SES Global Puts Some U.S. Expansion Plans on Hold

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SES Global expects it could take another two years before U.S. regulators agree to permit direct-broadcast television satellites to operate at closer orbital spacing, SES Global Chairman Romain Bausch said May 9. As a result, the Luxembourg-based satellite-fleet operator has put some of its U.S. expansion plans on hold and has begun to review other options for its AMC-14 satellite.

AMC-14, now in construction at Lockheed Martin Commercial Space Systems, is planned for launch in late 2006 and had been intended for an orbital slot SES has a license to use at the 105.5 degrees west position in the geostationary orbit. At that slot it would be less than the current U.S. regulatory minimum nine degrees from other direct-broadcast satellites.

SES has been lobbying the U.S. Federal Communications Commission for four years, saying that reducing the minimum spacing to 4.5 degrees would cause no signal interference and would free up space for new applications.

With each investor conference call since 2001, Bausch has expressed hope that FCC approval would arrive shortly.

That is no longer the case. In a May 9 conference call on the company’s first-quarter 2005 financial performance, Bausch said SES believes that one or two more years of FCC review will be needed before a decision is reached.

Bausch said AMC-14 is now being considered for one of several other orbital locations for which SES Global or its affiliates have a license. Early approval of the 4.5-degree-spacing proposal, he said, has not been factored into the company’s near-term business forecast. “We are not depending on this” to meet the company’s planned 10 percent annual revenue increase in 2005 and 2006, Bausch said.

SES reported a first-quarter net profit of 84 million euros ($109.2 million), a 12 percent increase over the first quarter of 2004. Revenues, at 290 million euros, were flat from a year earlier, and pretax profit was up by nearly 2 percent.

Satellite fill rates at its two principal divisions, SES Astra of Luxembourg and SES Americom of Princeton, N.J., remained high, at 86 percent for Americom and 82 percent for Astra.

Mark Rigolle, SES Global’s Chief Financial Officer, said the first-quarter revenues are almost 100 percent recurring revenue from video customers taking out long-term leases.

SES Global has seven satellites on order and expects capital spending in 2005 to be about 495 million euros as these satellites move through construction and toward launch — two this year, two more each in 2006 and 2007, and one in 2008. Capital spending in 2006, Rigolle said, should drop to 277 million euros.

Bausch said the company’s growth forecasts assume no major acquisitions. While SES might be interested in taking an equity stake in Spanish satellite operator Hispasat S.A. — a company in which SES rival Eutelsat already has a 27 percent stake — it is only one of several investment possibilities, he said.

Bausch said the excess satellite telecommunications capacity over Latin America and Asia continues to force down prices in those regions. But in SES’ core U.S. and West European satellite-television business, prices remain stable, he said.

Rigolle said SES is seeing an increase in the number of customers willing to sign contracts lasting more than 10 years. EchoStar Communications Corp. of Littleton, Colo., has leased 100 percent of three SES Americom satellites for their entire service lives.

Bethpage, N.Y.-based Cablevision Systems Corp. has leased 13 transponders on the AMC-6 satellite for 10 years starting last October for its now-closed Voom high-definition satellite television venture.

Bausch said SES contracts in general include stiff early-termination penalties.

“The penalties are quite substantial,” Bausch said. “In fact, the revenue we get before termination, when added to the termination penalty, can exceed our investment in the satellite. We are not speaking here of marginal termination payments.”

Bausch said Cablevision has a right to terminate its contract with SES in September but has not yet informed SES of intentions to do so. “When we established our 2005 [financial forecasts] we assumed this contract would continue through 2005,” Bausch said of Cablevision. “They can terminate in September. If they exercise that right, we will receive added revenues compared to those that are in our budget.”