Profile: Holding His Own in a Tough Neighborhood

by

Gustavo Silbert

Chief Executive Officer, Star One

The Latin American satellite telecommunications market has witnessed pockets of growth in recent years but remains one of the most competitive in the world, and one where overcapacity continues to put pressure on transponder-lease prices.

One of its major players, Mexico’s Satmex, recently has emerged from bankruptcy and now is seeking to stabilize itself financially. The Venezuelan government has ordered a large, Chinese-built satellite and the government has not clarified whether capacity on the new satellite will be sold regionally and, if it is, how much will be sold.

A project called Simon Bolivar, which has been in the planning stage for years, is still a possibility. And international fleet operators – SES of
 Luxembourg, Intelsat of Bermuda and Washington, Telesat of Canada, Hispasat of Spain – all have capacity trained on South America.

It is not an easy neighborhood, but Gustavo Silbert, chief executive of Star One of Brazil, is not complaining. The company has recently completed a major investment in two new satellites, the C1 and C2, which are now healthy in orbit and providing replacement capacity in C-band and growth potential in Ku-band.

Star One reported revenue of 366.8 million reals ($227 million) in 2007, which in dollar terms was a 5.9 percent increase over 2006. The company commercializes capacity it has on seven satellites, including the aging B1 and B2, each to be operated in an inclined orbit, and a partial ownership of the C12/AMC-12 satellite with competitor SES Americom. Silbert discussed his company’s prospects with Space News staff writer Peter B. de Selding.

Latin America‘s satellite telecommunications market is improving in spots but remains one of the world’s toughest. How would you assess your business prospects?

The year 2007 was very good for us, not only in terms of revenue, but also with the launch of our C1 satellite, which was our first launch after we were spun off as a separate business unit from Embratel, and the end of our association with SES, which sold its Star One shares.

The new spacecraft, C1 and the C2 satellite launched this year, offer us good prospects for growth. The addition of Ku-band capacity for both C1 and C2 also broadened our portfolio. In addition, our C-band footprint was extended from Brazil-only to full South American coverage. Before, we had only C-band capacity over Brazil. We are now prepared to become a Latin American player rather than a single country player.

We have seen strong competition in our region from the larger satellite fleet operators, and this has led to pricing pressure because Brazil
 has an open skies policy that permits the larger players to have access to our market.

What was your EBITDA [earnings before interest, taxes, deprecation and amortization], margin for 2007? What is your forecast for 2008?

Unfortunately we cannot disclose these numbers following our company policy. What I can say is that EBITDA in 2007 was lower than in 2006 because we were renting capacity while waiting for our C1 and C2 satellites to enter operations. It was rented only for contingency purposes. Given our high fill factor, this capacity would allow us to assure continuous service for all customers even if we had a launch failure.

What is your current fill rate?

If you exclude the new satellites, C1 and C2, our fill rate exceeds 90 percent of available capacity, which is obviously a very good fill factor – one of the strongest in the industry.

Will C1 and C2 be used mainly as replacement capacity for the aging B1 and B2 spacecraft?

The C-band is for replacing the capacity of these two satellites. The Ku-band gives us room to grow in new markets and applications. The B2 satellite is already in inclined orbit and is being used for trunking applications. B1 now is offering C-band capacity at 68 degrees west. B2 already is inclined at 92 degrees west.

How much business can you expect from the new Ku-band capacity in 2008?

We are not yet certain of how much this new capacity will affect our numbers for 2008. Our main shareholder, Embratel, has won a large contract to provide broadband applications to schools via satellite, and we will be the capacity provider for this service. It also has announced plans for a direct-broadcast television operation using C2 Ku-band capacity at 70 degrees west, our premium broadcasting position.

What is the effect of the sale of about 20 percent of your equity by satellite-fleet operator SES to General Electric’s Sat-GE company, whose ambitions in the satellite business remain unclear?

The replacement of SES by Sat-GE gives us greater flexibility in our marketing. SES [which owns SES New Skies and SES Americom] has other operations over Latin America, and the fact is that we had some conflicts with New Skies. Now we have more freedom.

Is Sat-GE, which manages GE’s Star One and other satellite assets, a passive or active shareholder?

GE Satellite Holdings LLC contributes a lot of expertise in corporate management and helps us to retain our focus as a well-managed, financially healthy company.

What is the current breakdown of your business by application – broadcast, corporate networks, cellular backhaul?

Our current business mix is about 50 percent broadcasting, 35 percent trunking and the remaining 15 percent is used to provide services to corporate networks. We expect the broadcasting and corporate networks segments to be growing in the near term, considering our recent deployment of Ku-band.

What is the status of high-definition television (HDTV) in your region?

It is really just beginning in Latin America. In Brazil, our major market, it just started in late 2007. I am confident we will have a strong role in the rollout of HDTV, but at this point in time it is a business with few customers. 
Brazil has a plan to end analog transmissions and move to digital in the next 10 years.

Are you interested in merger or acquisition or strategic partnerships with other operators?

We are currently in an environment in which the big guys – Intelsat, SES, New Skies and Telesat – are providing really tough competition for us. But I sometimes wonder whether Star One will be the world’s second-largest satellite fleet operator in a few years because all the larger companies will have merged into one. It is true that a larger fleet can move satellites quickly from one slot to another if needed, or divert transponders from one region to another.

My view is that we are strong enough now to compete with the big players in our region, and I think our results show we are doing very well. With the purchase of Embratel by Telmex, we are better able to take advantage of these companies’ presence in the region. Telmex is of course a strong customer for us.


What about other potential operators in the region, such as

Venezuela‘s Venesat, now completing construction, or the Simon Bolivar/Andesat project?

The status of the Andesat Bolivarsat project remains unclear to us, and of course this has been talked about for years. The project’s backers received a deadline extension from the World Radiocommunication Conference in
 Geneva last year, but we are not sure whether they intend to build a satellite. As for Venesat, it is true the satellite is nearing completion, but our impression is that the Venezuelan authorities will be focusing mainly on
 Venezuela.


You have paid a $3 million bond to the U.S. Federal Communications Commission (FCC) for a future C5 satellite at 68 degrees west. But the FCC said you need to coordinate with Simon Bolivar 2/Andesat at 67 degrees west now that international frequency regulators have given that project a deadline extension. How do you proceed? What are the current plans for C5?

We won the 68 degrees west position in an Anatel bid and we are willing to utilize it with our future C5 satellite. We honored all commitments required by Anatel and the FCC and are not expecting to have any restriction in our operations capabilities.