Eutelsat pivots for competition with Viasat on European broadband

by

WASHINGTON — Eutelsat on May 14 said it is taking steps to secure a foothold in the European broadband market after last month’s decision to forgo jointly funding a satellite with Viasat turned the two companies into direct competitors.

Eutelsat also stands to retain customers from one of its two joint ventures with Carlsbad, California-based Viasat if the operators’ frayed relationship gets too threadbare to continue, according to Eutelsat CEO Rodolphe Belmer.

In a quarterly earnings call with analysts, Belmer said the Paris-based operator is poised to redirect some of the beams on its upcoming Konnect satellite from Africa to Europe when the satellite formerly known as the African Broadband Satellite enters service in 2020.

The temporary repurposing of beams on the 75-gigabits-per-second satellite would warm up the market for Eutelsat in advance of its more powerful 500-Gbps Konnect VHTS (or Very High Throughput Satellite) in 2021, he said. Thales Alenia Space is building both Konnect and Konnect VHTS.

Belmer defended Eutelsat’s decision not to co-finance the ViaSat-3 EMEA satellite, designed to cover Europe, the Middle East and Africa with 1 terabit per second of total capacity. The abrupt change-of-course startled analysts, which voiced skepticism that the European market can support two large satellite broadband operators like the U.S. market does.

“We estimate that the market size is 5 million homes that will not be served by terrestrial infrastructure by 2030, which leaves more than enough room for two large operators in Europe,” Belmer said. “We will be the first one. It doesn’t mean that there is not room enough for a second player.”

Viasat affirmed it will continue with ViaSat-3 EMEA, but didn’t say when the satellite will launch. Previous Viasat statements have ViaSat-3 EMEA following six months behind ViaSat-3 Americas, which is expected to launch in the second half of 2020. That puts ViaSat-3 EMEA launching in 2021, the same year as Eutelsat’s Konnect VHTS.

JV Disappointment

Belmer said Eutelsat is underwhelmed with the progress of its RetailCo joint venture with Viasat and is refocusing Eutelsat’s efforts on a wholesale business model.

Eutelsat and Viasat have been operating two joint ventures for more than a year, with Eutelsat owning 51 percent of the wholesale InfraCo company and Viasat owning 51 percent of the direct-to-consumer RetailCo company. Eutelsat’s view is that the direct-to-consumer approach “doesn’t make as much sense in Europe as it makes in the U.S. because the market situations, the competitive landscape, the consumer behaviors are very different from one country to another in Europe,” Belmer said.

“What we think is that it makes more sense to join forces with strong, powerful, experienced distributors in each European country,” he said.

Eutelsat, in announcing the Konnect VHTS satellite, revealed the satellite already had European telco heavyweights Orange and Thales committed to multiyear capacity leases collectively worth hundreds of millions of euros. Orange will market the capacity to consumers while Thales will focus on government customers. Belmer said Eutelsat wasn’t able to attract customer commitments of that size without such a powerful satellite, but now that it can, Eutelsat would strongly prefer to lean on their specialized expertise in their markets.

Belmer said the “vast majority” of KA-SAT subscribers use the satellite through Eutelsat InfraCo distributors, “meaning that those subscribers, they cannot be migrated by Viasat” in the event of a joint venture fallout. Eutelsat and Viasat’s joint ventures use the 90-plus Gbps KA-SAT broadband satellite launched in 2010. Viasat paid Eutelsat 132.5 million euros ($162 million) for a 49 percent stake in the satellite.

Belmer blamed a 7.7 percent annual decline in Eutelsat’s fixed-broadband revenue, which comes heavily from KA-SAT, partly on the lack of success of the RetailCo business. Eutelsat recorded 21.5 million euros in fixed-broadband revenue for the three months ended March 31. Viasat can pull RetailCo subscribers over to ViaSat-3 EMEA, Belmer said. He downplayed the issue, however, saying only a small number of households receive broadband through RetailCo today.

Belmer said a roaming agreement between ViaSat-2 and KA-SAT for aircraft flying transatlantic routes remains in place and that Eutelsat has no intentions of changing that agreement when ViaSat-3 EMEA enters service.

“Other Revenues” Scare

Eutelsat reported 337 million euros in quarterly revenues, down 3.3 percent year-over-year, with the biggest reason for the decline coming from an oft-overlooked business area simply referred to as “Other Revenues.”

Belmer said Other Revenues consists of everything “not related to capacity sales,” including termination fees, engineering fees and frequency consulting services for other operators. They are extremely difficult to predict, he said.

“Even though we are working on quite a substantial pipeline of initiatives to generate Other Revenues in line with our objectives [and] in line with our guidance, it’s still uncertain at this point in time that we will make it,” he said.

Other Revenues totaled just 100,000 euros last quarter, down from  7.5 million for the same period last year.

If Other Revenues don’t rebound, it could result in a 3.5 percent drop in annual revenues compared to last year, Belmer said. That would throw off Eutelsat’s trajectory for full-year revenues between 1 and 2 percent below last year as the company seeks a “slight” return to growth in 2019.  

Eutelsat’s core business verticals remained stable, with video broadcasts, the operator’s largest segment comprising 62 percent of revenue, growing 0.2 percent on a quarterly basis. Eutelsat’s backlog, which is 83 percent video applications customers, stood at 4.6 billion euros, down from 4.7 billion last quarter.