After breaking free from most of its debt restraints, British satellite operator Avanti Communications is ready to expand across Africa.
Investors agreed in April to swap debt for equity in a deal that slashed Avanti’s $810 million debt burden by two-thirds.
Avanti incurred the debt to build out its fleet of five geostationary satellites, giving it Ka-band broadband coverage across Europe, the Middle East and Africa.
However, the debt came back to haunt the company after it failed to sell its satellite capacity as quickly as planned.
Hylas 3, its latest satellite, launched in August 2019 — just before COVID-19 started to disrupt connectivity and financial markets worldwide.
As markets start to recover from the pandemic, and with much smaller interest payments to make, Avanti is now redoubling efforts to expand the company’s footprint in Africa.
Africa has long been a challenging market for connectivity providers — not least because the average revenue per user is a fraction of what it is in the U.S. and elsewhere.
In 2019, Avanti adjusted its business strategy away from consumer broadband to focus more on cellular backhaul, governments and selling capacity to other satellite operators.
This strategy was showing signs of progress until it was stalled by COVID-19, according to Avanti CEO Kyle Whitehill.
Whitehill expects Avanti will return to growth this year, and points to a partnership the company announced in May with a mobile operator in Senegal as a sign of things to come.
Under the five-year deal, local mobile operator Free will build and host a new satellite gateway for an Avanti satellite in the country, extending the operator’s coverage to Senegal and neighboring countries in West Africa: Guinea, Sierra Leone, Guinea Bissau, Gambia and Liberia.
The gateway, subject to the approval of Senegalese authorities, is slated to go live in December, when it will also complete Avanti’s Ivory Coast coverage.
SpaceNews interviewed Whitehill to learn more about Avanti’s future strategy.
What does significantly less debt do for Avanti’s growth ambitions?
The debt was all about building our space and ground network. Avanti ended up with five satellites and their ground stations across Europe, the Middle East and Africa. And that’s terrific, but the monetization of the assets hadn’t gone as quickly as planned — I don’t think it was clear what Avanti’s purpose was. It was all about spending money to build a network.
Having less debt has two very specific benefits for me. The first one is I think customers and partners were perennially nervous about this.
Secondly, we spent so much time on the capital structure. We had so many external parties to manage that it was hard to just focus on the business.
Regarding growth ambitions, [the debt reduction] cleans up a ton of the noise and people’s confidence in who we are and our sustainability over time.
It’s really simple. I just need to push hard to utilize that capacity and make sure we can grow. We grew pretty quickly between 2018 and 2020, and then kind of got stuck through the COVID-19 period. We see this year as being the re-ignition of growth again.
Avanti was one of only a few satellite operators to use bonds to finance new satellites. What lessons has the company learned from that strategy?
If you’re a big operator like Viasat, Inmarsat, SES and so on, the business model was to build a GEO satellite, take it to market and sell transponders to the broadcast or broadband markets.
You would have stability for the 15 years of the satellite, so it didn’t really matter where you got your money from because you had a long-term, profitable commitment in cash flow from that.
When you’re a startup subscale operator, it really matters. If you do it through bonds, you’re immediately paying interest on that versus equity, which is someone who’s backing your ambition.
That’s what we learned. As a startup, to suddenly end up with a $20 million interest bill every year was such a drag on us. You’re on a hamster wheel constantly trying to keep up with interest payments, rather than focus on the market.
Is the company back in a position to invest in growth with this new balance sheet? What is on and off the table?
Am I immediately looking to do another classic GEO satellite like Hylas 4 with four or five years lead time, costing $300 million, etc.? No, that’s not really what we’re thinking of doing.
But what does feel like it’s on the table are partnerships like we announced recently in Senegal. We’re building a new Earth station in Senegal, and that’s going to allow us to service six to eight countries in West Africa that we weren’t previously able to serve.
So we’re looking to build our footprint in Africa. Secondly, there’s a lot of capacity coming in the next five to 10 years across LEO, MEO and GEO.
We, therefore, feel the first step should be to build our distribution capability and work with people who want distribution in Africa, which we’re good at. That’s where the priority is.
How has that strategy evolved since it was announced a few years ago?
The only way you’re going to see widespread distribution of connectivity in Africa is through the mobile operators. These guys are really under pressure from regulators to drive rural distribution. But it’s logistically challenging because you’re physically delivering equipment to very, very remote communities. So now we’re just very focused on supporting tower companies and mobile operators on how to physically deploy these sites.
In 2020, Avanti was hoping to expand the fill rate on its fleet from 48% to around 70-80% to be more in line with other operators. Do you have an update on this?
We’re getting toward 60% now. The priorities for getting that up to 70% or so is, firstly, monetizing Hylas-3, which was launched as COVID-19 kicked in. And then there are the 10 to 12 African countries where it’s kind of tougher to do business: Zimbabwe, DRC and so on.
If I want to get to that industry standard, I need to be able to monetize those two things.
What about Avanti’s goal to hit $100 million in annual revenue from capacity sales?
We’re a little bit short of that at the moment, but that’s what the revenue expectation will be for 2023 year-end. There are about four or five commercial initiatives we just need to deliver in the next 12 months and we’ll be there.
With the debt issues finally resolved, what are the company’s main growth challenges?
The challenges of the industry are very clear. I think one of the things the GEO industry did very poorly was see LEO as a threat. For 12 months, we all agonized about customers, [with] analysts and journalists telling us we were all finished. And so [the industry] went into a kind of introspective mode and all got a bit slowed up.
Now we are much more open-minded about it. We see customers are going to want a blend of different technologies, and it’s all about delivering what the customers want.
For Avanti specifically, the founders of the company basically made a massive bet on Africa.
And Africa is not like India. It’s a continent, but with 50 countries, governments, regulators and different ways of doing business. The greatest challenge I have on a day-to-day basis is prioritizing the six to eight countries where the biggest economic value opportunity is, being tenacious about getting that done, and not getting too hung up about being in 50.
Do you see Avanti partnering with LEO operators, or are you zeroing in on this GEO opportunity?
No, one of our key strategic priorities is being the partner of choice for LEO, MEO and GEO.
In Nigeria, for example, I believe capacity will be exhausted quite quickly. So, yeah, we want to be taking LEO to Nigeria. We want to be working with Kenya on what that looks like.
We’re super confident of being able to integrate those. A bit like Inmarsat announced with their multi-orbit Orchestra constellation where they’re looking to bundle different networks together, which I think is spot on.
How does Viasat buying Inmarsat change the competitive landscape for Avanti in the U.K. and elsewhere?
First of all, they’re two of my biggest customers. Combining them makes sense. Viasat are bringing three gigantic satellites to the marketplace [for global services], and they are quite U.S.-centric, so they needed some international capability distribution.
It has not had an impact on us so far. They’re still operating relatively independently [because the deal has not been completed]. Neither of them are in Africa, and that’s the relationship we have with both — and the U.S. military.
I think it shows how passionate Viasat believes in the future of GEO, and I would like to be a positive part of that.
It’s been a few years since the U.K. left the European Union. Has Brexit proved a net positive or negative for the British space industry?
For me, it’s been a really interesting positive. I sit on the U.K. Space Leadership Council, which has exploded into activity because the British government is taking [space] really seriously now.
There’s critical infrastructure: in Scotland you’ve got one of the biggest smallsat manufacturers in the world, and there’s going to be the first commercial orbital launch out of Cornwall.
The U.K. seems pretty good at being at the leading edge of technology. I don’t think you’ll see the U.K. competing with Airbus, Boeing, Thales or Northrop Grumman, but I do think you’ll see small to medium-sized British companies being part of the new ecosystem.
Brexit probably provoked a lot of investment and thinking going into the industry.
Avanti and Inmarsat both decided to abandon stock listings in recent years. Could it be time for a rethink amid a flood of satellite companies going public?
Well, Avanti came out because we had borrowed so much money from so many people and had such a burden of governance that it was obvious to us that we were never going to ask the public markets for money again. And we’ve just delisted all the bonds as well.
I think Inmarsat was more driven by the view that the stock market was undervaluing them, which is what the private equity guys all bought into [when they acquired the company in 2020].
The dilemma for the satellite industry is that going public is the best way of borrowing money, but the stock market also really challenges the high capital expenditure, long-term return business model.
If you follow the special purpose acquisition company trend in the U.S., there are not so many successful SPACs, and not so many successful satellite startups from SPACs because it’s a tricky business model for the public markets.
As mobility markets recover from the pandemic, could Avanti look to expand into the in-flight connectivity industry or other verticals?
No is the straight answer to that one. We are supporting people delivering global in-flight connectivity contracts, or global energy contracts, so I don’t have any ambition.
My proposition is that if I’m going to work with you, I’m not going to sell against you. I’m not going to compete with you in a direct model. Our ambition is to keep focused on the industry segments we’re in right now.
How could standards that pave the way for 5G from space affect Avanti’s business?
The mobile industry thinks about spectrum as being agnostic. The mobile industry talks relentlessly about 3G, 4G and 5G, but in essence, a block of spectrum allows services to be delivered more or less efficiently depending on the frequencies used.
5G hits the sweet spot for ubiquity and low latency for the mobile industry.
The big upside is it’s the first time that the mobile and satellite industries have sat down and decided to integrate with each other up front, rather than retrospectively.
Whenever we went to a mobile operator and wanted to integrate our network into theirs, it would take two years of development work — basically, getting the mobile industry to trust the satellite industry.
So for the first time both industries are working together, rather than satellite being seen by mobile as someone who has got far too much spectrum that shouldn’t really be with them.
How important will the market for connecting Internet of Things devices be for Avanti?
One day, every machine will be connected. I’ve always been a big believer in that. It was just unclear what network was actually being delivered because this is not a world of high throughput data. It’s a world of billions of devices being connected by delivering very small and less intense data packets.
I think 5G finally gives the industry the opportunity to use an efficient network to deliver this capability. It’s probably not going to be first into Africa, but yes I think it’s pretty exciting.
Has Avanti seen an uptick in demand from governments following Russia’s invasion of Ukraine?
We talk about this nearly every day. We spent four years wondering what on Earth we were going to do with Hylas capacity in Ukraine and the eastern flank. So we’ve been very lucky that we are in a position to be able to help there, and there’s a huge amount of uptake.
It fits into three categories. First, let’s call it the reconstruction of Ukraine — there are well-developed interests in knowing what critical infrastructure can satellite deliver in the reconstruction of Ukraine, because they’ve lost pretty much their entire network.
Secondly, everyone is worried about what will happen next and if this is going to be a long-term conflict. That eastern flank is a few thousand kilometers long from Turkey right up to Finland. There’s a lot of interest in how to make sure that satellite technology is helping countries understand what’s happening across their borders — not about fighting, much more about what’s going on.
Thirdly, almost every major blue-chip international company operates an office from Ukraine. They’ve suddenly lost all the fixed and mobile networks, and they want to keep operating. There’s lots of interest in building satellite networks to help those blue-chip companies continue to trade.
This interview has been edited for length and clarity.
This article originally appeared in the July 2022 issue of SpaceNews magazine.