Eutelsat Bullish on Ka-Sat Service Despite Slow 1st Year

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PARIS — Satellite fleet operator Eutelsat on July 31 sought to reassure investors that its Tooway Ka-band broadband service, while growing more slowly than expected, has lost none of its longer-term promise.

In a conference call with investors, Eutelsat provided its first accounting of the Tooway business, which is powered by the Ka-Sat satellite that became operational in geostationary orbit in May 2011.

The remarks thus took into account a full year of Tooway operations.

On the positive side, Eutelsat said the use of 16 APSK modulation technology has squeezed additional capacity out of Ka-Sat, which is capable of 90 gigabits per second of throughput instead of the initial 70 gigabits per second. The added capacity could provide more bandwidth to the same number of subscribers, or enable Eutelsat to load more subscribers onto Ka-Sat.

Eutelsat said that as of June 30, its consumer broadband business had 52,450 subscribers. The company’s entire value-added services business generated 49.9 million euros ($62.4 million) in revenue for the 12 months ending then.

Not all of this revenue is attributable to Tooway. One-quarter of these subscribers are legacy customers from Eutelsat’s smaller, pre-existing satellite broadband service, meaning the company has been able to add no more than 39,300 Tooway subscribers in Ka-Sat’s first year of service.

Eutelsat Deputy Chief Executive Michel Azibert said the Tooway/Ka-Sat market “is taking longer than expected” to develop, especially with respect to professional services.

Azibert said Eutelsat has beefed up its Tooway management team and is developing custom services for corporate users. On the consumer side, Eutelsat revamped its service offering to add higher-speed options. Azibert said specialized offers would be made to provide Ka-Sat Ka-band broadband connectivity to manned and unmanned aircraft, and to the maritime markets.

“We have now taken decisive steps and we are confident that growth will develop this year,” Azibert said.

Current Tooway subscribers are paying fees averaging around 25 euros per month, a figure Azibert cautioned could come down as Tooway/Ka-Sat service is extended east and south of the core Western European market where most current Tooway subscribers are located.

Eutelsat Chief Executive Michel de Rosen said the company now believes that Ka-Sat will generate 100 million euros in new revenue — meaning revenue beyond the shift of current customers to Ka-Sat — by 2015, a year later than Eutelsat’s previous indications.

Eutelsat is the world’s third-largest satellite fleet operator by revenue. Among the top operators, it has distinguished itself by refusing a transformational acquisition to establish a global footprint in a single stroke. That policy will not change, de Rosen said, noting that Eutelsat refused to make a bid for Canada’s Telesat when that company was on the sales block before its owners decided not to sell.

He said the company is nonetheless interested in purchasing smaller operators for specific markets, such as the GE-23 satellite over the Pacific Ocean region that Eutelsat is buying from GE Capital for $228 million in cash.

Eutelsat, de Rosen said, is also interested in bidding for Greek satellite operator HellasSat, once that company’s owner, Hellenic Telecommunications Organization S.A., begins the long-expected sales process. SES of Luxembourg has also signaled its interest in HellasSat.

Eutelsat spooked investors this year when it declined to discuss Ka-Sat/Tooway performance and also said growth of its Multi-Usage business, which has developed rapidly in recent years on the strength of contracts with the U.S. Defense Department for capacity over the Middle East and Central Asia, would be slowing.

For the 12 months ending June 30, Eutelsat’s Multi-Usage business generated 146.5 million euros in revenue, up 16.7 percent from the same period a year ago. Presaging a slowdown, Eutelsat said it booked fewer contracts than expected during a scheduled renewal period in February and March, in part because the company lacked sufficient capacity in the places desired by the U.S. government.

The company has said the scheduled launches of the Eutelsat 21B and Eutelsat 70B satellites later this year should remedy the situation.

Eutelsat reported a 4.6 percent increase in overall revenue, to 1.22 billion euros, for the 12 months ending June 30. EBITDA, or earnings before interest, taxes, depreciation and amortization, was 78.3 percent of revenue.

Eutelsat said revenue growth for the next three years would average between 5 percent and 6 percent per year, with EBITDA margins holding at around 77 percent.

The company’s core video distribution business grew by 5.8 percent in the year. The number of TV channels carried on Eutelsat’s fleet increased 10 percent, to 4,261 as of June 30. Of these, 346 channels were high-definition. HD programming now accounts for 8.1 percent of Eutelsat’s broadcasts, compared with 5.7 percent a year ago.

Eutelsat said that it will be ordering a new satellite, Eutelsat 8 West B, to be launched in 2015 into the 8 degrees west longitude orbital slot. Eutelsat plans to move one of its in-orbit satellites to this orbital position in 2013 to capture demand there. The company did not identify which satellite it would be moving.

Azibert said Eutelsat’s rights to orbital slots at 7 degrees and 8 degrees west are “a fantastic asset” that has already lured 40 million homes, mainly in the Middle East and North Africa, to its television lineup. The Eutelsat 7 West A satellite at 7 degrees west longitude was brought into service in October and now beams 534 channels.

Azibert said Eutelsat has clearly overtaken competitor Arabsat of Riyadh, Saudi Arabia, in winning new television customers in the region. Arabsat and Eutelsat are embroiled in a dispute over rights to broadcast frequencies at the 25.5 and 26 degrees east positions, a dispute that may have been the cause of recent high-power interference that knocked out multiple transponders on the Eutelsat 25A satellite.

Eutelsat and France’s National Frequencies Agency sent letters to the International Telecommunication Union and to the government of Saudi Arabia over the issue without explicitly assigning blame to Arabsat or the government of Saudi Arabia.

Eutelsat spokeswoman Vanessa O’Connor said in a July 31 interview that the interference, which began July 14, ceased the week of July 25.

Eutelsat has six satellites under construction currently; Eutelsat 8 West B, whose construction contract is in final negotiations, will be the seventh.