Berretta: Eutelsat Is Stronger Than Ever

By | July 16, 2003 | Feature

While other satellite operators are showing little, if any, growth, Paris-based Eutelsat is looking forward to posting positive numbers for its fiscal year. When Interspace Senior Editor Mark Holmes spoke with Eutelsat CEO Giuliano Berretta earlier this year (see Interspace issue 760), the talk was dominated by Eutelsat potentially being acquired by PanAmSat [NYSE: SPOT] or Intelsat. Today, it appears the operator is as strong and as independent as ever. The challenge will be for the company to keep up its strong growth rates and to look for opportunities in new market areas away from its traditional broadcasting base. While broadband services only represent a small part of Eutelsat’s revenue base currently, Berretta expects the figure to increase in the next two years. Taking advantage of new opportunities in regions such as Eastern Europe, as well as in technologies such as high-definition TV (HDTV), will also be on the agenda for the European operator. In an exclusive interview, Berretta shares his thoughts on the challenges facing his company for the rest of the year and into 2004.

Interspace: Could you give us an update of your capital expenditure plans for the rest of the year? In terms of the launch of the e-BIRD and the W3A satellites, how much capacity are you looking to pre-sell? Have there been any insurance issues regarding the satellites?

Berretta: Concerning the capital expenditure, two satellites are under construction, e-BIRD and W3A for launch in August and December, respectively. HOT BIRD 7A, an improved version of the HOT BIRD lost in December last year, will be ordered shortly from industry for a launch in the fall of 2005.

There are no particular insurance issues, as our two upcoming launches are relatively straightforward: the Ariane 5 ‘generic’ rocket for e-BIRD and, for W3A, a Proton Breeze, which is a very reliable launcher with a strong track record. Obviously, we like Arianespace and we believe they are back on track. But we need to keep the satellite programme moving forward and hence [we have a] policy of sourcing from more than one supplier. The e-BIRD launch looks set now for late August. It is a little bit late as the satellite suffered a delay and now there is a further slip due to the Ariane launch schedule.

In terms of pre-launch sales, since W3A’s mission is to replace W3, most of the capacity on the satellite is already leased. We are looking at a number of options for the future location of W3, which we had originally planned to co-locate with W3A at 7 degrees East so it could act as an in-orbit spare. However, we think there is enough demand in the market today to justify positioning this satellite at another location. W3A is one of our most sophisticated satellites, combining Ku-band and Ka-band frequencies as well as SKYPLEX on-board multiplexing. It will strengthen the 7 degrees East slot, which is a priority position for business networks multimedia and digital pay-TV.

There is enormous interest in e-BIRD as it has been designed for Internet and broadband applications with a very low cost per bit. With five degree spacing from the UK’s prime location for digital TV, we also believe there is great potential for double feed reception of TV and multimedia services. We have not heavily marketed the satellite over the last few months as the substantial launch delays have created problems for Internet companies who had planned to launch services at the beginning of the year. The Ariane delay was beyond our control, but this is very difficult to explain to frustrated customers.

Interspace: How many satellites do you hope to launch in the next 18 months?

Berretta: In addition to e-BIRD and W3A we plan to strengthen our coverage to the East by buying all Ku-band capacity on an Express satellite, which should be launched next year to an Eastern orbital location. Beyond this, we will launch HOT BIRD 7A in 2005. We are still discussing some technical details for the design of this satellite in order to factor in maximum flexibility. It will replace HOT BIRD 1 and provide simultaneous sparing of HOT BIRD 2 and HOT BIRD 3. We should have completed the negotiations, but this satellite is more complex than the one we lost and there are some design aspects still to be clarified. We expect to be able to announce shortly who will be building HOT BIRD 7A.

We are also planning shortly to issue the [request for proposals] for HOT BIRD 8 and to select a supplier in the autumn with a view to delivery at the beginning of 2006. With HOT BIRD 6, HOT BIRD 7A and HOT BIRD 8, we will have completely renewed capacity at our prime broadcasting location and built maximum redundancy for broadcaster clients at 13 degrees East.

Interspace: Could you give us an update in terms of a possible initial public offering? With the talk of someone acquiring Eutelsat appearing to have died down, are you hopeful of having an IPO at some point in the near future? Are you actually looking to make acquisitions yourselves?

Berretta: It was clear to everyone that market conditions in the second half of last year did not favour an IPO. We think our shareholders would like to get better value particularly as we are the only one of the top operators to have increased revenues and EBITDA [earnings before interest, taxes, depreciation and amortisation] during the last business year. We expect to post a turnover of at least 710 million euros [$808.2 million] for our business year that closed on June 30 in comparison to 659 million euros [$750.1 million] the year before. This strong performance sets us apart from our competitors in the satellite sector who have all posted either flat or negative growth.

These results position us as Europe’s leading satellite operator for the first time since 1992 and increase our global marketshare to approximately 12 per cent from 8 per cent. They also rank us more or less equal to PanAmSat, particularly with the current dollar/euro exchange rates.

As far as the IPO timetable is concerned, this is a discussion we will have in due course with our shareholders that now include the new participants in the form of BlueBirds Participations and DeaSat Holding.

Interspace: With News Corp [NYSE: NWS] attempting to buy Hughes Electronics [NYSE: GMH] and its DirecTV unit in the United States, there is a distinct possibility that PanAmSat could be for sale at some point in the future? Does Eutelsat have the financial capability or interest to do such an acquisition?

Berretta: Firstly, I do not know if PanAmSat is for sale. If it were, an acquisition would depend on the degree of synergy that could exist with Eutelsat and the opinion of our shareholders. PanAmSat is a good complement to Eutelsat, and one thing we may like to do is to consider looking at more collaboration with companies that are complementary to Eutelsat.

Generally speaking, I favour smaller acquisitions rather than merging with or acquiring a big name, which is both difficult to achieve and hard to digest. I have noticed that the companies that have gone for large acquisitions do not necessarily gain in stock value.

Interspace: In 2002, broadband services generated only 3 per cent of your overall revenues? How much do you expect those services to generate this year?

Berretta: In 2003, we expect [broadband services] to account for approximately 3 per cent [again] and we expect this to grow to 15 per cent of income in five years. It is a segment of activity that is quite hard to define because we see our long-standing corporate business increasingly merging with multimedia. The two activities combined today account for approximately 20 per cent of turnover.

Interspace: In recent weeks, we have seen satellite operators talk about the evolution of their strategies, whether they are focusing on government services, satellite/fibre solutions, broadband, etc. Is there an evolution taking place at Eutelsat in terms of the sectors and services you are targeting? Are you looking to target niche markets?

Berretta: We have kept our eye focused on our objectives to consolidate our position in our core markets in Europe, to expand geographically and to diversify into new value- added services. I believe we are progressing well in all three areas. With the launch of W5 we have occupied an Eastern orbital location [70.5 degrees East], which has bought us a lot of new business. With the acquisition of Stellat, now called ATLANTIC BIRD 3, we have C-band capacity for Africa for which there has been substantial demand. We have been so successful that I think we will have to look for more capacity in the C-band. As far as investing in fibre is concerned, current market prices are so competitive that I believe it makes more sense today to rent fibre than to invest in it. In the market for broadband services we think we have developed the best technical and commercial solutions for a diverse set of users ranging from SMEs [small and medium-sized enterprises] to public administrations to consumers.

Interspace: What are the main challenges facing Eutelsat for this year?

Berretta: The e-BIRD and W3A launches will be milestones that will contribute to increased marketshare in the broadband market and a stronger presence in our core European market as well as Turkey, the Middle East and Africa. I also believe that we will see HDTV [high-definition TV] taking a higher place on the agenda. Eutelsat has already gained quite some experience with high-definition [HD] as we have been working with Elsacom on HD satellite transmission of films to a number of cinemas in Europe for the last two years. I think that digital broadcasting will develop in two directions from its current DVB/MPEG2 platform: MPEG4 for PC viewing and HDTV for the widescreen experience. Eutelsat intends to be present in both of these areas. In particular, the DVD market expansion and the widespread use of wide flat screen will create the need for higher quality TV and accelerate the birth of HDTV.

(Contact: Vanessa O Connor, Eutelsat, e-mail: voconnor@eutelsat.fr)

Principal shareholders in Eutelsat

  • Bluebirds France Participations 23%
  • Mirror International Holding 20%
  • BT 17%
  • Deasat Holding 11%
  • KPN Satcom 3%
  • Belgacom 3%
  • Telekom Polska 2%
  • Telefonica 2%
  • RSCC 3%
  • Others 13%

Source: Eutelsat

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