PARIS — Satellite fleet operator Eutelsat on Feb. 12 said it is renegotiating euro-based television broadcast contracts with Russian customers whose satellite bandwidth costs have doubled in the past six months with the collapse of the Russian ruble.
Russia accounts for about 5 percent of Paris-based Eutelsat’s revenue, and Eutelsat has viewed Russia and a partnership with Russian fleet operator Russian Satellite Communications Co. as a long-term growth market.
In a conference call with investors, Eutelsat Chief Executive Michel de Rosen said the company – the world’s third-largest commercial fleet operator by revenue – sees no reason why its 4 percent revenue growth target for the year ending June 30 would be affected by the Russian situation.
Michel Azibert, Eutelsat’s deputy chief executive, said the company is playing for the long term in Russia and is not about to let its Russian customers – Tricolor TV and NTV Plus — default on contracts because of a temporary foreign-exchange problem.
“Our two big Russian clients are not just clients, they are partners,” Azibert said. “They are suffering from the current climate and the cost basis of their satellite capacity has, roughly speaking, been multiplied by two in the past four to six months. We could ignore this and tell them, ‘That’s life,’ but we think it’s reasonable to try to find a solution.”
Ruble vs. Euro
Fleet operator Intelsat of Washington and Luxembourg in the past two years has faced a similar situation in Africa, where a glut of satellite capacity coupled with the arrival of undersea fiber to the African coast put bandwidth costs into a tailspin. Intelsat customers holding long-term contracts were facing default or contract renegotiation, and Intelsat agreed to modify its terms in some cases.
Eutelsat reported total revenue of 722.8 million euros ($879 million) for the six months ending Dec. 31, up 4.3 percent from the same period a year ago. EBITDA, or earnings before interest, taxes, depreciation and amortization, was 77.4 percent of revenue.
Relief from Russian Chill
The company is in the midst of a substantial capacity expansion as it raises its profile in Latin America and East Asia.
Eutelsat in January 2014 purchased struggling Mexican satellite fleet operator Satmex for $831 million. Other fleet operators said Eutelsat overpaid given Satmex’s prospects.
A year later, de Rosen said the Satmex purchase is turning out to be just as good as expected. Eutelsat said Satmex, now called Eutelsat Americas, generated $78 million in revenue for the six months ending Dec. 31, compared to $72 million in the previous six months and $69 million in the six months ending Dec. 31, 2013.
Eutelsat Americas’ backlog stood at more than $400 million as of Dec. 31.
Two satellites for Eutelsat Americas are scheduled for launch this year, both on SpaceX Falcon 9 rockets where the Eutelsat satellite is sharing a launch with ABS of Bermuda. ABS and Eutelsat Americas, then as Satmex, joined forces to purchase the first four Boeing Space and Intelligence Systems all-electric satellites, which can ride two at a time aboard Hawthorne, California-based SpaceX’s Falcon 9 rockets.
The combination of inaugural-customer discounts and the commitment to purchase four satellites, plus the availability of Falcon 9 launches for about $60 million – or $30 million per satellite – has given Eutelsat and ABS in-orbit capacity at a far lower cost, on a per-megahertz basis, than they could have found elsewhere.
The two Eutelsat Americas satellites are carrying about 40 transponders each. The first, Eutelsat 115 West B, carries 34 Ku- and 12 C-band transponders. Launch is scheduled for Feb. 27. The second, Eutelsat 117 West B, carries 40 Ku-band transponders.
Together, these two satellites will increase Eutelsat Americas’ in-orbit capacity by 70 percent.
De Rosen said Latin America, the hottest satellite telecommunications market in the past few years, is not about to fall into the same situation as Africa due to overcapacity, in part because, unlike Africa, Latin America has not seen the arrival of multiple small and midsize fleet operators from outside the region.
Television makes up more than two-thirds of Eutelsat’s total revenue base, but the company is widening its portfolio through the addition of high-throughput satellite capacity, mainly in Ka-band, aboard satellites also carrying classic telecommunications payloads.
In Europe, its Ka-Sat consumer broadband satellite had loaded 175,000 subscribers as of Dec. 31, up 5.4 percent from the total on Sept. 30. Several Ka-Sat beams are now filling up, notably over Ireland and the United Kingdom, and Eutelsat has yet to announce a strategy for building the business.
De Rosen said the interest shown by SpaceX, Google, Virgin Group and Qualcomm in low-orbiting satellite constellations for Internet delivery worldwide “clearly testifies to the significant opportunity for consumer broadband.”
Eutelsat spokeswoman Vanessa O’Connor said that while the company has not announced a follow-on to Ka-Sat, “there will be one.”