PARIS —Chief Executive David McGlade on March 3 laid out the company’s strategy for transforming its zero-growth near-term prospects into accelerated revenue with deployment of Intelsat’s Epic series of high-throughput satellites.
In a presentation at a conference organized by Raymond James investment advisers, McGlade set the Epic program alongside similar efforts by competitors, , ViaSat, and Telesat.
Luxembourg- and Washington-based Intelsat generates between 10 and 15 percent of its revenue from mobility applications, mainly on aeronautical and maritime platforms for government and corporate users.
That figure would be a lot higher if Intelsat had capacity available over the major air and maritime corridors, McGlade said. It does not, and the first Epic spacecraft will not be operational before 2016.
It will be a long wait for Intelsat, which has already told investors to expect a drop in revenue in 2014. Intelsat has two satellites for the Latin American division of DirecTV Group of El Segundo, Calif., set for launch in 2014 under a contract expected to produce $1.2 billion for Intelsat over 15 years, but that revenue is already in backlog.
As it is, the growth in the mobile business in 2013 offset the decline in U.S. military revenue, a drop that Intelsat said is likely to accelerate in 2014. McGlade said that in addition to the decrease in military activity in Iraq and Afghanistan, the U.S. Defense Department has gotten smarter about buying satellite bandwidth.
“During the Iraq and Afghanistan engagements they purchased capacity without coordinating between the Army and Navy and Air Force the way they are today,” McGlade said.
Ironically, McGlade and other satellite fleet operators have been trying to get the military to become smarter satellite customers. But these companies hoped reform would come in the form of longer-duration leases of capacity and not in the form of pooling and sharing of capacity between services. Intelsat’s government business, which accounts for about 18 percent of the company’s total revenue, dropped 10 percent in the three months ending Sept. 30 and 14 percent in the three months ending Dec. 31.
A Ku-band Advantage
Intelsat is positioning Epic as a high-throughput satellite capability that works regardless of frequencies. With the exception of Ottawa, Canada-based Telesat, which has a single Epic-type satellite on order, all competing high-throughput offers are proposing the use of Ka-band.
Intelsat’s Epic is using Ku-band, offering customers backward compatibility for their large installed base of ground gear. If Intelsat’s competitors had Intelsat’s stable of unused orbital slots, they might do the same.
“Our orbital rights are so extensive — we have more than anyone else — that they allow us to coordinate with ourselves” in assuring no-interference transmissions between satellites even when closely spaced in geostationary orbit, McGlade said. “That means we can manage how we use those frequencies. From there, we are able to reduce our cost per bit, and deliver more bits per hertz — a double efficiency with faster throughput and using the capacity more intelligently.”
SES of Luxembourg, Intelsat’s biggest global competitor, thus far has not sought to mimic the Intelsat Epic example, in part because SES does not have idle orbital slots over midocean and other mobile routes.
To capture the mobile market, SES has invested in O3b Networks, which is building a constellation of satellites in low orbit to cover a large zone north and south of the equator, worldwide. The first four O3b satellites are in orbit, and up to eight more are scheduled for launch this year.
Other than O3b, no large fleet operator has sought a global or near-global high-throughput footprint. Intelsat has always been skeptical of O3b’s feasibility.
McGlade said Telesat’s Vantage satellite, under construction and aimed in part at mobile applications, has similar characteristics but does not have Epic’s throughput or coverage. “Telesat is dipping its toe in the water with higher throughput than they have today, but not the kind of throughput we will have,” he said.
Paris-based Eutelsat, the world’s third-largest fleet operator by revenue after Intelsat and SES, has one Ka-band high-throughput satellite, Ka-Sat, for broadband and mobile applications in Europe, the Middle East and Africa, but the company has no plans to expand its effort globally.
Similarly, satellite broadband provider ViaSat Inc. of Carlsbad, Calif., while broadening its portfolio beyond consumer broadband to include aeronautical applications, is sticking to its home region, the Americas, even with a second high-throughput satellite, ViaSat-2, under construction.
“The only other company that we see that has global coverage is Inmarsat,” McGlade said of the London-based mobile services provider, which has a large installed base of aeronautical and maritime customers in lower-speed L-band and is building a global Ka-band system called Global Xpress. “But they’re challenged from a throughput standpoint.”
Intelsat competitors say the company has little choice but to hold out the promise of Epic given that it is showing no revenue growth in the near term and, since its initial stock offering in 2013, must please investors who bought shares not just to watch Intelsat reduce its debt.
Follow Peter on Twitter: @pbdes