Two Global Companies; Two Divergent Strategies – Europe’s Satcom Giants Differ on Investment in the Americas

W hile SES Global invests in Canadian and Mexican ventures, Eutelsat views organic growth in the Middle East and Africa as more profitable business moves than trying to penetrate the highly competitive North American market. In recent statements Eutelsat officials also suggested that their chief rival’s investments across the Atlantic are examples of growth without profitability.

Jean-Paul Brillaud, deputy director-general of Paris-based Eutelsat S.A., conceded that Eutelsat’s attempts at getting a foothold in the U.S. market through its Atlantic Gate satellites have not met expectations, in part because the satellites’ footprints reach only a piece of the United States.

Eutelsat’s 27-percent equity share of Hispasat S.A. of Spain, seen in 2001 as a way to approach the South American market through Hispasat’s Amazonas satellite, also has been disappointing, Brillaud said. Eutelsat has since written down a part of its Hispasat investment, but remains interested in acquiring a majority stake in the Madrid-based satellite operator, Eutelsat Chief Executive Giuliano Berretta said Feb. 1.

But both Berretta and Brillaud said North America, which is among the most competitive satellite services markets in the world, is not a high priority for Eutelsat — at least for now.

“If you look at the prices for satellite capacity in North America, it is a far less interesting market than the Middle East and parts of Africa,” Brillaud said Jan. 30. “Our goal is to maintain a 77-percent EBITDA margin, not to pursue less profitable growth.” EBITDA, or earnings before interest, taxes, depreciation and amortization, is a commonly used financial metric among telecommunications companies.

Luxembourg-based SES Global officials dismissed Eutelsat’s appraisal of the North American market, saying Eutelsat has been preoccupied with its diverse shareholding structure and its recent stock-market introduction and, like other satellite-fleet operators, has been unable to seize new investment opportunities.

SES Global Chief Financial Officer Mark Rigolle said the company was surprised that it was the sole bidder for Mexico’s 77 degrees west longitude orbital slot, and one of just two bidders for Canada’s 129 degrees west longitude position. Telesat Canada also bid on the Canadian slot, but no U.S. satellite operators joined the bidding, nor did Eutelsat.

SES Global, through the creation of subsidiaries QuetzSat in Mexico and Ciel in Canada, and with the help of aging satellites owned by a partner in those ventures, EchoStar Communications Corp. of Littleton, Colo., purchased both positions. Two old EchoStar satellites are now keeping the positions while SES Global prepares to order new satellites to fill the slots.

“No one else turned up for the auction,” Rigolle said in December at a financial conference in New York. “Five years ago that would have been unthinkable. Eutelsat, Intelsat, PanAmSat — they all would have been there.”

SES Global also is expanding its existing fleet by adding capacity over the North American arc to serve cable television head-ends, a move Rigolle said Wilton, Conn.-based PanAmSat should have made.

“This is what private equity does to a company,” Rigolle said of PanAmSat and its owners. “They are not investing in new capacity. Our Ku-band capacity will be the only Ku-band capacity coming on line in the foreseeable future over North America.”

SES Chairman Romain Bausch said Feb. 1 that the company’s Canadian and Mexican investments are certain to have high EBITDA multiples, whatever else may be said about them.

In an interview, Bausch said SES Global plans to order a large Ciel satellite this year for the Canadian position, and that EchoStar has agreed to lease all the capacity for the life of the satellite. It is a relationship similar to the EchoStar-SES Global deal for three other satellites over North American operated by SES Global’s SES Americom subsidiary.

“Let’s say we are investing 100 in the Canadian Ciel slot,” Bausch said in an interview. “EchoStar is paying us, let’s say, around 10 per year. But because we have a single customer taking all the capacity, we have no marketing and sales costs, just operating costs.”

Bausch was less certain about the timing of the QuetzSat investment in a new satellite over Mexico — like Ciel, capable of serving the U.S. market. But he said both investments meet SES Global’s standard of providing a 10- to 15-percent internal rate of return on the capital investment.

Comments: pdeselding@compuserve.com