SES Pleasantly Surprised by North American Market

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MADRID — Satellite fleet operator SES reported Feb. 22 a surprising increase in revenue from its North American operations in 2012, saying U.S. government demand and the lease of a Ka-band payload to EchoStar more than offset losses stemming from solar-array circuit failures on another EchoStar-leased satellite.

In a conference call with investors, officials from Luxembourg-based SES also said they are maintaining their forecast of an average 4.5 percent growth in annual revenue and gross profit between 2011 and 2014.

The figure does not include revenue expected, starting late this year, from the O3b Networks constellation of low-orbiting Ka-band satellites. The first eight O3b satellites are scheduled for launch on two Europeanized versions of Russia’s Soyuz rocket in May and August, SES Chief Executive Romain Bausch said.

Four more satellites are under construction. Bausch said that if the O3b business develops as expected, SES will purchase a controlling interest in the company. SES currently has a 47 percent share.

“If O3b is a success, we go forward on the path to control,” Bausch said. “If it is not, we do not.”

Bausch said that as the in-service date of late 2013 approaches, telecommunications operators in the O3b coverage area — between 40 degrees north and 40 degrees south of the equator — are paying closer attention.

The O3b backlog increased by 20 percent in 2012, to $600 million, SES said.

Perhaps the most unexpected element in SES’s 2012 performance was the 5.7 percent increase in its North American business, a market that SES and other fleet operators usually describe as flat and likely to stay that way. Total North American revenue was 422.1 million euros ($570 million), SES said.

But in 2012, SES benefited from a lease of Ka-band capacity on the SES-3 satellite by EchoStar Corp. of Englewood, Colo., whose Hughes division provides a consumer satellite broadband service. Whether the EchoStar lease will continue now that EchoStar’s own Ka-band EchoStar 17 satellite is in service is not clear.

But increased demand from the U.S. government, Bausch said, is not likely to flag immediately. He said pricing in the United States for satellite bandwidth, as for the rest of the world, has remained stable in recent months.

Bausch said SES’s global fleet is able to offer the U.S. government coverage just about anywhere it wants and is not limited to one geographic area. SES said in its financial statements released Feb. 22 that the U.S. government’s new way of purchasing commercial satellite capacity is making it easier for SES to do government business.

Even so, Bausch cautioned investors not to expect a similar performance from the North American business in the coming years.

The increase in 2012 came despite the fact that SES’s AMC-16 satellite, whose solar-array circuits have shown defects for several years, suffered further circuit failures in 2012, notably one in November.

From an original 36 transponders, AMC-16 was down to 15 at the end of 2011. Three additional solar-circuit failures in 2012 reduced that to nine transponders as of Dec. 31.

The reduced transponder count has had an immediate cash consequence to SES because EchoStar, which has leased the whole satellite for 10 years, was able to reduce its payments to SES with each new outage.

SES reported taking an impairment charge of 36.6 million euros for 2012 to reflect the reduced value of AMC-16.

In SES’s European market, revenue dropped by 3.6 percent in 2012 compared to 2011, to 923.3 million euros, after stripping out the effects of foreign-exchange fluctuations, SES said.

As expected, the European business suffered from the April cutoff of German analog television broadcasts, which removed 108 million euros in annual revenue from SES’s books.

The company has resold some of this capacity, and has reported success in winning subscribers to its HD-Plus service in Germany, but these were not enough to offset the loss of the German analog business.

In what SES calls its international business, meaning the world outside North America and Europe, revenue was up 8.5 percent, to 482.6 million euros. It is this market, particularly South America, parts of Africa and western Asia, that SES is counting on for future growth.

The company’s fleet capacity, when measured in the number of commercially available transponders, is scheduled to increase by 22 percent between 2011 and 2015 as more satellites are launched targeting the emerging markets.

SES has planned the launch of four satellites in 2013, three of them either partially or completely devoted to the emerging markets. The first two, SES-6 and Astra 2E, are scheduled for launch on International Launch Services Proton rockets. Bausch said Proton, which suffered an upper-stage glitch during a December mission, should re-enter service in March and that it is possible both SES-owned satellites will be launched in June, aboard Proton rockets.

Also scheduled for June is the launch of the SES-8 satellite aboard the new, more-powerful version of the Falcon 9 rocket built and operated by Space Exploration Technologies Corp. (SpaceX) of Hawthorne, Calif.

SpaceX must demonstrate the performance of a new engine and a new fairing before SES’s satellite is launched. That hardware will be demonstrated in a launch, into low Earth orbit, of a Canadian satellite.