What Intelsat Expects To Gain from its $25 Million OneWeb Investment

by

PARIS — Satellite fleet operator Intelsat on July 30 said its investment in start-up OneWeb’s low-orbiting constellation of 700 Internet-delivery and cellular-backhaul satellites came in return for exclusive rights to a wide swath of OneWeb’s future markets.

In a presentation to investors, Intelsat said its partnership with OneWeb will extend Intelsat’s reach to the polar regions — not normally a driving ambition for satellite fleet operators — as well as opening a host of new collaborative possibilities “through the combined scale and interoperability of the two networks.”

Intelsat agreed in June to invest $25 million in OneWeb LLC, based in Britain’s Channel Islands. The ability to move customers back and forth between Intelsat’s fleet in geostationary orbit and the OneWeb constellation will be a technical challenge.

The partnership will also give Intelsat exclusive distribution rights in aeronautical and maritime markets, major U.S. government sectors, the oil and gas industry and cellular backhaul accounts, Intelsat said.

Finally, Intelsat will have “certain exclusive distribution rights for connected cars,” a market that satellite operators say could be similar to cellular backhaul for distributing automobile software updates.

Intelsat did not immediately respond to questions about whether its distribution rights were accompanied by a share of revenue from Intelsat-owned customers or any other commitment the company would make.

OneWeb officials have said Intelsat has agreed to a take-or-pay deal with OneWeb, meaning Intelsat is committed to buying an agreed amount of OneWeb capacity without any guarantee that it can sell it. It is in exchange for this commitment that Intelsat has distribution exclusivity in the areas it cited. OneWeb also maintains rights to sell direct into some of these markets.

OneWeb has agreed to integrate Intelsat’s Epic Ku-band high-throughput capacity with OneWeb’s constellation. One advantage of the arrangement is that it gives OneWeb early access to its future markets, using the Intelsat Epic satellites.

OneWeb has raised $500 million for its project and will need up to $3 billion. Its satellites are scheduled to begin launching in 2017.

C-band Battle

Much of Intelsat’s fleet operates in the same Ku-band radio spectrum that OneWeb plans to use. But a large portion of the 50-satellite Intelsat’s capacity is also in C-band.

Terrestrial wireless broadband networks are lobbying global radio frequency regulators for access to a portion of C-band now reserved for satellite providers. The extended C-band spectrum between 3.4 and 4.7 gigahertz, and particularly the lower portion of it, is considered most vulnerable when global regulators meet at the World Radiocommunication Conference in November in Geneva.

Intelsat has been among the most vocal satellite operators in saying satellite C-band cannot coexist with terrestrial broadband using the same frequency. But in its investor presentation, the company minimized the financial impact of any loss of C-band access.

“Intelsat does not have a materially negative financial exposure should extended C-band-range spectrum be reassigned,” the company said, nonetheless adding that a terrestrial wireless entry into C-band would disrupt millions of satellite customers worldwide.

Quarterly Earnings Down

For the three months ending June 30, Intelsat reported revenue of $598 million, down 3 percent from the same period a year ago. EBITDA, or earnings before interest, taxes, depreciation and amortization, was 79 percent of revenue, down from 80 percent last year.

The company said the lower EBITDA margin was caused by a bad-debt expense of $6 million during the three-month period from customers in the Middle East and Africa. Intelsat also spent $4 million during the period on what it called “antenna innovation initiatives.” Intelsat has partnered with several builders of next-generation user antennas, especially those to be used with Intelsat’s coming Epic high-throughput satellites.

Intelsat is counting on the Epic fleet’s launch starting in 2016 to provide a growth spurt. For now, the company is managing a business that is declining slightly.

Its government business, despite several new contracts, declined by 8 percent, to $95 million, in the three months ending June 30, although much of the decline was for capacity provided by other satellite fleets that is bundled into Intelsat-managed contracts. This capacity generates less profit for Intelsat than sales of its satellite bandwidth.

The debt-repayment that Intelsat effectuated in the past couple of years is now suspended, at least for 2015. Intelsat’s long-term debt stood at about $14.7 billion as of June 30.