Opportunities and Threats for New SES CEO
This looks set to be a year of change for SES with the departure of Romain Bausch, at the helm of the company since 1995. Karim Sabbagh, incoming CEO with a background in consulting and emerging markets, is likely to have different goals as to how the company should be managed going forward, both operationally and strategically. Here, we discuss some of the challenges we see him facing in 2014.
- The shift to emerging markets. While SES has delivered solid growth in Europe, particularly if the impact of analog switch off in Germany is excluded, the key driver of expansion for SES has been in the more dynamic markets of Asia and Latin America. For Sabbagh, the challenge will be to ensure that SES can continue to take the lead in securing anchor tenants for new capacity, but also to ensure that SES has the orbital rights that will allow the company to continue to exploit these fast growing markets. As SES management has pointed out, there are many small operators emerging in Asia and other territories, some of which have attractive orbital rights. We believe that one of the assets that Sabbagh brings is his familiarity with many of these emerging market players, and we would expect to see SES strike strategic alliances and partnerships with some of those operators as it seeks to broaden further its footprint in Asia, particularly.
- Changes in distribution technology. When it comes to satellites, how the platform will stand up against alternative distribution models is in the back of everyone’s mind. Fiber is being rolled out rapidly, and broadcasters are embracing over the top business opportunities. SES and other operators must demonstrate how satellite fits within this changing universe. The company has already signed a number of contracts with triple play providers where satellite is used for the broadcast TV component, and terrestrial networks carry voice and data traffic, but more of this kind of cooperation is likely to be in the cards.
- Benefiting from new manufacturing and launch services without taking excessive risk. SES has been at the forefront of new developments, having been the first commercial customer of both Proton and Space X. Meanwhile, the capital expenditure (CAPEX) per transponder per year of operation has dropped by around two thirds over the last 15 years. The challenge for SES management will be to continue to push the boundaries of technological development without incurring excessive risk. We expect all-electric satellites to form part of the road ahead, as well as a further broadening of launch partners.
- Managing expectations with regard to Ultra-HD. With 3-D having been somewhat disappointing in terms of the number of channels launched globally, Sabbagh will have to tread carefully when it comes to Ultra-HD. While we believe that the new standard is vastly superior to both regular HD and 3-D — indeed it delivers a 3-D experience, but without the pesky glasses — we suspect that some operators will be loath to put much effort behind Ultra-HD, and will require encouragement by both hardware (TV) manufacturers and the providers of satellite capacity. Sabbagh is likely to get a helping hand, in our view, from increasing competition between platforms. We think the fact that Netflix is launching in 4K is likely to prompt accelerated interest in the new standard than would otherwise have been the case.
- Playing a part in industry consolidation may also be something that takes more of SES’ time in the future. The company has already established a global footprint but, by management’s own admission, it would like more orbital rights in Asia. We suspect that more than one operator may come up for sale in the next 12 to 18 months, and it will be up to the new management at SES to ensure that it buys the operator with the best spectrum assets and also does not overpay. We don’t think SES will be the only operator interested in expanding geographically, so there is likely to be competition for these assets.
Sabbagh joins SES at an interesting time. There are both challenges and opportunities ahead. Romain Bausch leaves the company in very good financial shape and with good growth ahead of it as a result of expansion in both Latin America and Asia. It is for the next generation to capitalize on this and move SES to the next level.