SES, Eutelsat May Be Rethinking Mobile S-Band Services Venture

PARIS
— The two satellite fleet operators that have spent more than $200 million launching a satellite and creating a joint-venture company to commercialize mobile S-band data and video services in
Europe
now suggest they may be willing to scrap the entire business.

Eutelsat
of Paris and SES of Luxembourg, whose Dublin, Ireland-based Solaris Mobile is one of two companies that won a European Commission license to operate satellite services in S-band, now appear to be having second thoughts, judging from statements by the two companies’ chief executives.

In July 31 conference calls with journalists and investors, Eutelsat’sGiuliano Berretta and Romain Bausch of SES said they will need more information about the market potential of the service before they agree to launch a new satellite to replace the defective S-band antenna on board Eutelsat’s W2A satellite, which was launched in April. W2A is designed to inaugurate the Solaris service.

W2A’s 12-meter-diameter antenna is incapable of providing sufficient power to commercialize the service throughout
Europe
. The defect has left Solaris with the choice of sharply reducing its commercial coverage area – which could violate the terms of its European Commission license – or retaining the broad coverage at power levels insufficient to provide the promised services.

SES and Eutelsat divided evenly an investment of about 150 million euros ($214 million) to start Solaris Mobile, including 130 million euros to build and launch the S-band antenna.

Berretta and Bausch said in separate conference calls that Solaris would be able to debut some unidentified portion of its planned service despite the problem with the W2A antenna. But they also said they expect their insurance coverage to pay a claim for the effective total loss of the capacity.

For most satellite insurance policies, the satellite owner must demonstrate that the crippled satellite has lost 75 percent of its capacity – which can be defined in several ways – before receiving a full insurance claim for what insurers call constructive total loss.

Eutelsat
and SES have concluded the W2A S-band insurance policy is worded in such a way as to permit a total-loss claim despite what they say is the substantial remaining capacity on the antenna.

“In this case, it is clear the satellite is not capable of delivering” on its promised service offering, Bausch said. “The terms are not met. You can indeed offer services in some form by using the satellite in an inefficient way. It can be used to roll out initial service.”

In Eutelsat’s conference call, Berretta said: “There has been an accident, and the power of the [S-band antenna] is not what was specified. We hope for [an insurance] reimbursement of 100 percent. We can get some good demonstrations of info-mobility with this diminished payload. Today we have the need to make a demonstration, and we are making every effort to make the best use of the payload.”

Despite the fact that both SES and Eutelsat are highly profitable, cash-rich companies – respectively the No. 2 and 3 satellite operators by 2008 revenue – neither was confident enough in the market for commercial S-band mobile satellite services to invest on its own.

Eutelsat
, which had planned in any case to launch the W2A satellite for the company’s core Ku- and C-band television and telecommunications services, added the S-band antenna following the joint-venture agreement with SES.

Both companies said at the time that the investment, while modest for them, was risky insofar as the business model has not been proved anywhere else in the world.

Insisting that “S-band is not dead,” Berretta said Eutelsat hopes the Solaris business can move forward despite the fact that the license’s coverage requirements are not met given the W2A’s antenna glitch. But he declined to commit to building a new satellite, or to placing a similar antenna on a satellite under construction at Eutelsat or SES. Both companies are in the midst of sizable fleet-expansion plans.

Eutelsat
Deputy Chief Executive Jean-Paul Brillaud said Eutelsat is counting on Solaris receiving full license approval from the European Commission despite “some shortfall in specifications.” He said it will be up to Solaris to make a decision on whether to replace the W2A capacity. “We have not taken any decision,” Brillaud said. “Options are still being reviewed.”

Bausch agreed: “We are assessing the situation after the failure of the S-band payload,” Bausch said. “We are reassessing the market opportunity, and then we’ll decide whether that justifies our investment.”

The other winner of the European S-band licensing contest, London-based mobile satellite services provider Inmarsat, has tentatively agreed to debut S-band service aboard its EuropaSat satellite. But Inmarsat officials have made clear that, whatever the licensing requirements of the European Commission, the company will not commit to building EuropaSat until it has lined up strategic partners.