Eutelsat recommits to Africa broadband without Facebook, and to 2-year revenue turnaround

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PARIS — Satellite fleet operator Eutelsat on Oct. 27 reassured a nervous stock market, reconfirming its revenue and profit forecast — a loss this year, stability next year and then a return to growth — and showing concrete results from its design-to-cost strategy.

Nearly six months after delivering a surprise revenue and profit warning, Eutelsat said its core video broadcast market was holding firm, with overall channel growth and a steady increase in high-definition programming.

The fall in data services for the three months ending Sept. 30 was as expected, and while business with the U.S. Defense Department continue to fall, the company said the most recent round of contract negotiations pointed to a stabilization of that business.

A turnaround in U.S. defense business?

U.S. defense satellite bandwidth contract renewal rates were high and prices only slightly lower. Total contract volume for Eutelsat’s government business, which is more than 70 percent from the U.S. Defense Department, was 47 million euros ($53 million) for the three months ending Sept. 30, down from a year ago but a 6 percent increase compared to the previous three months.

A contract with fleet operator Yahsat of the United Arab Emirates for Ka-band over Africa will replace capacity lost in the Sept. 1 destruction of Israel-based Spacecom’s Amos-6 satellite and put Eutelsat’s Africa broadband strategy back on track.

Most of the revenue expected from the Amos-6 capacity between 2016 and 2019 will be realized from the Yahsat contract, Eutelsat Chief Executive Rudolph Belmer said in a conference call with investors.

No longer with Facebook in Africa, but no commercial effect

The absence of social-networking giant Facebook in the Yahsat deal is regrettable from a public-perception point of view but otherwise will have “no significant commercial or financial impact,” Belmer said.

“We have replaced with Yahsat all the capacity that we, Eutelsat, had leased on Amos-6. We would love to continue to partner with Facebook,” Belmer said. “It’s a big name and we like to associate satellite internet with big names.”

Eutelsat has signed a multi-year lease with Yahsat to provide slightly more than 10 gigabits per second of Ka-band throughput. Eutelsat will use this experience to prepare for its own, 75-gigabit-per-second Africa Broadband satellite, scheduled for launch in 2019.

The Yahsat capacity will permit Eutelsat to realized virtually all of the African consumer broadband revenue it had expected from its Amos-6 lease, on financial terms that are broadly similar to the Amos-6 deal, Belmer said.

As was to be the case with Amos-6, Eutelsat will be using ground network hardware provided by U.S.-based EchoStar Corp.’s Hughes Network Services division.

Eutelsat hired Hughes despite the fact that Eutelsat’s longer-term consumer broadband play in Europe, and its plans for aeronautical connectivity, are tied to its expected joint venture with ViaSat of the United States, Hughes’s biggest competitor.

Consumer satellite broadband is perhaps the sharpest strategy disagreement between Eutelsat and its two biggest competitors, fleet operators Intelsat and SES. Eutelsat believes in the potential of this market — especially as new high-throughput satellites enter the market; the two others are less bullish.

Eutelsat has partnered with Russia’s Tricolor TV of Russia to deploy consumer broadband on Russian  territory through the Eutelsat 36C satellite. Service began in July.

Eutelsat’s consumer satellite broadband began in Europe with the company’s Ka-Sat satellite, which has shown mixed results. Eutelsat Deputy Chief Executive Michel Azibert said monthly per-subscriber revenue from Ka-Sat was “well-oriented” and the economics of the program is improving with the addition of airlines booking bandwidth for in-flight connectivity.

Ka-Sat subscribers numbered 179,000 as of Sept. 30, down from 181,000 at June 30 and 190,000 a year ago. Eutelsat’s plans to add to its broadband capacity in Europe, where several Ka-Sat beams are filling up, remains unclear. The planned joint venture with ViaSat, which is building a super-high-throughput satellite over Europe, remains unsigned.

30% cost cuts from designing to cost and a lucky break on launch

Eutelsat had told investors after the May profit warning that it would rein in capital spending through a design-to-cost strategy. It now has its first result in the contract for the purchase and launch of the Eutelsat 5 West B satellite.

To reduce its overall power and mass requirements, Eutelsat scrapped the C-band capacity that is on the orbiting Eutelsat 5 West A, which 5 West B will replace. The C-band customers will be moved to other Eutelsat satellites. The satellite wide beam data services market is facing rapid price declines and Eutelsat has said it would de-emphasize it in the coming years, a decision that argued in favor of not building a C-band payload.

To further save cost, Eutelsat contracted with an unusual team — Airbus Defence and Space for the payload and Orbital ATK for the platform. Orbital specializes in smaller satellite platforms, and Eutelsat had Airbus design a payload that would fit on it.

Finally, the company is realizing substantial savings in launch cost by contracting with International Launch Services (ILS) for a Russian Proton launch. The Eutelsat 5 West B will staked — no need for an inter satellite adaptor — with another Orbital-built satellite to share the Proton launch.

The existing Eutelsat 5 West A satellite has 25 Ku-band transponders. Replacing only that capacity a conventionally proceed and launch satelilte would have cost more than 30 percent more than what Eutelsat is paying Orbital ATK, Airbus and ILS for the program.

“It’s a perfect example of the success of our new strategy,” Belmer said of Eutelsat 5 West B.