Romain Bausch is retiring from his post as chief executive of satellite fleet operator SES after 19 years that saw the company transform itself from a niche provider in Europe into the world’s second-largest operator by revenue.
It is probably fitting that in 2014 Luxembourg-based SES will surpass rival Intelsat in revenue for the first time. It is also fitting that Bausch’s successor, Karim Michel Sabbagh, was selected in part for his experience in emerging markets at the former Booz & Co.’s Dubai office.
In an interview with SpaceNews staff writer Peter B. de Selding, Bausch looks back on his successes and a couple of regrets, assesses the current competitive landscape and the proliferation of national satellite operators, and gives his take on solving the mystery that is Dish Network/EchoStar owner Charlie Ergen.
What do you see as the highlights of your tenure at SES?
It’s probably the acquisitions. Investing in satellites for organic growth, if you know the market and have good technical teams and sales teams, is almost business as usual.
But our two acquisitions, of GE Americom in 2001 and New Skies in 2006, were really big events. We were a relatively small company in 2001, and the whole undertaking was not without risk. Both were really well done and paved the way for SES to develop as it eventually did develop.
Has the purchase of U.S.-based Americom worked out as planned?
Americom has kept its position as one of the two major satellite operators in the United States, along with Intelsat. We got what we thought we were buying.
A lot of the value was in helping us in developing the company beyond the U.S., with assets that Americom had in Latin America and in Asia, and over the Indian Ocean. This laid the foundation for our entry into the emerging markets, which continued with the acquisition of New Skies in 2006.
The launch failure of Astra 1K in 2002 prevented us from pursuing our broadband activities. Astra 1K had a Ka-band spot beam payload, a bit like Eutelsat’s Ka-Sat, but 10 years before it.
The beauty of that satellite was the dynamic bandwidth allocation, with flexibility to use all the bandwidth in two of the 16 beams, and nothing in the remaining 14 beams, or to spread it equally among the 16 beams — and any combination in between. That is missing today in the current high-throughput satellites, with fixed beams and not enough flexibility for a satellite that has to operate for 15 years.
Your Astra 1K launch provider said the rocket was successful, but only the upper stage that failed.
Yes, they even claimed it was a launch success because they had successfully separated the upper stage, so they did their job.
Any missed opportunities?
In the early 1990s, when I was not CEO but was on the board, there were four companies that developed digital compression, and the company that was to become DirecTV in the United States was being formed. We were discussing internally whether it would make sense for SES to launch a kind of DirecTV Europe.
We ultimately decided that Europe was different from the U.S., and that SES’s position in the value chain should be as the satellite infrastructure provider and technical service provider, and that we should not go down the value chain.
I think it was the right decision. But it was a valid question. It’s one of the most important strategic decisions we took in the early development of the company.
What about your minority shares in satellite operators in Brazil and Hong Kong, which you eventually sold?
At that time acquiring 100 percent of a satellite operator made the most sense because you can generate capex [capital expenditure] synergies. You can only do so if you have full control of where to put your satellite, how to develop your orbital slots, how to move the fleet around when needed. These things justify an acquisition.
If you don’t have full control, these things don’t work out. That’s what happened to us with Star One of Brazil and AsiaSat of Hong Kong. The purchase of New Skies gave us 100 percent ownership in assets over these emerging markets.
Insisting on 100 percent control was the right decision at the time, and may still be today when it comes to acquisitions. But what is new today is this mushrooming of national and regional satellite operators, some with aggressive growth strategies. It makes sense for a global operator like SES to enter into partnerships. This could mean minority participations, or joint ventures with these regional satellite companies.
Most of these companies are focuses of national pride and will not be for sale. There is not one size that fits all, but the point is to find the right business model in different regions, with different companies, to have a federation of national and regional satellite operators around a global satellite operator like SES.
It would be to create in the satellite field something similar to the Star Alliance in the airline world.
One of the reasons we are so positive about Karim as my successor is because of his knowledge of the emerging markets and his relationships with the players in these regional markets — company managers, regulators, decision-makers.
Buying New Skies resulted in overlaps with Star One and AsiaSat and led to your selling your minority stakes in these two companies?
Yes. When we acquired New Skies in 2006, we acquired assets that competed with AsiaSat in Asia and Star One in Latin America. And we had 100 percent control of these assets. From a business perspective, we had no choice but to do this.
You invested in ground-based satellite services alongside your satellite infrastructure business, saying you could increase services’ profit and steer business to the satellite infrastructure. Did that work out?
Yes, but it really took awhile to explain it to investors. We did increase the EBITDA [earnings before interest, taxes, depreciation and amortization] margin, and investors now understand that these businesses are not going to compromise the main business of video. Today we have something like 78 percent of our revenue coming from infrastructure, and 22 percent coming from services. The services side is growing slightly faster than the infrastructure, but not dramatically faster.
Of course, some investments don’t develop as you hoped, and this was the case for our IP Prime service. Our investment in ND Satcom was necessitated because that company’s majority shareholder basically went bankrupt. We had to take over to keep ND Satcom alive. And later, we had to explain why ND Satcom was polluting our numbers because of the delay in the German Satcom Bw project.
Is it difficult to reconcile the demands of a publicly traded company with the satellite business? Did you ever think about delisting?
It is frustrating for management when you know the business is developing well in the mid- and long-term, and when as a 55-satellite company a satellite failure is not the end of the world.
The European Commission has raised the idea that listed companies would only need to report twice a year, to get away from the quarterly reporting. This would help.
If you are persistent, you can change the composition of your institutional investors, and this is also helpful. Some years ago we had hedge funds among our investors. Now when we go on road shows, there is no hedge fund that even wants to meet with us. We now have large shareholders who are interested in the longer term. I am convinced that is one reason why our share price today, as a multiple of our EBITDA, is better than it ever has been.
We have been patient in building relations to the investor community and we have succeeded in attracting the right investors given the characteristics of our business.
Are these investors likely to be spooked if there is a problem with another large publicly traded satellite operator, such as Intelsat?
Our business, and Eutelsat’s, is different from Intelsat’s given the size of our video business. In the government market, we are different from both Intelsat and Eutelsat because we were not able to contract entire satellites to the U.S. military and NATO when they needed the capacity in Afghanistan and Iraq. With the withdrawal of the troops, we are not being negatively impacted, just as we were not positively impacted before.
We have explained to the investor community that Intelsat, owned by private-equity companies, is highly leveraged and will not be able to make the same kind of growth investments that we do.
Intelsat says its Epic high-throughput satellites will provide growth, especially among aeronautical and maritime customers.
Intelsat Chief Executive David McGlade has done a nice job with Epic, and done good marketing. He’s also addressing segments of the market that require additional capacity. It’s replacing satellites in a clever way. But beyond this, Intelsat must delever and its owners, BC Partners and Silver Lake, need to have an exit in the next couple of years.
Is Telesat in the same boat with high debt and a shareholder, Loral, looking for an exit?
Telesat is generating a lot of cash flow and is deleveraging fast. For Intelsat, when they get to a debt level of five times or six times EBITDA, another private-equity investor might come in and see a bit of upside by leveraging the company up to seven or eight times EBITDA again.
You are moving into aeronautical and maritime markets by putting dedicated beams over oceans. Did you ever contemplate an acquisition in the mobility sector?
The aeronautical and maritime markets are small compared to video, but they are growing faster. That’s why we are interested in it. We put ocean beams on SES-6 and on some of the Asian satellites. And when we replace existing satellites we will also put these beams on them — basically doing what Intelsat has done but with less marketing.
But also take our O3b mobile broadband project into account. That is perhaps going only to the high end of the maritime applications leisure ships, super-yachts — a rich segment that will be very well served by O3b.
We looked at mobility very early. Unfortunately our customer — Connexion by Boeing — failed. We had a satellite built to optimize for mobile applications. Now we are there again and this time, because of deals we have signed with Panasonic, with Gogo, with Row 44, and for maritime with KVH, we have a better customer base.
But no strategic transaction, for example with Inmarsat, appealed to you?
Inmarsat’s current L-band is not the solution for broadband. Is Inmarsat’s coming Global Xpress the solution? I see SES, and Intelsat, and maybe regional operators investing in Ku-band optimized with spot beams for these applications.
I am not sure the market will go Ka-band, first of all. Second, because Inmarsat is still about maritime, the capacity available on the different beams that Inmarsat will have available is not really broadband when you compare it to some of the high-throughput satellites that others are building. So I am not sure Global Xpress will be the most successful in the mobility market.
Does the proliferation of national satellite operators become a problem for your business at some point?
Yes, that’s clear. If we look at it from a bandwidth perspective, there will be an oversupply in the market with the combination of what global, regional and national operators are putting in space. There’s no doubt about it.
But there is still a question of the quality of what is put in space. It’s not all the same. Chinese launchers are very good, but Chinese satellites are not yet at the reliability level of U.S. or European satellites. Many of these national satellites are being built and launched through barter deals with China.
Companies with only one satellite have no redundancy and no backup. Quality of product, of service, of marketing and sales — these make a difference.
Isn’t the International Telecommunication Union (ITU), the global spectrum regulator, promoting the entry of new satellite operators?
ITU rules allow those that are established to conduct their activities, while those who are coming in must coordinate with those who already in business. This means these national satellite systems have quite limited coverage — their national territories and maybe neighboring countries. They definitely don’t have global coverage.
Overcapacity will be a fact. The advantage is that these new satellite operators will have a need to connect their satellites outside of their coverage area. Therefore they need to partner with a global satellite operator offering this global connectivity.
So I look at this as definitely a threat from the bandwidth perspective, but as an opportunity from a partnership perspective. What they are doing and what we are doing can really be a win-win for both sides.
These nations are coming in late and face a crowded orbital arc. Could they force ITU rule changes?
Yes, and last time there were proposals from a couple of nations that came in with crazy proposals. But this is not something that will happen in a World Radiocommunication Conference (WRC). Don’t forget: There has never been a vote in a WRC. Everything goes by consensus. To reach consensus with the established players will obviously take a long while.
Over time they will try to have rules, perhaps in some frequencies, to allow easier access to space for nations who are not in space today. But this will be slow and it will be marginal in terms of the bandwidth that will be impacted.
I also believe that this is a fair request. From a business perspective, we and the other global satellite operators want to defend our position — that’s clear. But from the perspective of these countries, I understand they want to have the possibility to add satellites to the infrastructure they want to build for their economies.
So it depends which Romain Bausch I get on a given morning: the one protecting his business or the one who understands my position?
We have a good relationship with the ITU secretary general and we agree: There will be a modus vivendi where these different objectives will be combined and that’s what the ITU is about. It takes a lot of time, but at the end of the day the ship is moving, if slowly.
Is the satellite sector fully prepared for WRC 2015 and its preparatory meetings already starting?
We are in a much better position than we were in 2007. This is also an area where we can enlist the support of the new national and regional satellite operators to persuade the ITU that the terrestrial broadband mobile requirements are actually way below what they are asking for. If the total amount of satellite bandwidth shrinks, accommodating the smaller satellite operators becomes more difficult.
Because it will be a smaller pie that needs to be shared?
Yes, and if so many nations now want to develop their satellite business, they will be more sensitive to the argument of the satellite industry at the ITU, which was not the case before.
Kalpak Gude, formerly of Intelsat and a leader of the satellite defense team in 2007 during WRC 2007, now wonders whether the sector may be asking too much.
Kalpak is saying we should be using the spectrum as efficiently as possible. With the advent of high-throughput satellites we are doing it. We can accept some criticism, but we are doing things to improve it.
You’ve had more dealings with Charlie Ergen than most. Do you think you understand him after all these years?
Charlie has had different pages in his life in building Dish and EchoStar.
In the past couple of years he has probably reached the point where thinks he’s done just about all he can in the satellite business, and is now trying to do a broader play, combining satellite and terrestrial spectrum. That’s his second plan, and to some extent he’ll let the first one be bought by other people.
Charlie is consistent. Obviously his style is very particular. We have never had a problem with him because our interests were most often aligned.
And if Americom asked you to invest $3 billion in two bankrupt companies with a spectrum asset that will require billions more to fully deploy? That’s what Ergen agreed.
We would not do it! Our share price would tank! But we are not Charlie and we are not EchoStar.
Ergen purchased the S-band satellite-terrestrial business, Solaris Mobile, that you owned jointly with Eutelsat, to do in Europe what he’s trying to do in the United States. Why couldn’t you two make it work?
We both want to be satellite infrastructure guys only and we did not succeed in convincing the telcos, or the equipment manufacturers, the Ericssons of this world, or financial investors, to invest in the terrestrial infrastructure — and that’s what complementary ground components are about. That’s the reason why we gave up.
If you decide to be in the satellite infrastructure business, there are some developments you cannot do unless you find partners who are willing to invest.