SES Sheds Light on Plan for New Satellite; Pledges To Keep Lid on Capital Spending

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PARIS — Satellite fleet operator SES on July 25 said it ordered its first high-throughput satellite because it was unable to provide optimal service to certain government and mobility customers with a conventional wide-beam satellite.

As a result, the SES-12 satellite, recently ordered from Airbus Defence and Space, and scheduled for launch in late 2017 to SES’s 95 degrees east slot covering the Asia-Pacific region, will have 14 gigahertz of spot-beam capacity — 70 Ku-band beams and 11 Ka-band beams.

In a conference call with investors, SES Chief Executive Karim Michel Sabbagh said SES-12’s digital transparent processor, combined with the spot beams, will allow the company more flexibility to focus coverage and power where it is needed.

Sabbagh also pledged that SES will resist making any capital investments in new satellites beyond what is currently outlined in the company’s plans to 2018. After several years of high spending on new satellites, especially over Latin America and Asia, SES is now committed to keeping annual spending to around 450 million euros ($612 million), for a total of 2.3 billion euros between 2014 and 2018.

Luxembourg-based SES has four satellites under construction, including SES-12, and has said it is likely to start five more satellite builds during that five-year period.

The Mexican government recently announced its intention to proceed with an auction of two satellite orbital positions over Latin America. Sabbagh said that given SES’s focus on that region, the company likely will take part in the auction, but that any satellite decisions that result will need to fit into the existing spending plan.

SES already has 11 satellites stationed at 10 orbital positions covering Latin America, and recently won rights to two Brazilian orbital slots at auction.

SES said that for the six months ending June 30, its revenue rose by 3.1 percent, to about 939 million euros, compared with the previous year. EBITDA, or earnings before interest, taxes, depreciation and amortization, was 73.9 percent of revenue, up from 72.7 percent a year ago.

After eliminating the effects of exchange-rate fluctuations, SES said its full-year 2014 revenue would rise by 6 percent to 7 percent, assuming there are no more delays in the launch of its Astra 2G satellite.

Astra 2G, with a core market in the United Kingdom and Ireland and a secondary market in Europe, the Middle East and Africa, is scheduled to be the first fully commercial mission to launch on Russia’s Proton rocket after its return to flight from a May failure.

No firm Proton manifest has been announced, but SES said it expects Astra 2G to be in orbit before the end of the year. The delay in planned revenue from the satellite will reduce SES’s forecast 2014 revenue, but not substantially, the company said.

Europe has been a surprisingly strong contributor to the growth this year, especially since SES came out on the winning end of a dispute with rival Eutelsat of Paris over rights to a shared orbital slot that SES now controls. 

SES leases capacity to Eutelsat, with eight transponders sold as part of the arrangement, and this revenue helped the company’s European business.

Three of the biggest European satellite-television broadcasters — BSkyB of Britain and Sky Deutschland of Germany, both large SES customers; and Sky Italia of Italy, a major Eutelsat customer — have announced their intentions to merge.

BSkyB, in a presentation to investors on the synergies it expects to realize with the merger, made no mention of any potential savings on satellite bandwidth.

Because all three existing companies have major market shares in their home countries and large installed bases of satellite dishes pointed at specific satellites, even a merged entity would hesitate before consolidating satellite capacity and forcing millions of subscribers to repoint their rooftop dishes.

Sabbagh said the merger likely would be good news for SES insofar as it makes it easier for the broadcasters to adopt new technologies and to negotiate better prices for programming. Sabbagh said the deployment of ultra-high-definition television, expected to accelerate into the mass market in the next couple of years, will be easier for a merged company than for three separate entities.

But if Europe and the rest of the world appear to be growth markets for SES, North America is another story. In part because of the nonrenewal of satellite leases by the U.S. government owing to budget pressures, and specifically the nonrenewal of a lease of an infrared hosted payload aboard an SES satellite, the company’s North American business has been in decline this year.

U.S. military withdrawals from Afghanistan and Iraq have had less impact on SES than on other satellite operators, mainly because SES did not have the orbital slots needed to take full advantage of what turned out to be a decade-long revenue opportunity.

A year ago, SES’s North American business had under lease 284 transponders. That figure had dropped to 267 as of June 30.

SES Chief Financial Officer Padraig McCarthy said the comparisons between 2013 and 2014 make the situation look worse than it is, but that the company does not expect to see a material rebound in North America anytime soon despite a more-favorable contracting environment at the U.S. Defense Department.

 

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