Eutelsat Plays Down Threats Facing Satellite Telecom Business
PARIS — Satellite fleet operator Eutelsat on Dec. 1 brushed aside threats facing the satellite telecommunications industry, saying it was bringing down satellite costs and targeting numerous growth markets, especially broadband, whose promise has not waned despite the overall market overcapacity.
Addressing investors at Paris-based Eutelsat’s Capital Markets Day – its first in 10 years as a publicly traded company – Eutelsat urged investors to look past the new national satellite systems being launched just about every year.
Most owners of these new satellites “don’t have a clue” about how to develop a business, Eutelsat Deputy Chief Executive Michel Azibert said.
Azibert acknowledged the headline figure that has spooked many satellite telecommunications investors: Satellite capacity is increasing by 5 percent per year, on average, while demand is increasing by 3 percent at best.
He said companies like Eutelsat are focusing less on conventional satellite capacity and more on high-throughput satellite (HTS) programs in Europe, South America, Africa and Asia.
Eutelsat’s core European direct-to-home television market remains the world’s highest-priced market for satellite telecommunications. On its global fleet, the price of a 36-megahertz transponder is holding steady at around 1.5 million euros ($1.6 million) per year.
But Eutelsat’s Hot Bird satellites at the company’s biggest satellite-television orbital slots over Europe fetch more than double that rate: 3.5-3.6 million euros a year.
In a series of presentations, Eutelsat addressed a series of threats or issues in the satellite industry, and how they were being addressed:
The move to MPEG-4 compression.
Eutelsat and all the big fleet operators face the challenge of broadcast customers moving from MPEG-2 compression to MPEG-4. Higher compression means less satellite bandwidth needed to broadcast a given signal.
The good-news side for satellite operators is that broadcasters are moving from standard-definition to high-definition television, with ultra-high-definition on the way, each more bandwidth-hungry than its predecessor.
Azibert said Eutelsat’s customers outside Europe, in the emerging markets, are already using MPEG-4 compression, so there will be little effect there.
In Europe, he said, more than half of Eutelsat’s Hot Bird capacity is now filled with MPEG-2 broadcasts. When set against the move to higher-definition programming, he said, the net effect at the Hot Bird slots will be minimal.
Oversupply in Latin America.
Eutelsat Americas, which includes the former Satmex, is focused mainly on Central and South America – a region of high growth now seen as facing overcapacity as satellite operators – the latest is Bolivia – launch capacity.
Eutelsat officials said pricing in Latin America are holding up well, in part because the company is catching up with the regional competition by raising prices on what used to be Satmex’s low-priced capacity reflecting Satmex’s corporate issues.
Leonard Wapler, chief financial officer of Eutelsat Americas, said his division’s fleet, whose total capacity will double by mid-2016 with two new satellites, will benefit from government broadband initiatives in Brazil, Colombia, Mexico and Peru.
“We see good pricing trends overall,” Wapler said. “For us, prices are growing in the region. Demand is so high that we don’t see overcapacity.”
Wapler said Eutelsat continues to evaluate what to do with its rights to the 69.45 degrees west orbital slot, won at a Brazilian government auction. The company sees continued demand for video capacity in Latin American in general, he said.
Satellite Consumer Broadband Growth and Profitability Issues
Outside the United States and Thailand, Eutelsat was a pioneer in consumer satellite broadband, launching its Ka-Sat satellite service in 2011. The business started more slowly than expected but Eutelsat is now firmly in the camp of those satellite fleet operators that believe in consumer broadband as a global growth market.
Olivier Anstett, director of Eutelsat’s multimedia and added services division, said Ka-Sat’s capital costs, including an extensive ground segment including 10 gateway Earth stations, cost about 4 million euros per gigabit-per-second (Gbps) of throughput. Ka-Sat has a total throughput of 90 Gbps.
Subscriber acquisition costs range from four times to 12 times average subscriber revenue. The $300 Tooway brand Ka-Sat consumer terminal is too costly and will drop in price in future consumer broadband deployments, he said.
Eutelsat has discovered that the business model of a consumer service like Ka-Sat is far different from the company’s traditional businesses.
For one thing, it will take six or seven years to reach the 90 percent fill rate that is the goal for most standard Eutelsat satellites, and the EBITDA margin – earnings before interest, taxes, depreciation and amortization – is just 60 percent at the 90 percent fill rate. That is substantially less than the 75-80 percent EBITDA margin that Eutelsat posts for its overall business.
One of the less-known down sides to HTS satellites is the cost of their gateway Earth station network. Anstett said capital spending for Ka-Sat’s ground network was 25-35 percent of the total investment.
Other HTS satellite operators have reported similar numbers, and said reducing the cost of the gateways is a priority in next-generation HTS systems.
Ka-Sat has a capacity of around 350,000 subscribers. Eutelsat reported that it had 190,000 subscribers as of Sept. 30. Some of its beams are nearing saturation. Eutelsat has said it will build a Ka-Sat successor but has yet to announce plans.