Intelsat Treading Water as It Awaits a Lift from New Satellites

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PARIS — Satellite fleet operator Intelsat on April 30 reported declines in revenue, gross profit and backlog for the three months ending March 31, saying the results were in line with forecasts and that the company can do little but count the days until its new satellites are launched.

With its current 50-satellite fleet used at 75 percent of capacity — and its video-distribution satellites often at higher fill rates — Intelsat has told investors that 2015 will be a lackluster year as it awaits the new spacecraft and hopes for a revival of U.S. government use of Intelsat’s capacity.

Based in McLean, Virginia, and headquartered in Luxembourg, Intelsat has invested more time and effort than any other fleet operator in trying to persuade the U.S. government to optimize its use of commercial capacity.

Each year brings what seems at the time to be encouraging signs, especially since, from the U.S. Defense Department’s point of view, what Intelsat and other operators are proposing is a way to reduce per-megahertz costs for government users. In return, these users would purchase larger chunks of capacity for much longer contract periods.

The U.S. Defense Department gets about 80 percent of its total satellite bandwidth from commercial sources, mainly through short-term contracts.

The most recent encouragement on the government side is the U.S. Strategic Command’s Joint Space Operations Center’s creation of a Commercial Integration Cell. The cell is designed to enhance coordination between government and commercial satellite owners. Intelsat is one of six commercial companies that are part of it. The cell is scheduled to be operational starting in June.

Meanwhile, military use of commercial capacity is falling with the reduction of activity in Afghanistan. Intelsat said in an April 30 report to investors that recent government bid request activity “remains slow,” one reason why Intelsat sees 2015 as a year of government revenue declines.

For the three months ending March 31, Intelsat reported revenue of $602 million, down 4 percent from the same period a year ago. EBITDA, or earnings before interest, taxes, depreciation and amortization, was 78 percent of revenue, down from 80 percent a year ago.

Backlog at March 31 stood at $9.7 billion, down from $10 billion on Dec. 31.

The government business was down 13 percent, to $95 million, which is about what Intelsat had forecast earlier this year.

Riding to the rescue are new satellites. Intelsat said the number of commercially usable transponders on its satellite fleet will grow by 7.5 percent per year through 2017 as the new satellites enter service.

Intelsat’s Epic high-throughput satellites, designed to reduce prices to customers on a per-megabit basis on the assumption that they will increase the volume of bandwidth they purchase, start launching in early 2016.

The IS-31 satellite, fully booked by DirecTV Latin America for that company’s direct-broadcast television service, is scheduled for launch on a Russian Proton rocket in early 2016. Sold out from day one, IS-31 will give an immediate revenue boost to Intelsat.

To prime the pump for the coming Epic capacity, Intelsat has entered into contract deals with antenna builders Phasor Inc. of Arlington, Virginia, and Kymeta Corp. of Redmond, Washington.

Intelsat has not disclosed the depth of its commitment to these two companies, both of which are introducing new-generation antennas for mobile communications links. Phasor is focusing on a Ku-band antenna for the government and business small-jet market.

Intelsat Chief Executive Stephen Spengler said during an April 30 conference call with investors that the company sees a need to assure that the promise of Epic is not deferred because of a lack of suitable antennas.

Spengler said Intelsat’s investment in antennas will not lead to a new business for the company, but is rather a temporary measure with “modest, gradual milestone-tied payments.”

Intelsat is part of a satellite-industry initiative to protect the exclusive use of a portion of C-band radio spectrum by satellites at the next meeting of global regulators, the month-long World Radiocommunication Conference (WRC-15) to start in Geneva in November.

Terrestrial broadband providers want access to a part of this spectrum now reserved for satellite transmissions. Satellite operators have said their relatively weak signals from 36,000 kilometers over the equator would be drowned out by terrestrial broadband.

“I won’t predict the outcome but we are working this in every region,” Spengler said of the satellite sector’s attempts to defend its C-band rights. But regardless of the outcome of of WRC-15, he said: “the spectrum we’re talking about is not a material portion of our business.”