Eutelsat CEO: Quantum satellite delayed, C-Band Alliance divided on treasury contribution

by

WASHINGTON — Manufacturing delays and launcher availability mean Eutelsat Communications’ “chameleon satellite” won’t launch until the second half of 2020 instead of late this year as planned. 

The setback means Paris-based Eutelsat, having just overcome a delay with a consumer broadband initiative in Africa, will have to defer a second growth effort, this one focused on government connectivity. 

Eutelsat Quantum is a software-defined, reprogrammable satellite from Airbus Defence and Space and its British subsidiary Surrey Satellite Technology Limited. The European Space Agency helped finance the satellite, which carries new technologies for changing the size, shape and power of satellite beams.

European launch provider Arianespace is contracted to launch the satellite on an Ariane 5 rocket. 

Eutelsat now projects revenue from Quantum to start in fiscal 2021, CEO Rodolphe Belmer said during a July 31 earnings call. Belmer said Quantum is expected to generate significant revenues starting in fiscal year 2021 since a substantial portion of its capacity is already reserved. 

Eutelsat said in 2018 that U.S. defense contractor Peraton had booked the majority of Eutelsat Quantum’s capacity. Belmer estimated the satellite will generate around 40 million euros annually, similar to the average across its constellation of nearly 40 geostationary satellites. 

During the call, company executives stressed that while Eutelsat has struggled to match revenue projections, other metrics show the company growing stronger and more profitable. The company’s EBITDA, or earnings before interest, taxes, depreciation and amortization, reached a record 78.1% thanks to a cost-saving initiative called LEAP-1 that shed 32 million euros in operating expenses since 2017.

The success of that initiative — Eutelsat’s initial target was 30 million euros — inspired the company to start another. LEAP-2 will seek to cut another 20 million to 25 million euros in another three years, Belmer said. 

Sandrine Téran, Eutelsat’s chief financial and IT officer, said the company was able to comfortably pay shareholders a 310 million-euro dividend after reaching 408 million euros in discretionary free cash flow.

Eutelsat’s ratio of cash flow to revenue nearly doubled since 2016 from 16% to 31% in fiscal year 2019, she said. 

Eutelsat set a new target of 500 million euros in discretionary free cash flow in its in fiscal year 2021-2022, and initiated a buyback program with the intent of purchasing at least 100 million euros in shares over the next three years. 

“With the exception of revenues, all of our financial objectives were either met or exceeded,” Belmer said. 

Eutelsat reported 1.3 billion euros in revenue for its most recent fiscal year, which ended June 30, down 5% from the prior year. EBITDA was down 4.3% to 1 billion euros. 

Post-Viasat broadband strategy takes shape

Belmer reiterated Eutelsat’s conviction that broadband will be the catalyst for its return to growth. 

A new wholesale capacity approach Eutelsat began in December is bearing fruit with KA-SAT, the operator’s sole broadband satellite over Europe, Belmer said. 

Eutelsat began a “Preferred Partnership Program” in December to commercialize KA-SAT capacity with wholesale partners rather than going directly to consumers. The shift in strategies followed Eutelsat’s 2018 decision to scrap a co-investment in Viasat’s second ViaSat-3 satellite and double down on its own dedicated broadband satellites. 

Belmer said Eutelsat is now seeing subscriber growth for satellite internet in Europe, though he did not give a number. The net increase is small, he said, but validates the company’s strategy for service with its Konnect satellite after it launches late this year, and with Konnect VHTS when it launches in the second half of 2021.

“We seem to have finally found the appropriate commercial strategy in Europe with this [preferred partnership program] strategy, which is very good news,” he said. 

Eutelsat’s 75-gigabit-per-second Konnect satellite and 500-gigabit-per-second Konnect VHTS satellite, both from manufacturer Thales Alenia Space, are the “key elements of our return to growth,” Belmer said. 

He confirmed that Konnect, originally intended solely for Africa, will also have coverage of Europe. Eutelsat decided to split coverage between the two continents to get a head start over Viasat of Carlsbad, California, whose 1-terabit-per-second ViaSat-3 EMEA satellite is projected to launch in 2021 or 2022

Belmer said Eutelsat’s Africa-focused broadband business, Konnect Africa, is expanding rapidly after overcoming rollout issues earlier this year. Broadband in Europe and Africa will fuel Eutelsat’s return to growth, he said. 

C-band proceeds unclear, U.S. Treasury contribution divisive

Eutelsat is one of four satellite operators that could gain a windfall tallying hundreds of millions if not billions of dollars from the sale of some C-band spectrum in the United States. Belmer suggested, though, that how those proceeds would be get divvied up remains unclear despite the proximity of a decision by the U.S. Federal Communications Commission. 

Belmer said the C-Band Alliance — a group comprised of Intelsat, SES, Eutelsat and Telesat — is weighing out how much of any proceeds each member would gain based on their 2017 U.S. C-band revenues. A calculation is expected by the end of the month, he said while suggesting that the group is stalling on getting it done. 

“It’s very late … they are procrastinating on that,” he said. 

Belmer said the C-Band Alliance also lacks internal consensus on the details of a voluntary contribution to the U.S. Treasury from a spectrum sale. 

“There is no real agreement and alignment on that question within the CBA, contrary to what has been said in some instances recently,” Belmer said. 

Peter Pitsch, the CBA’s executive vice president of advocacy and government relations, said July 16 to Congress that the alliance had agreed to make a “significant voluntary contribution to the U.S. Treasury” from any sale proceeds. Intelsat CEO Stephen Spengler praised the decision July 30, saying the group “won’t let something easily addressable stand in the way of adopting our proposal.”

Belmer said CBA members need to discuss the contribution further, but declined to say more, citing governing rules of the alliance. 

“What I can tell you is that this voluntary contribution to the U.S. Treasury is not part of the scope of the CBA,” he said. “It needs to be discussed and aligned within all the members of the CBA, meaning the four of us, and for the moment there is no alignment on that.”