Intelsat Touts Epic’s High Revenue Throughput Potential

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TURIN, Italy — Satellite fleet operator Intelsat on March 19 said its Intelsat 29e satellite is likely to be able to generate $200 million per year in revenue for the bulk of its 15-plus years in orbit, a figure that is set against the satellite’s cost of some $400 million.

“It’s a pretty good investment,” Intelsat Chief Financial Officer Michael McDonnell told a Goldman Sachs investor conference. He said it is reasonable to assume that Intelsat will be able to fill its high-throughput capacity Epic satellites, of which Intelsat 29e is the first, to the same 80 percent level that is common to the rest of the Intelsat fleet of 50 satellites.

Intelsat has sold about $500 million of capacity on Intelsat 29e, which is scheduled for launch in late 2015 and should be generating revenue starting in 2016. The original customers’ orders will be producing revenue at a rate of $50 million per year for 10 years.

But these customers are only taking about 20 percent of the satellite’s capacity. An 80 percent fill rate, McDonnell said, would mean $200 million in annual revenue.

McDonnell said the Epic series of satellites’ throughput increase relative to conventional Intelsat satellites will not be matched by a revenue increase, meaning customers will be paying less per megabit than they do now. But the increase in throughput, he said, means the total revenue stream will be substantially higher than for conventional satellites.

Intelsat typically seeks an internal rate of return of between 15 and 20-plus percent when it weighs a decision to build a new satellite, depending on whether it is a well-established, financially sound customer taking the capacity.

For the Epic satellites, McDonnell said, Intelsat expects to achieve a higher internal rate of return. How much higher is not clear given that the first Epic spacecraft is nearly two years from being operational.

Unlike its principal competitors — SES of Luxembourg, Eutelsat of Paris and Telesat of Canada — Intelsat has steered clear of any involvement in the consumer broadband market despite once having been a shareholder in what is now the consumer broadband service offered by ViaSat Inc. of Carlsbad, Calif.

McDonnell said this is likely to change at some point. “We do expect to play” in the consumer broadband market, he said, but only as a wholesale provider of bandwidth, not as a direct seller to consumers.

Luxembourg- and Washington-based Intelsat, which completed an initial public offer of stock in 2013, is seeking to convince investors that the near-term sag in revenue because of difficulties in Africa and the harsher U.S. Defense Department budget environment will be followed by steady revenue growth starting in 2015.

McDonnell said the Epic satellites, whose early versions are being built by Boeing Space and Intelligence Systems of El Segundo, Calif., average $350 million to $375 million each, compared with $275 million to $300 million for the company’s conventional C- and Ku-band satellites.

But perhaps because the Epic series of satellites will not be in service before 2016, investors appear not to have bought into the company’s longer-term story. In the 11 months since Intelsat’s initial public offering on the New York Stock Exchange, the company’s shares have performed a roller-coaster maneuver and as of March 20 were trading at slightly less than the introductory price.

 

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