Eutelsat’s Satmex Acquisition Expands Satellite Fleet Operator’s Global Reach

by

PARIS — Mexican legislation allowing foreign ownership of domestic satellite operators was the sine qua non of Eutelsat’s purchase of Mexico’s Satmex, a move that, coupled with investments in Russia, has transformed France’s Eutelsat into a global presence, Eutelsat officials said July 31.

The billion-dollar purchase — $831 million in cash plus assumption of $311 million in Satmex debt — gives Paris-based Eutelsat a major presence in what industry officials see as perhaps the fastest-growing region for bandwidth demand.

Satmex has only three satellites, including one that does not generate much revenue, but has two more on order with options for more, at attractive prices, with satellite builder Boeing Space and Intelligence Systems and launch services provider Space Exploration Technologies Corp. (SpaceX), Eutelsat Deputy Chief Executive Michel Azibert said in a presentation to investors.

Industry officials were already debating whether Eutelsat paid too much given Satmex’s modest contract backlog and the fact that the Mexican government is ordering its own satellites and could become a de facto Satmex competitor.

Eutelsat Chief Executive Michel de Rosen said the critics are missing two points: that Satmex’s troubles are behind it and double-digit annual revenue growth is straight ahead; and that Eutelsat will now have full control of the Mexican operator.

“We would never, never have paid what we are paying if we were not confident that we would gain control of the company,” de Rosen said during the investor conference call.

Mexican law recently was changed to permit companies like Eutelsat, or non-Mexican financial investors, to own Mexican satellite operators. Eutelsat said the purchase of Satmex should clear Mexican regulatory approval before the end of the year.

With Satmex now part of Eutelsat, and Eutelsat’s own recently announced decision to purchase a large C-, Ku- and Ka-band satellite to be stationed over Brazil, the Paris operator becomes a major player in Latin America.

More specifically, Eutelsat also becomes a major competitor to Hispasat of Spain, whose main growth in recent years has come from its Amazonas series of satellites over Latin America.

Eutelsat owns 33.69 percent of Hispasat after its purchase of additional shares in December following Telefonica’s exit as a Hispasat shareholder. 

De Rosen said a new Hispasat shareholder pact with co-owners Abertis of Spain and the Spanish government has been approved by the three owners and has been sent to the European Commission for regulatory validation. The Spanish government subsequently must confirm its approval.

“There is consensus in our industry that Latin America will be the fastest-growing region in the world” in the coming years for fixed-satellite services, de Rosen said, adding that Eutelsat has owned Hispasat shares for more than a decade while it continued to compete with the Spanish operator in Europe.

Eutelsat’s investment in Latin America is happening at the same time as the company expands its reach in Russia through an expanded partnership with Russian Satellite Communications Co. (RSCC), Russia’s biggest commercial fleet operator.

The enlarged cooperation involves three satellites under construction on which Eutelsat has agreed to lease large amounts of capacity for the satellites’ full in-service lives.

Eutelsat Acting Chief Financial Officer Ariane Rossi said the company has recently changed its reporting of capital spending to include such leases, which with RSCC total 859 million euros ($1.14 billion) — about the same as the Satmex purchase price.

Eutelsat is leasing 19 Ku-band transponders on the Express AT1 satellite, set for launch late this year to RSCC’s 56 degrees east slot; eight Ku-band transponders on RSCC’s Express AT2 satellite at 140 degrees east, also set for launch late this year; and up to 52 Ku-band transponders and 18 Ka-band beams on the Eutelsat 36C/Express AMU1 satellite to launch in late 2016 and to operate from 36 degrees east.

With its already solid presence in Europe, the Middle East, Africa and Central Asia, the Russian and Mexican expansion puts Eutelsat into the same league, in terms of reach, as competitors SES of Luxembourg and Intelsat of Luxembourg and Washington.

Azibert said the company is revamping its commercial approach to counter competitive pressures, from satellite and terrestrial bandwidth, for data services in Africa. Over Europe, Azibert said, Eutelsat’s Hot Bird fleet of direct-broadcast television satellites has seen little pricing pressure and has been able to increase transponder-lease prices.

Azibert said Eutelsat’s Ka-Sat Ka-band satellite, one of the first high-throughput spacecraft to enter service, has been a drag on the company since it entered service in May 2011. Eutelsat changed its approach to consumer broadband, hired a new team and in the past four months has begun to see the kind of growth that it originally thought would occur as soon as the satellite became available.

As of June 30, Eutelsat’s Ka-Sat enabled broadband service counted 91,000 active terminals, up from 62,000 on Jan. 1 and 39,000 a year ago. France, Spain and Britain are the three biggest markets, he said, and new commercial incursions are being made into Turkey and Russia.