced that it was being acquired by defense giant Lockheed Martin Corp. for $2.7 billion.

The marriage of the two Bethesda companies faces an arduous approval process, but whether or not the merger ultimately goes through, it is clear that Comsat's colorful and checkered story is entering a new phase.

"Whether they merge or not they're facing huge changes," said Steven A. Solazzo, an analyst with TD Securities Inc. in New York.

For starters, Comsat will have to contend with the increasing privatization of the once highly regulated satellite industry. For decades, the company benefited from being the nation's sole provider of access to two key international satellite networks, as well as the top shareholder in those networks. Now those satellite groups are going private, a process that presents Comsat with both big opportunities and grave risks.

In addition, changes in telecommunications have raised tough questions about the future of the satellite market.

Fiber-optic cables can now carry vast quantities of information instantly and cheaply from continent to continent. This kind of long-haul communication used to be the stock in trade of satellites, but international voice traffic has increasingly moved onto fiber lines.

In addition, Comsat also faces ever-stiffer competition from rival satellite companies.

This month's debut of Iridium LLC's ballyhooed 66-satellite phone network was the latest salvo in an increasingly pitched battle for satellite business that Comsat once controlled.

Many of the upstart satellite players are affiliated with aerospace and communications titans. Comsat, with its relatively modest size, could be hard-pressed to compete if the merger with Lockheed Martin falls through, which is possible.

And if the merger does take place, Comsat faces the prospect of losing its independent identity and being swallowed up by a company that is only beginning to make a real run at the telecommunications market.

While Comsat officials speak optimistically about the merger and about the future of the company, they candidly admit what cannot be denied: Comsat failed to live up to its potential.

Proposed by Kennedy

Comsat -- originally known as Communications Satellite Corp. -- was an unusual creature from the start, a private, for-profit corporation created by an idealistic decree of government. In 1961, President Kennedy appeared before a joint session of Congress and called for an expanded space program, including a manned trip to the moon and an international satellite communications system.

Congress passed the Communications Satellite Act in 1962. That legislation committed the United States to the formation of a global satellite network "which will contribute to world peace and understanding." It also provided for the development of a new company -- Comsat -- to carry out the U.S. end of the deal.

Kennedy signed the act into law in August 1962. The next year, Comsat moved into its first headquarters, a mansion in northwest Washington that had once been the home of a U.S. ambassador to Moscow. The world satellite system that Kennedy and Congress envisioned came to fruition in 1964 with the founding of the International Telecommunications Satellite Organization, known as Intelsat. This consortium, owned by its member nations, set about establishing a constellation of satellites that would cover the globe.

As the designated U.S. representative to Intelsat (and later to Inmarsat, the marine and mobile communications network), Comsat was the only source of satellite access for U.S. television and telephone companies. In 1965, the company launched Early Bird, the first satellite expressly designed to handle commercial communications.

Before Early Bird, transoceanic phone calls traveled on undersea cables, which left many parts of the world uncovered. A new era of global communications was at hand, and Comsat was its gatekeeper. As the satellite market blossomed, so did Comsat. By the late 1970s, the company had plenty of cash, little debt and was poised to join the first rank of telecommunications companies.

In its attempt to get there, the company tried to branch out from its core satellite business and offer new products and services. This lengthy and complex diversification effort was a huge failure. Analysts and Comsat insiders agree that it is the biggest reason why the company was unable to attain a true leadership position in the telecommunications industry.

'Eye got off the ball'

"The eye got off the ball," said Scott Chase, a former public relations official at Comsat who now publishes Via Satellite, a trade journal based in Potomac. "There was a frenzy to capitalize on short-term opportunities that did not support the long-term growth of the core business, which is global commercial communications via satellite."

With the benefit of hindsight, it appears that Comsat, in its dogged bid to diversify, developed a nearly uncanny knack for passing up the smart move and embracing the untenable.

In 1975, the company joined with IBM Corp. and Aetna Life & Casualty Co. to form Satellite Business Systems. SBS was envisioned as a satellite network that would handle private data and television communications for big corporations. It was an idea far ahead of its time, a consistent money-loser that cost Comsat $250 million. The company bailed out of the venture in 1984.

That same year, Comsat abandoned its plans for entering the direct broadcast satellite television market. DBS has since become an industry sensation, growing from a mere 70,000 customers in June 1994 to about 7 million today, with 30 million forecast by the end of 2007.

DBS providers such as DirecTV Inc. and EchoStar Communications Corp., while not yet profitable, have become widely recognized brand names and are giving entrenched cable-TV companies a run for their money, while the company that actually ushered in satellite television 30 years ago is missing out on what could be a golden opportunity.

"Comsat could have been DirecTV," said Michael Alpert, who was one of the leaders of Comsat's DBS program. He said one of the events that prevented this was a 1980 decision by Sears, Roebuck & Co. not go ahead with Comsat in a DBS joint venture: One of Sears' directors, a broadcasting executive, moved to kill the venture because he was concerned (presciently so, as it turned out) that DBS might ultimately challenge his industry.

Alpert conceded that pressing on with a new technology like DBS was an unnerving prospect for a company that had just been scalded in the similarly chancy IBM-Aetna venture, but he said that Comsat should have stayed the course on DBS.

'Damn right' it's risky

"Damn right it would have been risky to continue [in DBS], but had they been willing to, look where they'd be today," he said.

Among the many other miscues that Comsat suffered over the years, one is singled out by analysts and company officials as particularly grievous: Comsat's foray into the sports and entertainment industry.

During the 1980s and early 1990s, Comsat joined the Ted Turner trend of pulling communications, entertainment and sports holdings together into a single vast enterprise.

Comsat bought a majority share of the National Basketball Association's Denver Nuggets, moved into the in-room hotel movie business, and took on a large share of a California pay-per-view company, On Command Video Corp.

In 1992, Comsat President Bruce L. Crockett became the company's chief executive officer. The unorthodox Crockett -- who banished all drawers from his office in an effort to reduce paperwork -- vowed to make Comsat a billion-dollar company, a doubling of the firm's size. Toward this end, he deepened Comsat's investment in entertainment.

Within seven months of Crockett's installation at the top spot, Comsat announced it was buying out its partners in the Nuggets.

In 1994, the company purchased independent filmmaker Beacon Communications. The next year, it acquired the Quebec Nordiques of the National Hockey League and quickly moved the struggling franchise to Denver, where it was rechristened the Colorado Avalanche.

Won Stanley Cup

The Avalanche went on to win the Stanley Cup in its first year, but its parent company had taken on the look of a loser.

Comsat was turning in one disappointing earnings report after another, and investors were losing patience with diversification.

Finally, on July 19, 1996, the company issued an earnings sheet that showed net income down 74 percent from the same quarter in 1995. The company's entertainment holdings lost $6.4 million in the quarter. On the same day, Crockett resigned. He has since gone into retirement, and declined to be interviewed for this article.

To replace Crockett, the board chose Betty C. Alewine, a 10-year company veteran who had risen to the presidency of Comsat's international communications branch. By tapping the head of Comsat's traditional core division for leadership of the overall company, the board seemed to be sending a strong message: Hang up the skates, get out of Hollywood, return to basics.

"Betty Alewine was not really part of the diversification strategy," said Scott Chase of Via Satellite. "Her mission [in Comsat's global communications division] was very much on the Intelsat side of the coin. That was always very much the bread and butter of Comsat."

Original mission

Alewine's goal is to revive Comsat by bringing the company back to its original mission of satellite communications in the face of the increased competition from fiber-optic cable and rival satellite firms.

Alewine, 50, began at Comsat in 1986 as a vice president of sales and marketing after working in the sales departments of Xerox Corp. and SBS, which MCI Communications Corp. bought from IBM in 1986.

That Alewine is a graduate of the marketing world is obvious from her manner and bearing. She is crisply dressed, with tidy, auburn hair and posture seldom seen this side of the Naval Academy.

When she talks about her company, her Southern-accented speech is effusive and adamant, and is sprinkled with motivational platitudes ("The little company that can"; "If we don't hang together, we'll hang").

Alewine is candid about Comsat's past failures and about the problems she has faced as its chief executive officer.

However, she is utterly unwilling to reveal even the most basic personal information, a reticence that is rare among CEOs of major public companies.

She lives in Vienna, Va., with her husband, Ralph W. Alewine III, a top nuclear treaty programs official at the Defense Department. They have a 29-year-old son who lives in Atlanta.

Her entry in Who's Who in the Media and Communications lists only her gender, title and corporate address, a terse contrast to the chunky mini-biographies typically found in such tomes.

In her early days as Comsat's CEO, she was similarly mum about her strategies for resuscitating the company.

Furious reaction

Shareholders and equity analysts, already up in arms over Comsat's long decline, reacted furiously to the silence of the new boss.

On April 21, 1997, after an earnings report showed a quarterly net loss of $5.3 million, dissident shareholder Guy Wyser-Pratte said a rival board was prepared to take over Comsat.

Alewine moved forcefully, slapping the insurgents with a lawsuit that brought them to the bargaining table. In return for two directors' seats, Wyser-Pratte called off the proxy fight. "It impressed me that they were willing to go to the mat with us," said Wyser-Pratte.

In a recent interview at Comsat headquarters, Alewine said she made an important mistake in not being more open early on. "You don't have to have all the answers, that's the thing I've learned, but you do have to communicate. You do have to let your shareholders know what you're doing, and I didn't do that," she said.

After the proxy challenge, Comsat took steps to fulfill the less-is-more strategy, spinning off the sports and entertainment holdings and selling manufacturing operations. The company now has about 1,600 employees, well below the 3,000 or more that it had in the Crockett days.

However, Comsat did not initially show improvement over the mediocre financial figures of its recent past. The company's revenue was still growing unspectacularly; it had risen 7.4 percent in 1996 and was up only 3.2 percent last year. Net income fell 77.2 percent in 1996, and in 1997 the company showed a loss of $64.5 million.

On April 20, a year after the insurrection, Comsat released a quarterly earnings sheet reporting net income of $3.9 million.

For a change, fortune seemed to be smiling on the company.

Four days after the upbeat earnings report, the Federal Communications Commission adopted an order releasing Comsat from many regulations that the company claimed had hampered its ability to compete, such as rules requiring it to reveal price changes well in advance of its rivals. Comsat's two subsequent quarterly earnings reports have continued to show improvements over last year.

These gusts of good news caused Comsat's once-moribund stock to rise. In 1997, the Standard & Poor's 500 index of major U.S. stocks rose 25.2 percent in a historic bull market, but Comsat shares gained only 15.6 percent. This year, by contrast, Comsat's stock value has shot up 52.9 percent, easily outperforming the S&P; 500's 17.4 percent rise.

"You can say the shareholders kicked them into it, but they did what they said they'd do," analyst Steven Solazzo said of Comsat's management.

Even so, the company had a new problem: It was too small. The entire telecommunications industry was being reshaped by mergers and acquisitions, a trend that was boosting the wealth, breadth and muscle of the fiber-optic and satellite companies that vie with Comsat for global communications traffic.

PanAmSat Corp. and Rockville's Orion Network Systems Inc., two aggressive upstart satellite firms, had each merged with deep-pocketed aerospace and defense firms: PanAmSat with Hughes Electronics Corp. and Orion with Loral Space & Communications Ltd. Finding a merger partner would be a way for Comsat to keep up, to get the capital and the security it needs.

Lockheed Martin, for its part, was eager to build up its own satellite program and grab a share of the booming telecommunications market. The defense and aerospace company's two rivals in the satellite-building industry were Hughes and Loral, and now Lockheed Martin was the only one of the big three that hadn't bought a communications services company to round out its satellite offerings.

A need for expertise

Lockheed Martin saw telecommunications as an area of enormous growth, but it lacked the expertise, credibility and worldwide network licenses to be a viable player. Buying the venerable, internationally known Comsat would be a long and swift step toward filling these gaps.

"We want to address international markets where the infrastructure is not as established as in the United States," said John Montague, the chief financial officer of Lockheed Martin's recently established international communications division. "We wanted a company with a global presence."

Partnering up with Lockheed Martin could help Comsat on one very important front: Capitol Hill. Congress is considering legislation that would speed the privatization of the satellite industry.

Alewine readily listed Lockheed Martin's famed legislative prowess as a key reason why the merger benefits her company.

Approval considered likely

Analysts say approval of the merger is likely, but warn that it may not come until late next year or 2000. The deal needs regulators' approval, and Congress has to pass legislation that will allow Lockheed Martin to take a larger share of Comsat than would be allowed in the original Communications Satellite Act.

Alewine said selling off Comsat was not part of her original plan for the company, adding: "It's not that the merger has to happen for us to be strong going forward."

Others see the situation a bit differently, saying that Comsat -- for all its improvement -- remains an underperformer in need of rescue.

"What Betty did, to her credit, is position the company for a takeover. That was the strategy and it worked," said Michael Alpert. "From a short-term perspective, [Comsat's] health is very good In terms of long-term positioning, they need to be part of a bigger corporation."

Industry players

Comsat Corp.

Founded: 1962

1997 revenue: $562.7 million

Number of satellites: 24 Intelsat satellites, nine Inmarsat satellites

Thumbnail: Helped spawn the satellite communications industry, but has seen its leadership position erode and now seeks merger with Lockheed Martin Corp.

PanAmSat Corp.

Founded: 1984

1997 revenue: $629.9 million

Number of satellites: 18

Thumbnail: Now part of Hughes Electronics Corp., plans to launch nine more satellites by the end of 1999.

Loral Orion Inc.

Founded: 1982

1997 revenue: Not available

Number of satellites: 1

Thumbnail: Just one piece of Loral's ambitious satellite strategy. Loral Orion expects to launch two more satellites early next year.

GE Americom

Founded: 1975

1997 revenue: Not available

Number of satellites: 12

Thumbnail: ; A satellite subsidiary of General Electric. Its satellites now cover North America and Europe. It plans expansion in Asia and South America next year.

Time line

Key events in Comsat history:

1961

President Kennedy calls for international satellite communications system.

1962

Congress passes Communications Satellite Act. The Communications Satellite Corp. (Comsat) is born.

1965

Comsat launches Early Bird, the first satellite designed for commercial communciations.

1975

Comsat joins IBM Corp. and Aetna Life & Casualty Co. to form Satellite Business Systems (SBS), a network for private data and television communications.

1984

Comsat drops out of money-losing SBS after an investment of $250 million.

Comsat abandons plans to enter the direct broadcast satellite television market, which now has 7 million customers.

1989

Comsat acquires a majority share of the NBA's Denver Nuggets, an example of the company's move into the sports and entertainment industry.

1992

Comsat President Bruce L. Crockett becomes CEO and increases the company's investment in entertainment.

1996

In July, Comsat announces that its entertainment holdings lost $6.4 million for the quarter. Crockett resigns and Betty C. Alewine is his successor.

Pub date: 11/22/98