SES To Focus on Selling Raw Bandwidth

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PARIS — Satellite fleet operator SES expects to sell all or part of its ND Satcom ground-equipment manufacturer by July as part of a broader policy of withdrawing from the end-to-end satellite services business and focusing on its more profitable core capability of selling satellite capacity, SES Chief Executive Romain Bausch said April 23.

The Luxembourg-based company said the same strategy shift is behind its decision to reposition its government-services division in the United States — recently renamed SES World Skies, U.S. Government Solutions — from broader services to a pure seller of satellite bandwidth and satellite space for the U.S. government.

In conference calls with journalists and analysts reporting on its first-quarter financial results, SES reiterated its forecast that total company revenue would grow by 5 percent per year, on average, through 2012.

Growth in 2010 will be marginally below that rate because of two unrelated events. The first is the delay in the launch of the Astra 3B satellite, which will deprive SES of revenue related to the World Cup soccer championship in June in South Africa.

Astra 3B, to be stationed at 23.5 degrees east longitude, has a steerable beam that was expected to generate up to 3 million euros ($4 million) in revenue from occasional-use customers by uplinking programming from the World Cup tournament for distribution in Europe.

With the Astra 3B launch aboard a European Ariane 5 rocket now delayed by about two months, to mid-May, because of launcher-related issues, SES will miss that specific opportunity, Bausch said, as the satellite will not be in service in time for the World Cup.

The second event is the further reduction in power output aboard the AMC-16 satellite, which is fully leased by EchoStar Corp. of Englewood, Colo. AMC-16, launched in December 2004 and operated at 85 degrees west, is one of several older-model Lockheed Martin A2100 satellites that have suffered solar-power losses, especially during eclipse periods.

EchoStar and SES had agreed to a specific payment profile based on the satellite’s on-board capacity. With the most recent power loss on AMC-16 following a March eclipse period, the reduced power will cost SES slightly less than $10 million in revenue in 2010, Bausch said.

Other SES-owned A2100-model satellites have also suffered power losses, but not to the extent that commercial service was affected, Bausch said. Forecasts of how the problem might evolve are difficult because in the past, solar-array circuits that have failed have later returned to service, he said.

SES is in the middle of the biggest fleet expansion in its history as the company readies itself for what it forecasts will be sustained high demand, mainly outside North America and Europe, for satellite television.

Bausch said recent contracts with Puerto Rico Telephone for five transponders on the AMC-21 satellite for a satellite-television service; with Wananchi of Kenya for three transponders on the recently launched NSS-12 satellite; and with ODM of South Africa for three transponders on the Astra 4A satellite demonstrate the continued health of the industry.

NSS-12, which entered service in January; the Astra 3B, to be in service by August; and the ProtoStar 2 satellite that SES purchased at auction and will move to 108.2 degrees east to serve India and East Asia, all will be at 80 percent fill rates by early 2011, Bausch said.

SES likely will sell the S-band payload on ProtoStar-2 to MCI Indostar of Indonesia in the coming weeks, once final U.S. regulatory approval of the SES purchase of the in-orbit satellite comes through. Twelve of the Ku-band transponders on ProtoStar-2 will be immediately leased to the Indian Space Research Organisation, which handles the sale of non-Indian satellite capacity in India. The remaining 12 transponders will be marketed in East Asia.

SES’s services division in Europe — as opposed to its satellite transponder-lease business — including the acquisition of ND Satcom, was based on the idea that these relatively low-profit companies would drive new customers onto SES’s satellite fleet.

The difference in gross-profit margins between the two activities is dramatic. For the three months ending March 31, SES’s satellite-lease business reported earnings before interest, taxes, depreciation and amortization (EBITDA) of 83.3 percent of revenue. For the services division, EBITDA was 10.6 percent of revenue.

The company has said the goal of using the services business’ customer contacts to generate satellite-lease contracts was achieved, at least in part. But the new focus is on satellite bandwidth sales. In Europe, that will mean what Bausch called the “de-consolidation” of ND Satcom, meaning selling all or a large part of the company, by July.

In the United States, the SES World Skies, U.S. Government Solutions division will focus on providing satellite bandwidth to the U.S. government and providing space on SES satellites for U.S. government payloads.

“We are expecting quite nice growth opportunities” with the U.S. government market, Bausch said. When the U.S. government requires end-to-end services in which satellite capacity is only a part, SES will partner with other companies, he said.

 

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