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INSIGHT — Europe's Bullish Satellite Market
by Chris Forrester

The U.S. market demand for satellite capacity might be growing modestly. The Asia-Pacific region, with China and India experiencing progress, might also be seeing some cause for DTH optimism. But it is Europe that is the world’s powerhouse for satellite growth and optimism.

Take Paris-based Eutelsat as an example, and its 3,120 video channels (as of June 30). Then there’s SES Astra, the busiest (and most profitable) of SES’ ‘federal’ operation of Astra, Americom, and New Skies. Astra has 79.5 percent of its fleet utilized (252 transponders out of 317), and while it is fair to say that both Americom and New Skies are fast catching up (Americom’s utilization stands at 77.9 percent (334 out of 429) while New Skies, which was once the struggling newcomer, is now at a very appealing 73.6 percent (234 out of 318), it is still Astra that’s SES’ ‘cash cow’.

We’ll return to SES in a moment. Let’s not ignore the rest of Europe with outfits like Norway-based Telenor, Greece’s Hellas, Spain’s Hispasat plus the European roles played by Intelsat, Israel’s Spacecom/Amos (with a nice portfolio of Central and Eastern European clients), and you start to understand the buoyancy of the greater European market.

In August, Eutelsat unveiled some fascinating data, with CEO Giuliano Berretta reporting an overall increase of 20 percent in Eutelsat fleet capacity, which had helped deliver an EBITDA margin of 79.3 percent, up 0.6 percent, which he claimed was the highest in the Fixed Satellite Services sector. He said that Eutelsat was busier than ever, “and is consequently targeting revenues of more than one billion euros in fiscal year 2010-2011.”

Eutelsat now has 468 leased transponders, or transponder equivalents, up 15.8 percent from 404 a year ago. Operationally it has 501 available transponders, down fractionally on last year’s 505. Fill rate is a claimed 93.4 percent, up from 80 percent a year ago. Revenues grew 5.9 percent to 877.8 million euros, from 829.1 million euros, and helping push EBITDA forward 6.6 percent (at 695.7 million euros, from 652.6 million euros). Eutelsat is now beaming out 3,120 channels. “The decrease of the number of operational transponders from 505 units at June 30, 2007, to 501 at June 30, 2008, is due to the technical incident on the W5 satellite in June 2008, which resulted in the switch-off of four transponders,” said Eutelsat. This incident, which has generated much comment in the press, resulted in a controversial Chinese channel being removed from W5.

“This performance enables us to pursue one of the industry’s most important investment programmes, with seven satellites to launch by end 2010,” said Berretta. “A number of significant contracts underscore our commercial achievements, notably for capacity at our 9° E video neighbourhood less than one year after it was opened for business. Customers at this new neighbourhood can capitalise on the benefits of the audience of our Hot Bird position,” he added. “Emerging markets in our Second Continent have also experienced continued strong growth. Our major video neighbourhoods, which in particular address these markets, are now broadcasting over 1,500 channels, matching the success of Hot Bird and Eurobird-1 neighbourhoods in Europe.”

Berretta also praised the progress of HDTV within the fleet, which he claimed meant that Eutelsat now held the number one position in HD across “extended Europe”. “The number of commercial HDTV channels broadcast by Eutelsat’s fleet grew almost threefold y-o-y, to 49 channels at June 30, compared with 17 commercial channels at June 30, 2007. HDTV channels broadcast by Eutelsat’s fleet represent almost half of the total number of 113 HDTV channels broadcasting in extended Europe at June 30, 2008.” Berretta said HDTV is by no means the monopoly of so-called ‘Western’ countries, with excellent growth coming out of Russia and countries like Turkey. At the end June, Eutelsat’s fleet was broadcasting:

  • 21 HDTV channels from its Hot Bird and Eurobird-1 video neighbourhoods

  • 28 HDTV channels from major video neighbourhoods serving emerging markets of which seven channels at 7° E (Turkey), five channels at 36° E (Russia and Africa), five channels at 16° E (central Europe) and eight channels at the new 9° E neighbourhood (western and central Europe)

As to future demand for HDTV, Eutelsat is looking to take its share of an estimated 480 channels forecast to be on air by 2012 (over extended Europe).

Eutelsat seemingly enjoyed growth right across its transmission arc, none more so than at 7° W, an orbital position it shares with Nilesat and where Eutelsat’s client roster has grown from 172 channels to 253.

Satellite operators love to quote the contract backlog they have secured. Eutelsat’s backlog has reduced somewhat over the past few years from 4 billion euros in 2006, to 3.7 billion euros in 2007 and further down to 3.4 billion euros in the year to June 30, 2008. “Compared with one year ago, the slight erosion of backlog reflects a higher average fleet age, a major part of the backlog being composed of contracts which are generally concluded, or renewed, upon entry into service of new satellites for their entire operational life,” said the Company.

As to Eutelsat’s current objectives, the results statement said, “At the end of its 2007-2008 fiscal year Eutelsat is ahead of the three-year objectives disclosed in November 2007. As a result of this performance, the fill rate of the fleet has reached a record level of more than 93 percent at June 30, 2008. Given the progressive entry into service of additional satellite capacity expected during the second half of 2008-2009, the Group is confident of exceeding 900 million euros of turnover for fiscal year 2008-2009.”

As well as an aggressive build program with a total of seven new satellites under construction (and representing a cap-ex of more than 2 billion euros), Eutelsat has a couple of other interesting milestones over the next few months, not the least of which is the launch of its JV with SES of ‘Solaris Mobile’, the craft that will deliver S-band capacity on W2A, scheduled for the spring on 2009. Additionally, as the potential for TV to mobiles and cellular devices, it has a bi-directional role, which could, for example, marry its services to the European Galileo positioning satellites. “W2A is progressing well,” says Berretta, and will launch around February next year.

But Eutelsat is far from alone. SES reported its half-year numbers on August 4, and they were bullish, and quietly optimistic about future trading. SES was helped by recurring revenues up 8.7 percent y-o-y, and with recurring EBITDA up 7.7 percent on a year ago. Recurring operating profit was a comfortable 10.3 percent ahead (329.5 million euros vs. 298.8 million euros).

Some 40 percent of SES’ revenues are in U.S. dollars (and near-matching expenditure) and this helps the company’s structure operate as a natural ‘hedge’ against Dollar/Euro currency fluctuations, but when those actual currency variations are taken into account the actual revenues and EBITDA numbers mean that this past six month’s numbers are more or less flat (this current half-year at 788.5 million euros vs. 789.1 million euros a year ago).

Putting Thor-2 to work at 5° E also allows SES to relocate its Sirius-2 craft to a new orbital slot (and renamed Astra-5A) at 31.5° E, a new ‘hot spot’ for Astra, with six transponders already contracted.

Romain Bausch reported transponder capacity rose during the half-year to June 30 from 1048 to 1064. But this increase is nothing compared to the capacity that SES has coming on stream over the next few years. Bausch said that SES has 10 satellites under construction with launches scheduled between now and 2011, which will add a total of 237 incremental transponders, or 23 percent more capacity overall.

Bausch also said that new markets (for Astra) in Central and Eastern Europe, North Africa and the Middle East were also important to SES. “We are also entering into these new markets, all of which are very dynamic. But you also need to have the right customers. There is no great point into entering into contracts which might only be for a short term.” He said that Astra was looking for sustainable customers in Central and Eastern Europe, but at realistic prices. “It is true that as far as DTH is concerned we are not that active in North Africa and the Middle East, but we have certainly not given up in these regions.”

Fleet utilization remains a robust 77 percent overall, with 803 transponders in use (at March 31) and 820 in use (at June 30) out of the total 1064.

HDTV is helping soak up European capacity, and SES now beams 42 HD channels over Europe and is expecting some significant increases to this demand as the year progresses. Bausch said that the U.K.’s BSkyB (promising 30 HDTV channels before the end of this year) is by far the most aggressive HD player in Europe and that the U.K. and Ireland would lead Astra’s HD manifest. “Other markets, like France in particular, are also proving to be very interesting in regard to HDTV. But so is Germany, where Germany’s public broadcasters have made a decision to launch HD in early 2010 with the Vancouver Winter Olympics, but also with Premiere, where the presence of BSkyB is in Premiere’s shareholding structure. I would not be surprised to see Premiere accelerate the roll-out of HD, and ahead of that which they have announced so far.”

The Astra division remains as SES’ busiest, with 79.5 percent utilised (252 transponders out of 317), but both Americom and New Skies are fast catching up. Americom’s utilization stands at 77.9 percent (334 out of 429) while New Skies, which was once the struggling newcomer is now at a very appealing 73.6 percent (234 out of 318).

Contract backlog fell back 3 percent (from 5.84 billion euros to 5.66 billion euros) largely attributable to the declining value of the U.S. dollar in which satellite contracts are usually priced. “Demand for satellite capacity remains strong across the majority of applications and geographic regions, with pricing generally stable to gently improving.  We expect revenue growth to continue, as per our guidance, driven by the solid underlying conditions in our business and in particular television channel proliferation,” said SES, in their upgraded, and improved, guidance for the upcoming period.

Solaris Mobile — Update
Bausch covered the situation with Solaris Mobile, its JV with Eutelsat, which will come into use early next year offering clients TV-to-mobile devices, and possibly audio. At the moment Solaris’ transmission rights are somewhat confused. “Solaris has an ITU top priority filing (under the French administration) and with Thales [as the applicant]. This has first priority at the ITU and as such is not a problem. But as regards the European Union framework the satellite and the terrestrial transmissions [the ‘complementary ground component’] will be approved nationally at EU level, and we applaud the initiative by the European Commission on this aspect. The downside is that a kind of ‘beauty contest’ will be held and this takes time. We expect the EU to send out their call for applications by about now, and then potential interested parties have two months in which to apply. So Solaris Mobile is already preparing its filing application, and by early October the EU will then look at the different applications (received) and select the bidders. If the number of bidders is below the capacity available then everyone will get what they asked for. If the total is greater than that available there will be a second round Beauty Contest with milestones and other aspects taken into account. We are really confident that Solaris will get that which it is asking for, given that it is based on a real satellite. I doubt that other [applicants] will be as well advanced.”

Details regarding Solaris Mobile may be found by selecting the homepage graphic, below…

Europe’s satellite future is truly buoyant. Competition is as tough as ever between the various players, but that’s good for clients. In some markets (Germany, the Benelux and some parts of Spain and Eastern Europe) cable is still a powerful rival, but the growth in the market comes from DTH. HDTV is only beginning to happen, which is good news for capacity.

About the author
London-based Chris Forrester is a well-known entertainment and broadcasting journalist. He reports on all aspects of the TV industry with special emphasis on content, the business of film, television and emerging technologies. This includes interactive multi-media and the growing importance of web-streamed and digitized content over all delivery platforms including cable, satellite and digital terrestrial TV as well as cellular and 3G mobile. Chris has been investigating, researching and reporting on the so-called ‘broadband explosion’ for 25 years.