New Skies’ CEO Dan Goldberg Says Consolidation Gets Too Much Attention

New Skies Satellites will begin a share buyback programme in earnest this month. The Dutch satellite operator, which was spun off from Intelsat in the 1990s, expects to have strong growth in 2003, despite the difficult market conditions. In an exclusive interview, New Skies CEO Dan Goldberg tells Interspace Senior Editor Mark Holmes why he is “cautiously optimistic.”

Interspace: Despite admitting that you didn’t know when there would be a turnaround in market conditions, you said you expected that New Skies would have double digit growth in 2003. Why are you confident that this growth will occur despite the still poor market conditions?

Goldberg: For us, it has to do with bringing on new capacity. This new capacity will be going to fairly desirable parts of the world where we see demand that we can’t satisfy today. NSS-6 gets launched in December this year and will be available for commercial service some time in January next year. It is going to 95 degrees East, which is in the Indian Ocean region. It has six beams – one each over India, China, Southeast Asia, Northeast Asia, Australia and the Middle East, which is a beam that is split so that it also covers Southern Africa. All those beams are fully inter-connected. On a 36 MHz equivalent basis, there will be 60 new transponders coming onto the market, relatively early in the year. This is a region of the world that is still growing and where there is still a good demand for satellite services. We already have done a good job of pre-selling on NSS-6. We hit our pre-target fill rate of between 10 and 20 per cent. We see significant revenues being generated from that satellite. We are also moving our 803 satellite, which we are renaming NSS-5, from the Atlantic Ocean Region to the Pacific Ocean Region. That is going to give us, for the first time, station kept capacity in the Pacific Ocean Region. That is why even without anticipating a rebound in either the global economy or the market for satellite services, we are still cautiously optimistic that we can see some meaningful growth next year.

Interspace: You currently derive around 7 per cent of your revenues from the Asia Pacific region. With the launch of NSS-6 and the recent deal in India with Data Access, how do you expect that figure to increase in 2003?

Goldberg: We are certainly expecting Asia to be a bigger contributor to our overall revenue mix, both because of NSS-5 and NSS-6. NSS-6 will straddle two different geographic regions – Asia and IMEA – India, Middle East and Africa. Data Access will fall into the IMEA region. We are expecting Asia in 2003 and beyond that to play a more prominent role in our overall revenue mix. In 2003, Asia will probably contribute 10 per cent, may be even above that in 2003, depending on how successful we are in marketing some of this capacity. I would expect, as we get beyond 2003, it will be still increasing.

Interspace: In terms of the share buyback programme, when do you hope to complete the purchase of 10 per cent of outstanding stock? If this were to be executed smoothly and quickly, would you like to initiate further buybacks in the near future?

Goldberg: We will probably get underway with the share buyback in mid-November. We are very much going to take it as it comes. We are going to dip our toes in the markets and see what shareholders want to do. We will see how much demand there is out there for selling into the share buyback programme. We will see what sort of price sensitivities are out there. We don’t really have any firm expectations on how long it will take. It is not like we are trying to conclude it in any particular time frame. Obviously, we would expect to complete it within a year’s time. Until we get a good sense of what the shareholders are thinking and where they are, only then can we determine whether or not it would make sense for us to contemplate doing a further share buyback.

Interspace: Consolidation has been a consistent industry buzzword this year, with many predicting some activity in the fixed satellite service (FSS) sector in 2003. What role do you see New Skies playing in this arena?

Goldberg: The strong balance sheet gives us an opportunity to participate in any consolidation that might be taking place. We will be highly opportunistic in this area. It will be driven only by considering strategic opportunities where the valuations are appropriate, where the company we would seek to acquire would be a good fit for New Skies. By a good fit, we would be looking at geographic coverage, customer base, mix of service and corporate culture. They would be the criteria.

Interspace: Do you expect to see major industry consolidation in 2003?

Goldberg: That is the question. We could have had this conversation a year ago and said 2002 is the year of further consolidation in the satellite industry. I think it is certainly plausible that there could be one or two significant deals that take place in 2003. The satellite industry in part has a bad track record of talking about consolidation to death. Notwithstanding a lot of talk, while there has been some meaningful consolidation in the past 24 months, my guess is that it has been less than most people [were] contemplating, say three years ago or so. I think there will be more consolidation. It is certainly plausible that it could happen in 2003. I think overall the pace of consolidation has been slower than most industry observers have predicted. I think maybe it is given disproportionate importance in terms of just how important it is at the end of the day. If two companies consolidate, how significant is that for the industry? Is it significant from the perspective of competition in the market? What does it mean for the market, employees, and for the share price? I do think consolidation gets more attention than it really deserves. This is not to say it is not important or that there is a likelihood that it will not occur. I think if there are 10 things we can talk about that are of interest in this industry, the topic of consolidation gets a disproportionate amount of airtime.

Interspace: How do you view New Skies as a potential acquisition target for others?

Goldberg: You can only control a few things in life. I don’t have 20/20 vision in terms of what our competitors are thinking. The implication of your question is – What is the likelihood of one of your competitors buying you, particularly one of your larger competitors? I would say this is one of those things that we have less control over than some other things in our business. Regardless of what happens, everyday we have to come and execute the plans we have established for ourselves, and by doing that well, everything else should largely take care of itself. We are in a good position to be a consolidator if some interesting opportunities come up. It could well be the case that someone will look at New Skies with acquisitive eyes and no matter what happens all of us, employees and shareholders, will be benefited if the company is executing very well.

Interspace: In recent weeks, we have seen PanAmSat use a joint venture model to tap into different regional markets. Is this an approach you would consider when looking to extend your geographical presence?

Goldberg: I think at particular times when the operating environment is difficult, operators are much more inclined to find ways to work together. We are certainly in that type of setting today. I think ventures of that nature can make good sense if they are properly defined. But I do think sometimes businesses have a weakness for announcing joint ventures that maybe at the end of the day are ill defined. That might capture some headlines, but there is not something terribly real there. To be clear this is not a comment on any of the recent partnerships or initiatives that have been announced, it is only to say that the roles and responsibilities of companies participating in the ventures must be clearly defined if they are to be successful. If they are, then I think it can be a positive thing for the companies that are participating.

Interspace: What are the major challenges for New Skies in 2003? Where do you hope to position the operator on the FSS landscape?

Goldberg: The biggest challenge will be the continued execution of selling capacity. I do think in 2003 the markets will continue to be difficult. All the operators including New Skies have to focus on fundamental blocking and tackling if you will. It is my expectation that it is going to continue to be a difficult environment. That to me is the biggest challenge. As far as positioning ourselves for next year, we are going to continue to try and position ourselves as an operator that is highly commercial, entrepreneurial and opportunistic because you have to be in an environment like this and an operator that maintains an absolute commitment to technical excellence. I think we have done a good job of that. I think we have done a good job on delivering on the promises we have made in the past, and we are going to be really focused on doing that going forward.