(FORTUNE Magazine) – Buyout firms have been reaching for the skies--literally. In December, Apax Partners and Permira Advisers acquired Inmarsat. In April, Thermo Capital bought the bankrupt Globalstar satellite phone service. That same month Kohlberg Kravis Roberts, along with the Carlyle Group and Providence Equity, struck a deal to buy PanAmSat from News Corp. for $3.55 billion. (A satellite malfunction in early August, however, opened a loophole for KKR to renegotiate the price or walk away.) In July the Blackstone Group snapped up New Skies for nearly $1 billion. Meanwhile, as FORTUNE went to press, Apollo Partners and Madison Dearborn were leading contenders to buy Intelsat in a deal expected to be worth up to $5 billion. But should the KKR deal blow up, it would be open season again for both PanAmSat and Intelsat.

Why are satellite operators so in vogue? For decades satellites were a regulated industry created by the Cold War. The U.S.S.R. was first to reach space, launching Sputnik in 1957. For the next 20 years bird launches were controlled by individual governments or intergovernmental treaties like Inmarsat and Intelsat. PanAmSat became the first private-sector satellite company in 1979, but competition didn't really become fierce until the '90s, when wireless warriors looked to outer space as a way to deliver high-speed broadband. (Remember the buzz over Iridium?) Then Congress passed the ORBIT Act of 2000, which required that intergovernmental organizations like Inmarsat and Intelsat be sold to the public within a few years.

But by 2002 funding had dried up. After all, each bird costs between $150 million and $250 million and takes two years to build, launch, and insure. "Markets don't know our industry very well," says Joe Wright, the president and CEO of PanAmSat.

Maybe not, but investors sure understand when Uncle Sam smiles on an industry. Federal spending on satellite technology is expected to double in the next five years, with funds allocated for things like border patrol at home and military spending abroad. Foreign governments are also expected to order up more birds from the likes of Inmarsat, New Skies, and Intelsat. In the private sector a big lure for the buyout firms is the rise of HDTV, which is transmitted through satellites.

The buyout firms, of course, are drawn to the business for its eye-popping returns, secured by long-term contracts. But there's probably also a "herd mentality," says Dan Primack, editor-at-large at Thomson Venture Economics. That could mean some rude surprises for investors. A large number of satellites that were launched in the 1980s have deteriorated and now need to be replaced at great cost. And as in the rest of the telecom industry, there's overcapacity thanks to the Internet-era boom. Presumably the private-equity firms will eventually want to take those companies public, but analysts estimate it takes five to ten years to get a return on satellites. "There's a saying that a contract is made between an insider and a fool," says Roger Rusch, president of TelAstra, a satellite consulting firm. "The question is, Which one is the fool? Right now it's a little hard to tell." --Christine Y. Chen