Sky Italia Deal Adds 1 Billion Euros to Eutelsat’s Backlog

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S atellite-fleet operator Eutelsat S.A.’s mega contract with News Corp.’s Sky Italia will add 1 billion euros ($1.2 billion) to Eutelsat’s backlog not including options that may be exercised later, Eutelsat Deputy Chief Executive Jean-Paul Brillaud said Sept. 16.

Asked to respond to competitors’ skepticism about the contract, Brillaud said Paris-based Eutelsat, which is preparing an initial stock offering (IPO) in the coming weeks, counts as backlog only firm, definitive contracts.

There are a certain number of options in the 20-year contract that are not included in the backlog count, Brillaud said in an interview.

Under the contract — one of the biggest single transponder-lease deals ever concluded — satellite-television broadcaster Sky Italia is renewing 16 transponders currently leased on Eutelsat’s Hot Bird direct-broadcast television satellites and adding 10 more transponders.

Sky Italia spokesman Tullio Camiglieri did not respond to requests for comment on what Sky Italia plans to do with its large new capacity. In a Sept. 15 statement, Sky Italia Chief Executive Tom Mockridge said the contract “brings us new resources to add hundreds more channels and interactive services for Italian families.”

Sky Italia also will use the Eutelsat capacity to introduce high-definition television in Italy starting in mid-200 6. The Sky Italia deal, which caught Eutelsat competitor SES Global of Luxembourg by surprise, was announced Sept. 15.

In a document filed Sept. 7 with French stock market authorities in preparation of its IPO on the Euronext exchange, Eutelsat says the new contract brings the company’s total backlog to 4.1 billion euros.

Eutelsat Communications — the holding company created in February to acquire Eutelsat — reported revenues of 750.4 million euros for the year ending June 30, a 0.5 percent increase over the previous year after eliminating one-time late-delivery penalty payments from satellite manufacturers.

EBITDA, or earnings before interest, taxes, depreciation and amortization, was 77.1 percent of revenues, also down slightly from a year earlier.

Video distribution is Eutelsat’s core business, accounting for 68 percent of its revenues. Data distribution, including a two-way broadband Internet service called D-Star, accounted for 21.6 percent of the company’s revenues for the year ending June 30.

Eutelsat particularly was well-placed in 2003-2004 to capitalize on U.S. and allied demand for satellite communications capacity over the Middle East. The company’s multi use business segment, which includes the lease of an entire satellite to competitor Arabsat of Riyadh, Saudi Arabia, declined in recent months as government demand has subsided and other satellite operators have moved to compete with Eutelsat.

The U.S. government business continues to be a sizeable niche for Eutelsat, however. In its 2005 fiscal year, the company derived 5.5 percent of its revenues from Artel, Spacelink and Arrowhead — three U.S. companies that purchase satellite capacity on behalf of the U.S. Defense Department.

Brillaud said selling capacity over the Middle East to the U.S. government has become more competitive in the past year. “We had a market share over this particular zone of around 50 percent [in 2003] but that has declined to around 30 percent,” he said. The performance of this business segment also was hurt by the decline in the U.S. dollar relative to the euro.

Other disclosures in the stock-market filing:

– The Atlantic Bird 1 satellite, used by Eutelsat but owned by ALS SpA of Italy, is the subject of a potential legal dispute with insurance underwriters. Insurers in January rejected a Eutelsat/ALS request to pay a claim of 190 million euros because of in-orbit failures of Atlantic Bird 1, which was launched in 2002. The satellite has suffered repeated service interruptions.

Brillaud said Atlantic Bird 1 in recent months has functioned more normally, and that Eutelsat has resumed its regular lease payments to ALS. Negotiations with insurers on a claim for the satellite’s defects are ongoing, he said.

– Nearly 60 percent of Eutelsat’s backlog — before the Sky Italia deal — and 50 percent of its fiscal year 2005 revenues are with four core customers: France Telecom/Globecast, British Telecom, Telespazio and Deutsche Telekom.

– Eutelsat’s board of directors has approved a general capital-expenditure program including three satellites yet to be contracted — the W7, W2A and W2M. Two of these have been the subject of bid requests from industry. Eutelsat already has contracted for the construction of the Hot Bird 7A and Hot Bird 8 direct-broadcast satellites, whose combined construction budget is 380 million euros.

– Eutelsat’s core business of selling transponder capacity for video broadcasts in Western Europe remains stable, with full-year transponder leases averaging 2.9 million euros. Analog television, which is being phased out in most European countries in favor of digital, accounted for only 7 percent of Eutelsat’s video distribution as of June 30.

– Eutelsat’s fleet of 18 fully owned and five partly owned satellites had a fill rate of 72.4 percent as of June 30.