Intelsat sees Epic disrupting entrenched market where Intelsat’s a major stakeholder
PARIS – Satellite fleet operator Intelsat on July 27 positioned itself on both sides of the barricades of the satellite services business — a company storming the entrenched widebeam satellite pricing structure with its Epic high-throughput spacecraft (HTS) while at the same time maintaining a strong vested interest in that structure with the rest of its fleet.
In a conference call with investors, Intelsat Chief Executive Stephen Spengler welcomed the company’s customer-friendly Epic satellites’ lower-cost bandwidth, which Spengler believes will open up vast new markets for satellites in a broadband-everywhere, everything-connected world.
But the company operates 50 spacecraft, many of which carry data traffic and are not wholly filled with long-term direct-to-home television contracts.
Intelsat’s shift of emphasis is due to the fact that the first Epic spacecraft, Intelsat 29e, entered service on July 26 over Latin America. The second, Intelsat 33e, is scheduled for launch in August. Two more Epic spacecraft are set for launch in 2017.
Asked to respond to competitor Eutelsat’s claims that IS-29e satellite has put pressure on satellite bandwidth prices in Latin America, Spengler said:
“We expected Epic could deliver lower cost per megabit to our customers and that is exactly what we have been able to share with customers in Latin America, especially those that have taken volume commitments on IS-29e. We’ve seen how Epic has resonated for multiple applications in that region – from enterprise to cellular backhaul to mobility.
“It points to the challenge of not having this type of commercial-grade HTS services what we are able to offer on Epic,” Spengler said.
Spengler said Intelsat is readying the same playbook in Europe, the Middle East, Africa and Asia, which are covered by IS-33e, scheduled for launch on Aug. 24 aboard a European Ariane 5 rocket.
“We will be able to deliver this higher performance and better economics to customers” in those regions with IS-33e, he said.
The day before the Intelsat investor call, competitor Telesat of Canada said Asia and Africa have seen satellite bandwidth price drops of 15-20 percent in two years. Spengler, when pressed over whether IS-33e would not exacerbate this trend, flipped the question on its head:
“I would say we expect it to have an overall positive effect on the data market across that region. We’ll be able to deliver… a higher-performing service that delivers a better cost per megabit to enable them to implement some of the newer services. We see it as a market enabler, a way we can unlock demand across multiple sectors.”
With IS-29e in service, Intelsat is starting to get real-world revenue input on Epic. Spengler said all but one of the existing customers transitioning to 29e purchased more capacity than they had had with their contracts on Intelsat widebeam satellites.
Spengler did not directly address the central question now asked of the entire fixed satellite services industry: Will the amount of additional capacity these customers purchase on HTS satellites outweigh the lower per-megabit cost and generate increased revenue?
“Prices… are subject to market pressures at any given time – competitive pressures,” Spengler said. “That’s been a factor. But in most of these cases, customers have opted for more overall volume of capacity, leading to an uptick in overall revenue…. That price decline might be a little faster than we had anticipated in our business plan, but the volume is a little higher. So we’re within our expectations in terms of the business plan for the Epic satellites.”
The three months ending June 30 saw Intelsat’s total revenue fall by 9.4 percent compared to the same period a year ago, to $542 million. Backlog, which was $9.5 billion a year ago and $9.3 billion on March 31, was $9.2 billion on June 30. Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, was 76 percent of revenue, compared to 79 percent a year ago.
Intelsat said the revenue and EBITDA figures were expected and the company maintained its forecast of $2.17 billion in revenue for the full year, with a 76 percent EBITDA margin.
Perhaps the brightest spot in the earnings report was the company’s Network Services division, where the Epic satellites’ revenue impact will be keenly felt. Intelsat said that while the division’s revenue fell by 16 percent compared to a year ago, to $228.3 million, its backlog rose by 7 percent, mainly because of the boost from Epic.