Intelsat mum on debt exchange, says Epic business affirmed by mobility customers
WASHINGTON — Global satellite fleet operator Intelsat says mobility customers have become the “power users” of its first high-throughput satellites, providing reliable demand while other sectors warm to the new systems at a slower rate.
Stephen Spengler, chief executive of Virginia- and Luxembourg-based Intelsat, declined to comment in an April 27 call with investors on Intelsat’s decision to extend its debt exchange deadline from April 20 to May 10 in order to move ahead on its OneWeb merger announced in February. Intelsat still needs to convince enough of its bondholders to participate in the debt swap to ensure a conditional $1.7 billion investment from Japanese conglomerate Softbank as part of the merger.
Spengler said that the operator’s three percent decline in revenue for the first three months of 2017, as compared to the same time last year, reflects a continuing business transition that includes enduring lower prices on the traditional wide-beam capacity that still comprises the largest fraction of Intelsat’s on-orbit capacity.
“Since Intelsat 29e entered into service a little over a year ago, we have found that our mobility customers are the fastest adopters of the Intelsat Epic technology,” Spengler said during the call. “They understand the value that Intelsat Epic delivers, and are power users of the fleet. We’ve made steady progress with some of our enterprise and wireless service provides, but in our experience, there is a longer conversion cycle than with our mobility customers.”
Intelsat has three high-throughput satellites (HTS), Intelsat 29e, Intelsat 33e and Intelsat 32e, in orbit. Two more HTS launches this year — SpaceX’s Falcon 9 launch of Intelsat 35e in late June, and Arianespace’s Ariane 5 launch of Intelsat 37e in the third quarter of 2017 — underpin Intelsat’s return-to-growth strategy, Spengler said.
Intelsat is also launching the Horizons 3e high-throughput satellite with partner operator Sky Perfect JSAT of Japan on an Ariane 5 in 2018, the same year OneWeb is expected to begin launching its initial constellation of 882 low Earth orbit high-throughput satellites.
Intelsat reported $538 million in revenue for the company’s first quarter of 2017, which ended March 31, and provided revenue guidance of $2.18 billion to $2.225 billion for the full year. Spengler said payment challenges from customers in Venezuela and some unrenewed VSAT and cellular backhaul contracts, particularly in Russia, contributed to the revenue decline. He downplayed concerns of any long-term implications from those contracts, saying that the Latin American market remains stable and that, in Russia, a customer had opted for a terrestrial service over satellite.
Revenue from network services, which includes mobility as well as satellite connectivity for remote locations, internet service providers and backhauling cellular data, shrank by seven percent year over year to $212.9 million. Spengler said network services, which accounts for 39 percent of Intelsat’s total revenue, is showing healthy demand, but customers are taking longer to commit and contract lengths are getting shorter.
“On the network services side this is something we have been contending with for a few years. The contract terms have been shorter than in the past. They are slightly over three years right now, and they tended to be a little bit longer in the past,” he said.
Spengler said network services contracts with Intelsat Epic are typically longer, around five years.
Broadcast television, the largest portion of Intelsat’s revenue base at 42 percent of the company’s total revenue, grew by six percent to $225.1 million. Closely watching the adoption of newer compression standards, which let broadcasters carry higher quality channels with less capacity, Spengler said Intelsat estimates more than half of its customers in the continental United States capable of transitioning to the MPEG-4 standard have already done so.
Some broadcast customers are debating whether or not to go with MPEG-4 or make the jump to High Efficiency Video Codec, the favored standard for 4K Ultra-HD content. “We do expect that as some of these compression situations occur, there will be some pickup in 4K transmissions going forward,” Spengler said.
Intelsat’s government business, 17 percent of total revenue, decreased 11 percent to $91.9 million. Spengler said the company is seeking to drive more government business to Intelsat Epic, and activated service with approximately 180 megahertz of Intelsat Epic capacity for government mobility and comms-on-the-pause applications during the first quarter.
Intelsat said 78 percent of its total available capacity, not including Intelsat Epic, is currently in use. The company’s backlog stands at $8.5 billion.