PARIS—Satellite fleet operator Eutelsat on Feb. 17 said its decision to sell 50 percent of its consumer satellite broadband business to ViaSat Inc. is not a retreat but an acknowledgement that ViaSat, through its U.S. satellite broadband business, has developed skills that Eutelsat does not have six years after debuting its own consumer broadband service.
Paris-based Eutelsat said it plans to adopt the same model for its future African Ka-band broadband business, where it is partnering with Facebook. Eutelsat recently created a British-based subsidiary for its African broadband venture and will be selling shares to companies with greater knowledge of African consumer markets.
Eutelsat has agreed to sell Carlsbad, California-based ViaSat Inc. about 50 percent of Eutelsat’s Ka-Sat-based Ka-band consumer satellite business for 132.5 million euros ($144 million). The companies will create two joint ventures — one focusing on wholesale satellite broadband sold to distribution partners, the other a retail business in which ViaSat will have a 51 percent stake.
Rodolphe Belmer, who as of March 1 becomes Eutelsat’s chief executive – outgoing Chief Executive Michel de Rosen will become chairman – said Eutelsat acknowledges it has not mastered the direct-to-consumer business but believes in it more than ever.
“We have concluded that this business has considerable potential across both mature and developing markets, and we intend to capture the potential with a prudent but determined strategy,” Belmer said in a Feb. 17 press briefing. “Creating joint ventures can help us develop the needed business models.
“We are developing applications that are new to us,” Belmer said. “We’ll benefit in Europe from ViaSat’s experience in distribution to end users and retail customers. In Africa we’ll follow the same strategy, with a joint venture partner with knowledge of the local markets. That is our logic here. It is by no means a retreat, but allows us to prove out a business model.”
Eutelsat’s Ka-Sat satellite had 190,000 subscribers as of Dec. 31, flat from Sept. 30. The company said Ka-Sat beams over its highest-demand regions in France, Ireland and the United Kingdom were about full. Penetrating lower-demand markets in Ka-Sat’s European footprint will be the job of joint venture with ViaSat. Eutelsat has not decided on how and when to boost capacity to grow its most dynamic Ka-Sat markets.
In separate conference calls with investors and journalists on the company’s financial results for the six months ending Dec. 31, Eutelsat officials said its business with the U.S. Department of Defense continues to suffer from a decline in demand.
The U.S. Defense Department’s satellite lease contracts with Eutelsat have staggered durations but typically come up for renewal twice a year, in the autumn and in the spring.
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Eutelsat said only 80 percent of the contracts were renewed in the latest period, a figure the company arrived at by blending both per-megahertz prices, total demand volume and contract durations.
Michel Azibert, Eutelsat’s chief development officer, said many of these contracts had five-year durations and that satellite bandwidth prices in the interim had dropped. That plus the shorter duration of new contracts led to the 80 percent renewal rate, he said.
Eutelsat said its government services division was down 5 percent in the six months ending Dec. 31 compared to the previous year. But he said early indications are that the coming spring renewal period may see new contracts awarded based on military demand for connectivity in the Middle East and Africa.
“This year will be relatively difficult for government services as we forecasted,” Azibert said. “The recent contract activity we have seen is not spectacular but is better than last year.”
Eutelsat’s relations with satellite fleet operator Hispasat of Spain, in which it owns a 33.7 equity stake, have been complicated in recent years as the Spanish operator has grown, especially in Latin America, and flexed its muscles in ways that are not necessarily in concert with Eutelsat.
The two companies have bumped heads in the Americas, where Hispasat generates two-thirds of its revenue, and both have expressed interest in purchasing Israeli fleet operator Spacecom.
Hispasat on Feb. 15 reported that revenue for the year ending Dec. 31 rose by 8.7 percent, to 219.6 million euros, while EBITDA – earnings before interest, taxes, depreciation and amortization – rose by 10.6 percent and represented 81.5 percent of revenue.
Spanish government authorities over the years have blown hot and cold on a possible Eutelsat takeover of Hispasat. Toll-highway operator Abertis of Spain is now the majority shareholder following a Spanish government refusal to allow a Eutelsat acquisition.
The question for Eutelsat has become whether it cannot find a better use for its cash than to wait for its annual share of Hispasat’s profit.
For de Rosen, there is no question of cashing out of Hispasat. He said he remained confident that, over time, Abertis will want to focus on its core business and at that point would be willing to sell. Eutelsat has veto rights over an eventual buyer of the Abertis shares, and de Rosen said Eutelsat and Abertis likely would agree to a sale to the Paris operator. At that point, he said, he is confident that Hispasat, Abertis and Eutelsat would be able to persuade the Spanish government that merger is in everyone’s interest.
“When that day will arrive, we don’t know,” de Rosen said. “But it certainly won’t await the next century. This is a business for marathoners, not sprinters. We have no intention of monetizing our Hispasat stake. We hope that after this long waiting period, we will end up with a merger of the two companies.”
