A year ago we headlined our end-of-year European report as “What a Spectacular Year”. If 2005 was spectacular, then 2006 saw even more cream on top of the cake. And we were remarkably prescient in our forecasts: we accurately forecast that SES Global would be the front-runner in the acquisition battle for New Skies Satellite, which they bid for on December 14 last year, and which closed earlier in 2006. SES Global goes into 2007 in a very healthy state as the planet’s Number 2 operator, and still looking to mop up a few more tasty morsels, of which more later.
Friends at Last? Leading Europe-based satellite operators sign agreement on October 30 for a joint S-band initiative in Europe called Solaris. In photo are from left, SES Global CEO Romain Bausch and Eutelsat CEO Giuliano Berretta.
Our other big 2005 story concerned Europe’s second-largest satellite player, Eutelsat. The Paris-based operator had had a terrible time in transitioning into a fully quoted company, resulting in a pulled and then reinstated IPO. Well, what a difference a year makes! Eutelsat has blossomed and not only achieved Stock Market recognition, but approval for what they’re doing. Indeed, while it is fair to stress the many major differences between Luxembourg-headquartered SES Global, and Eutelsat (not least fleet size, revenue, profitability and the like) the bottom line for Eutelsat has been nothing short of amazing over the past year.
Its autumn quarter-year revenues (period to Sept 30) were 6% up on the same period last year, with video applications rising an impressive 10.7%, and all from organic growth. This year Eutelsat will generate just over $1bn in overall revenues. It has just won an order for extra capacity from Canal Plus Group, to deliver the important Canal Satellite channels to viewers of Television Par Satellite (TPS), which Canal Plus absorbed back in January 2006.
In terms of pay-TV activity the consolidation between France’s two rival pay-TV groups was the big event of the year, and it will be interesting to see if Canal Plus continues expensive dual emission of its channels over both the SES Astra and Eutelsat systems. SES Global’s president and CEO Romain Bausch thinks his operation has a degree of certainty over Canal Plus. “The decision as to which satellite to use is one for Canal+ Group and the current situation, more or less, sees Canal enjoying a two to one ratio over TPS in terms of dishes installed. There’s another element in this mix, which is that many TPS subscribers have a dual feed dish that means they can also receive signals from Astra at 19.2. So we believe that in terms of re-alignment of dishes, Astra is in a very strong position. There’s another reason why we remain optimistic and this is because we have very long term, non-cancellable contracts with Canal Satellite. From other sources we understand that Eutelsat contracts that cover only six transponders according to Eutelsat, are not so strong or long term.”
The rumours and reports of merger between Canal Plus and TPS had been around for years, with both parties admitting that consolidation was the only way to succeed in an increasingly challenging French pay-TV market. The new entity has a total of 7.5m subscribers (9.8m subscriptions) and a major foothold in satellite TV, as well as channels present on cable, DTT and broadband systems.
Eutelsat’s $1bn target revenue for this financial year is dwarfed by SES Global’s, which this year is expected to hit the $2bn mark, helped by the New Skies Satellite acquisition, and consolidation of specialist subsidiary ND SatCom. “SES sees strong organic topline growth in 2007 of a high-single digit 8% growth, while next year's expected EBITDA growth of more than 9% will benefit from the integration of New Skies,” said CFO Mark Rigolle.
SES, and to a certain extent Eutelsat, have benefited hugely from Europe’s enthusiastic adoption of HDTV, with satellite outperforming cable in just about every market. Players like BSkyB, now supplying 11 high-def channels, Canal Plus, Sky Italia and other pay-TV suppliers are all beaming out HDTV. Indeed, SES set out at the beginning of the year saying it expected to be supplying 100 high-def channels by 2014. Within a few months that estimate had altered considerably, and helped by the fact that it is already broadcasting around 20 HDTV channels. Speaking in August, CEO Romain Bausch said Astra now expected to reach the magic 100 high-def channels by 2010, barely 36 months away.
To help cope with this anticipated expansion in demand SES is ordering new satellites for Europe. It already has some 286 transponders operating (and an 84% ‘fill rate’), with capacity very tight over its UK and mainland Europe orbital positions. Bausch said Astra’s high-def confidence is helped by a ground swell of consumer support for HDTV. This “100 channel” HD target will help ameliorate the still heavy dependence on German analogue channels.
Bausch told analysts that SES Global’s strategy was “unchained” with its primary focus being on core satellite infrastructure. This past summer SES Global’s main Board approved procurement of another pair of satellites (Astra 3B and New Skies’ NSS-9) on top of a heavy satellite-building programme averaging 3 new craft a year for the next 3 or 4 years. Bausch said SES was in the middle of a “most dynamic” phase. Astra 1L is due for launch in “early” Q1/2007, which will allow Astra 2C (currently on station at 19.2 deg E) to move to the ‘UK’ orbital slot at 28.2 deg E, and provide some much-needed extra capacity (between 10-16 extra transponders) for Britain and Ireland.
Normally SES and Eutelsat are steadfastly at loggerheads but just for once all was sweetness and light when on Oct 30 in Paris, they announced a joint S-Band initiative for Europe, dubbed “Solaris”. Romain Bausch and his opposite number Giuliano Berretta at Eutelsat presented their scheme to fund and launch an S-Band payload on Eutelsat’s upcoming W2A craft, with the payload supplied by Alcatel-Alenia (a Spacebus 4000C4) and a launch date late in late 2008/early 2009. Most noticeable element of the orbital project will be a giant 12m antenna on W2A. “A joint-venture was an obvious conclusion,” said Berretta, given that risk was reduced. Bausch said both companies had been investigating the market potential for broadcasting to mobile phones, and other devices. SES had been looking at using a planned Astra 3B for its piggyback payload, but this element would now be dropped, although 3B will go ahead as a conventional DTH bird.
In truth, of course, there are plenty of occasions when the two fierce commercial rivals co-operate, not least in terms of Brussels-focused lobbying and legislation. This venture is a landmark in that it represents the first by either business in S-Band (downlinking in 2170-2200 MHz) or indeed, by anyone over Europe. “This is not in competition with terrestrial infrastructures, but as a complementary service,” said Bausch. Terrestrial repeaters would be used in urban and suburban areas, with satellite providing the gap-filler. “This is not about competition between the various mobile TV technologies,” said Bausch, referring to S-Band and DVB-H, and while the transmissions would be compatible with DVB-H, he forecast a rapid standardisation some 18-24 months from now as to receiving units. This was confirmed by a matching announcement from Alcatel and Samsung. The agreement represents a substantial move to "put satellite on the map when it comes to the development of mobile broadcasting in Europe," Bausch added.
Eutelsat vs. SES
The overall investment is “about €130m ($165m) for the S-Band space segment payload” plus modest additional infrastructural costs, said Bausch. “Both parties are committed to deploying this technology, with the j-v company responsible for commercialising the technology,” said Bausch.
W2A’s overall S-Band capacity will have a maximum of 6 spot beams, but it is also possible to have just 4 beams, thereby boosting the output power. Berretta talked about supplying up to 60 channels as part of the system, based on about 10 channels targeted for each market for satellite reception into rural areas. When terrestrial repeater capacity was added the end result could be up to about 30 mobile-TV channels for each market, said Berretta.
Berretta added that W2A would be Europe’s biggest-ever satellite, and was a highly innovative mission. The j-v would not be involving itself in any sort of terrestrial activity. Berretta said the craft’s multiple spot-beams would cover Europe’s main countries, and additional applications would be examined besides mobile television “in particular radio” said Berretta. Alcatel is looking at providing its support to SES and Eutelsat for a delivery of an S-Band service as a “complementary system”.
The market opportunity, said Berretta, could reach 20% of mobile subscribers by 2015. “However, our internal forecasts are more moderate [30m-50m subs by 2015 in Europe], but it is still a large potential market.” Berretta explained that the functionality included potential harmonisation with the Galileo GPS system. “At the moment DVB-H’s deployment will occur around 2008 and we think we will be ready at launch date to be ready with these extra frequencies.”
Quite how the ‘Solaris’ S-Band plan will affect other European plans for DARS radio services can only be guessed at. We covered the current state-of-play in the DARS sector in our November issue.
But SES Global is also at the centre of a storm in Germany, which earlier this year saw Eutelsat – back in arch-rival form – lodging legal objections against SES. The background is straightforward enough, and has SES Astra looking to convert the German television market from a free-to-air and mostly analogue transmission model to digital – and pay. German viewers already have to pay for a TV licence, of course, and for each TV set in the home! But other than this licence, almost all TV is ‘free’. Pay television has not taken off (only 3m subscribers), and why should it when almost every household has dozens of channels being broadcast for zero fee, other than a very modest cable fee. Satellite levies no charge at all. This has created something of a monster, in that viewers have little incentive to ‘trade up’ to premium channels, and therefore there’s little incentive for broadcasters to launch new niche channels.
SES, along with channel operators like RTL and music provider MTV, has attempted to kick-start a shift towards digital but proposing a new encrypted tier (‘Entavio’) where new channels would reside. The fee, a paltry €3.50 a month ($4.50). How would you like to view a ‘big basic’ bundle of channels for such a low sum? Which, more or less, was SES’ view. Immediately, Eutelsat stepped in and argued that SES, along with the scheme’s other supporters, were planning a cartel, which forced the German Cartel Office to investigate, and this action has been running for most of 2006. The action has affected SES Global’s share price, as well as damaging SES Astra’s reputation in Germany.
Worse, perhaps, Germany’s powerful public broadcasters, ARD and ZDF, have scorned Astra’s digital plan. “Astra is trying to choke digitalisation in Germany with its basic encryption”, ZDF’s production director Andreas Bereczky criticised Astra in an interview with “Kriebel’s Sat-Report”, a German trade publication. “We currently see tremendous uncertainty amongst viewers who don’t know how to act in the transition from analogue to digital. I don’t know who would benefit from basic encryption.”
SES Global’s Romain Bausch says he is remains enthusiastic about the Entavio encryption plan: “I remain convinced that Germany needs a competitive distribution platform for all kinds of digital TV content by satellite is because we need to ensure that satellite remains competitive in the German market when competing with cable and DSL services. Today there are 16 million DTH homes in Germany and it’s very clear that somebody has to offer a platform to make sure that the German TV viewer gets a content line up that’s as interesting on satellite as it might be on cable or DSL.”
“As for ARD and ZDF,” said Bausch, “these are the public TV channels and these will continue to be transmitted on satellite in the clear. But if RTL, MTV and others ask us to encrypt their signals, we will do so. However if broadcasters want to stay in the clear, they can stay in the clear, both options will be available but Entavio will allow all the pay TV operators to stay on satellite with their pay channels.”
Bausch added that with Hollywood studios as well as sports producers increasingly demanding that content is encrypted, the world of wholly free transmission was under threat. “It’s not so much that [Germany’s public broadcasters] will miss opportunities by staying in the clear, but because they are financed by a relatively high licence fee of about €19 a month, and with viewers having to pay for each TV set in the house, the broadcasters are afraid that the 16 million homes, almost half Germany’s homes, would end up also having to pay the technical fee that we are proposing. This puts into question the way they are currently financed, and this is a potential problem for them.”
Nevertheless, Astra still has to get Entavio past Germany’s Cartel Office. But here, it seems, Astra is now on more solid ground. Dr. Ulf Böge, President of the Cartel Office, speaking in October said he assumed that the platform will end up being designed in such a way that the Cartel Office has nothing to block. Bausch confirmed this thinking: “There will be a Entavio project, that’s absolutely clear. The question remains as to how close to the original plan we can stay while at the same time seeing approval from the Cartel Office or whether there will be some changes.”
Before we wrap there’s just one other major element that concerns both SES and Eutelsat, and that’s the ever-present possibility of further industry consolidation. The year has seen two major European players being acquired in a seemingly never-ending game of ‘Monopoly’: New Skies Satellite, as we have mentioned went to SES, while Telenor Satellite Services in November accepted a bid from Apax Partners. Telenor, already handling a huge amount of Intelsat and Inmarsat traffic could be further integrated by Apax into either of these global players because Apax has interests in both Inmarsat (with Permira) and Intelsat (via Zeus Holdings).
But there could be more. Telesat of Canada is very definitely ‘in play’, and Eutelsat might be a buyer. SES Global is also looking for fresh opportunities, with Bausch specifically identifying the Asian region where there are currently 26 independent satellite operators, many operating just 1 or 2 satellites. “Consolidation is a permanent feature of our business,” he adds, although stresses that SES Global’s future ambitions needn’t be limited to Asia. SES already has a 34% economic interest (but 50% control) in Hong Kong-based AsiaSat.
In other words, prepare for an action-packed 2007. SES Global and Eutelsat never disappoint us in their wish to grow bigger – and even occasionally to work together on projects like Solaris. They’ll expand organically, helped by growing enthusiasm for HDTV and new channel launches, and they’ll grow through their voracious appetites for smaller operators. The year will not be dull!
Source:Satnews Online Magazine
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