WASHINGTON — Eutelsat Chief Executive Officer Rodolphe Belmer is taking a contrary view on short-term capacity leases and the explosive growth of video streaming — two disruptive video trends causing angst among satellite operators with substantial television broadcast business.
In a Feb. 16 conference call with investors, Belmer said the short-term capacity leases fixed-satellite service customers are requesting might not be a bad thing, and so-called over-the-top (OTT) video distributors like Netflix look more like future customers than unstoppable competitors.
Belmer also told investors that Eutelsat is joining Intelsat, Intel and SES in support of a “market-based” approach to C-band spectrum sharing that would allow super-fast 5G mobile networks planned for the United States to use frequencies currently used mainly for satellite television broadcasting.
Video applications, the largest chunk of Eutelsat’s business, comprised 66 percent of revenues for the six months ending Dec. 31. Eutelsat reported a 1.2 percent decline in video applications year-over-year to 449.2 million euros ($558.8 million), a decrease mainly attributed to a slump in professional video services such as cinema broadcast and satellite news-gathering trucks.
After shrinking three percent during the 12 months that ended June 30, Eutelsat video revenue is on track to return to “very slight growth” in this first half of 2018, Belmer said. He attributed this forecast to three factors: the rising number of high-definition television channels demanding more capacity than standard-definition channels; increasing numbers of television watchers in emerging markets; and telcos offering “triple-play” packages to customers wanting television, internet and mobile services all in one bill.
Shorter contracts and OTT
Belmer said Eutelsat’s video broadcast contracts — which have tended to lock customers in for longer periods than government and mobility customers generally accept — are starting to shrink. Big, established broadcast customers once willing to sign 10- or 15-year contracts, Belmer said, are now seeking seven- or eight-year agreements, with newer broadcast customers seeking even shorter terms.
For Eutelsat, however, Belmer said shorter contracts present a chance to raise prices, particularly for customers who push for flat rates across the term of the contract.
“We want to be able to take our fair share of the productivity gains brought by the new compression and the new modulation standards,” he said. “And if you want to be able to take our fair share of these productivity gains, and we want to reflect that in our pricing, we want to have contracts which are not sticking ourselves to fixed prices for 10 years. Otherwise it is very difficult to evolve price positively.”
Belmer, who last month joined Netflix’s board of directors, said he anticipates OTT companies will seek out partnerships with satellite companies “to go beyond their footprint of terrestrial networks, to fuel their growth once they have reached maturity on fiber networks.”
“The question is more when than how,” he said.
Belmer said in markets where Eutelsat operates, satellite broadcasting “has a very solid and sustainable and long-term competitive advantage” in reaching those often geographically dispersed populations compared to OTT.
Intelsat’s third ally
Belmer described Intelsat’s move to partner with Intel last fall to propose the U.S. Federal Communications Commision let 5G networks use some C-band satellite spectrum in exchange for compensation as “a spontaneous and unilateral step.” Nevertheless, Eutelsat is ready to throw its weight behind the proposal, which last week gained SES as a supporter.
Eutelsat operates five satellites with C-band coverage of the United States. Belmer estimated the company has 5 percent of the C-band spectrum rights in the country. Intelsat and SES own more than 90 percent. He cautioned that the proposal and everything that follows is the beginning of a complicated and lengthy ordeal.
“It’s a process which is going to take quite a long time and we are only at the very beginning of it, meaning that even though it looks very exciting, you should wait to be excited,” he said.
Broadband bounty
Belmer said most of the capacity on Eutelsat Quantum, a flexibly designed satellite that will use eight shape-shifting beams to direct capacity where it is most needed, is presold ahead of its 2019 launch aboard an Ariane 5 rocket. U.S. defense contractor Peraton of Herndon, Virginia, has reserved a significant portion of the capacity, Eutelsat’s Deputy CEO Michel Azibert said.
Meanwhile, returning customer China Unicom purchased 40 percent of the recently launched Eutelsat-172b’s high-throughput capacity, joining Panasonic Avionics who leases the other 60 percent. Both companies will use the capacity to provide inflight internet services across the Asia-Pacific.
Inflight and mobile connectivity was generally a bright spot for Eutelsat for the first half of the company’s fiscal year, growing 20.6 percent to 37 million euros. Government was flat at 81 million euros.
Belmer said Eutelsat expects to begin its Konnect Africa broadband business with the Al Yah 3 satellite around the time the company’s next fiscal year begins in July.
Al Yah 3 was deployed into an incorrect orbit Jan. 25 when its Ariane 5 rocket veered from its intended course. Belmer said the satellite, owned by YahSat of Abu Dhabi, should enter service “within the next few months” after taking additional time for orbital correction maneuvers. The spacecraft, he said, remains healthy.
Eutelsat reported net income of 157 million euros, down 18.6 percent annually. Total revenue of 697 million euros was also down 7.7 percent. Eutelsat a still expects to have slight revenue growth starting in its next fiscal year, which begins July 1.
