WASHINGTON and MOSCOW — Five years ago this month, Intelsat ordered the first of what is now six high-throughput Epic-class satellites. That soon-to-be global network is now mostly in orbit, with the fifth satellite, Intelsat-37e, launching Sept. 29, and Horizons-3e, a shared satellite with Sky Perfect Jsat, launching in 2018.
The addition of Epic to Intelsat’s fleet is helping improve the company’s balance sheet, albeit more slowly than expected. The new revenue and the promise flat panel antennas portend for a larger addressable market have Intelsat optimistic about its future.
But the market for high-throughput satellite (HTS) services is quickly becoming more competitive. Many in industry are already slapping new adjectives (very, ultra, extreme) on their HTS offerings to differentiate next- and next-next-generation services.
Those new HTS systems are in a mix of geostationary and non-geostationary orbits, and some operators claim they will provide terabits of capacity.
Intelsat CEO Stephen Spengler is not worried about Epic competing in this new HTS world. Epic satellites are generating revenue, and OneWeb, despite this year’s failed merger attempt, remains a very close partner.
Spengler attended World Satellite Business Week in Paris earlier this month for only the first day, returning to the U.S. for Goldman Sachs’ 26th Annual Communacopia Conference in New York. Spengler spoke ahead of the conference with SpaceNews Staff Writer Caleb Henry.
Intelsat was one of the early investors in high-throughput technology. There are now a lot of new so-called VHTS systems planned for GEO and LEO. What are your thoughts on these, and has any of this changed Epic?
The name doesn’t really matter so much — that’s not what’s important. What is important is to recognize that the entire industry is innovating and we are all seeking ways to improve satellite capacity economics for our customers. We are doing that with Intelsat Epic. It’s important to note in our Intelsat Epic fleet, it’s not six satellites that are identical. Each one that we build, we are building with the latest technology that’s going to maximize the performance, throughput and economics we can offer.
While the satellite capacity is critical, it’s not the entire story. What we want to be bringing is increased capability for our customers. There’s a couple of ways to look at it, you can look at capabilities of a single satellite. We look at it more as capabilities that form an entire constellation — Intelsat Epic, plus some of our broad beam satellites — and then layering on multiple HTS capabilities, like OneWeb.
A lot of customers are not single-satellite-focused users. If you look at aeronautical or maritime applications, or future land mobility applications like connected car, these are customers that are looking for global or super-regional solutions that one satellite is not going to satisfy.
For user terminals, over the next 12 months what do you hope to see change?
Getting the antennas developed so they can support new applications like Internet of Things, land mobility, connected cars or connected vehicles of different types, and getting the right form factor to support other types of aeronautical applications in addition to commercial jetliners, this is really important. Being able to do that will, along with the dramatically improved capabilities in space, allow for the market to develop and expand, and enable new segments of the market that are not available today for satellite services.
And this is not just a GEO question. One of the key parts of our relationship with OneWeb is to develop a terminal that is both GEO and LEO capable. These antennas and terminal electronics are advancing to the point where we believe we can bring services to our customers that access both orbits, and that’s probably just the beginning. There are a lot of other possibilities that will unlock as well.
Will the GEO-LEO terminal be ready by the time OneWeb begins commercial operation?
That is our plan. That is the track we are on.
Do you have a release date?
We haven’t announced anything specific in that regard yet. We are still very much in the engineering, design and development phase.
OneWeb has mentioned an interest from other operators in potentially buying them, but given the way the OneWeb-Softbank-Intelsat merger was structured, there is still some connective tissue between Intelsat and OneWeb. If another operator bought OneWeb, what would that look like for Intelsat? Is it possible for OneWeb to be purchased with the arrangement Intelsat and Softbank currently have in place?
You are talking about a hypothetical, obviously, but what I can say is we established a partnership with OneWeb and Softbank prior to any merger discussions we had earlier this year. That partnership was established and in place at that time, and that partnership is active today. We’ve been extremely engaged with both companies, both on the development of the technology and the interoperable technology we talked about as well as go-to market strategies for the verticals where we have distribution responsibility for Softbank.
We have distribution responsibilities for mobility, land, sea and air; we have distribution responsibilities for government communications, cellular backhaul, some corporate networking applications and the connected car. Those agreements in our view are rock-solid.
Jeffries put out a research note Sept. 8 that said they see every reason for a merger reattempt at the appropriate time. Could we be looking at a take-two further down the road?
Our focus right now is on our partnership with OneWeb and Softbank. Merger discussions ended not because we weren’t able to get agreement with Softbank or OneWeb; those merger agreements ended because our bondholders did not want to accept the economic terms that we proposed, and we weren’t able to negotiate an agreement. If conditions change and there’s a willingness to have a conversation about a price where both of us can agree to, I guess it’s theoretically possible, but right now we are focused on developing the business with OneWeb and Softbank.
Where does Intelsat stand financially today compared to this time last year?
If you look at our quarterly performance, you are seeing more stability compared to the previous couple of years. While we still face headwinds in our business, we also still see excellent growth in our media business, excellent growth in our mobility sector. We see encouraging signs in those areas and we can see continued advancement of services on the Intelsat Epic fleet.
On the financial side, we did a refinancing just a couple months ago. That was successful in moving our 2019 maturities out eight years to 2025. That was a good move for our balance sheet. We have more to do always, but we continue to be able to manage that effectively.
It’s still a tough marketplace. Everyone sees that. But we are making steady progress to our long term goals and executing on our operational priorities that we wanted to execute on in 2017.
What are some of Intelsat’s near-term plans to bring that $14.5 billion debt load down?
The No. 1 move is to grow again. That’s the important thing for us to move toward a position where we increase our top line and adjusted EBITDA so we can generate more cash to address that balance sheet. We are always watching our expenditures carefully, and so we have a period of time right now where we’ve provided guidance for our capex (capital expenditures) over the next few years that is lower than it has been in recent years. It’s part of our normal cycle, we are continuing to invest in new satellites, capabilities and ground networks, but these next few years will be a little lighter. That gives more flexibility on the balance sheet as well. Those are the things we are going to keep focused on and we are going to keep looking for opportunities that can make more of a substantial difference whenever we can see one.
From your perspective, is the internet opportunity, led by mobility, one that will eclipse broadcast video?
From a growth-rate percentage, it’s already running at a higher rate across the board because it’s relatively new compared to video, which is more mature … but in terms of total size, the market still has a long way to go in terms of penetration. While there are a lot of commercial aircraft connected with broadband, there’s still more to go. There’s a long backlog for the providers to install more planes. You have business jets, government jets and smaller regional and commuter jets that have yet to be connected.
Maritime, while big ships are connected, there are still a lot that don’t have broadband. And then land mobility — connecting trains and buses and cars — is still in the early stages. All of those have IoT components too. It’s not just connecting people, but machines, devices and gathering data. There’s a lot of opportunity in those sectors and we are at the early stages. It should be a strong market for satellite in particular because of our unique ability to serve those markets.
Intelsat is Orbital ATK’s first Mission Extension Vehicle customer. Will you use that vehicle to service multiple satellites?
We do envision using it for one satellite, though I think we could service multiple satellites if we wanted to by splitting up the five-year contract. But our current view is to extend a particular satellite five years.
This is an opportunity for us to do a couple of things. One is it allows us to support revenue generating satellites that are otherwise healthy, but just running low on fuel. Second, it allows us to continue to serve customers without causing them to switch satellites or relocate. We like that part of it a lot, and it also gives us more flexibility from a capex standpoint.
If we can continue to serve customers with the current generation technology very well, extending those services for a couple of years, this gives us the ability to delay those capex investments for a replacement. Most importantly, it also allows us more time for technology to develop. There’s an awful lot of enhancements and developments going on in satellite and space technology, and having the ability to extend for a few years gives us the opportunity to get the latest capability when we do replace a particular satellite of that type. We are looking forward to putting that mission extension vehicle into operation and making it part of our fleet-planning.
Intelsat was previously signed on as a customer for MDA’s satellite servicer plans, which they’ve since resurrected. Did Intelsat considered MDA’s offering before going with Orbital?
At the time we made our commitment, it wasn’t as mature as it is right now. We are looking at all the technologies and felt that for what we wanted to do in a certain timeframe, the Orbital ATK solution was the right one. But we are very positive about the developments of a number of different companies in this area that are exploring these techniques to not only extend the life of satellites but potentially do in-orbit servicing, repairs or other things in space. We are going to continue to look at it and see how we can use these types of technologies in the future. It could be from different vendors.