Via satellite’s Satellite Executive Of The Year 2000
An Interview With Giuliano Berretta
After years of dominance by U.S. companies and the international consortium, Intelsat, in the field of global satellite operations, it may come as a surprise to many that a new player has taken center stage. Eutelsat (The European Telecommunications Satellite Organization) operates a fleet of 18 geostationary satellites, and uses capacity on an additional three, making it one of the largest satellite operators in the world. And, its name is now becoming somewhat of an oxymoron, since Eutelsat’s reach has extended well beyond its traditional European borders, into Asia, Africa and the Americas. Eutelsat also is a leader in technical innovations: In addition to pioneering the delivery of multimedia and Internet via satellite services in Europe, Eutelsat’s satellites broadcast more than 850 digital and analog television channels to over 84 million satellite and cable homes, and are used for corporate networks, satellite news gathering, telephony and mobile voice, data and positioning services.
At the helm of this dynamic organization is Giuliano Berretta, an Italian citizen who previously served as the commercial director of Eutelsat for eight years. Berretta, who leads the Paris-based organization as director general, brings a marketing flair to Eutelsat, unheard of in treaty-based satellite organizations. Moreover, his technical understanding of satellite communications–he previously held the position of head of the Mission and Programme Coordination Office at the European Space Agency–is a driving force in Eutelsat’s introduction of new satellite services and spacecraft development.
For anyone who has met him, Berretta’s central role in Eutelsat’s success is unmistakable. He seems to personify Eutelsat’s current vibrant, optimistic path to profitability, technical ingenuity and future growth. The year 2000 contained so many notable achievements under his leadership, they are almost too numerous to delineate: international expansion, increased revenues, new Internet services and more, not to mention the growth of Eutelsat’s fleet into a truly celestial armada. Berretta has also done what many never dreamed possible: he has taken a state-run, bureaucracy and made it a commercially viable organization with the entrepreneurial zeal typically associated with private companies. These successes, combined with his positive attitude and ability to demonstrate growth in an industry hard-hit by high-profile failures, make him an excellent recipient of the Satellite Executive of the Year award, which recognizes accomplishments over the past calendar year.
As part of our annual award process, Berretta shared his insights on the industry’s current status, future growth potential and issues of importance with Via Satellite Editor Cynthia Boeke and Interspace Editor Chris Forrester.
CB/CF: What do you consider your major milestones in 2000?
GB: I think there were a number of notable achievements in 2000 that paved the way for our continued development and are a powerful endorsement of Eutelsat. Two historic milestones came at a regulatory level. The first, in February, when the FCC granted us access to the U.S. market with the issuing of the first licenses to uplink services to our satellites from within the United States. The second came in November with the green light from the European Commission in Brussels of Eutelsat’s privatization package whereby all our assets and activities will be transferred into a national law company on July 2 this year, named Eutelsat SA.
Ahead of this change of status, our shareholders are clearly encouraging Eutelsat’s development. In the year 2000 they approved initiatives to grow the business that include investment in construction of Hot Bird 7, an agreement with Russia’s RSCC for capacity on Express 3A, as well as joint investment with the RSCC in the Express AM1 satellite. The latter will be placed at 40 degrees E in order to reinforce in particular Eutelsat’s offer towards the South Asian market. The Board also gave the go-ahead for equity investment in service providers (TV Files) as well as a joint venture partnership for a foreign-language TV platform in Germany.
In terms of traffic flows, whereas there was continued growth of consumer television broadcasting, with 100 new channels joining our system in 12 months, the predominant growth is clearly coming from new IP-based services. In terms of new capacity, the launches of three satellites (Sesat, W4 and W1) in the course of the year enabled us to consolidate business-to-business markets in Europe and to pursue our strategy of geographical expansion in Africa, Asia and Russia. The tremendously high filling factor of this new capacity has driven income up to a record figure exceeding $628 million. Finally, Eutelsat obtained its first syndicated loan of $515 million for the new national law company at excellent conditions, signalling the confidence of the financial community in Eutelsat SA and in its long-term development.
CB/CF: The years 1998-2000 were a period of consolidation amongst satellite operators. Eutelsat has been excluded from this. After privatization will Eutelsat be on the merger and acquisition trail?
GB: Eutelsat has, on the contrary, been actively and successfully on the merger and acquisition trail but not quite in the conventional way that you mean. There has been considerable consolidation in Europe over the last two years and a trend to move away from national satellite systems that can seldom reach the critical mass necessary to be commercially successful. The agreements reached with France Telecom at the 8 degrees W position and Deutsche Telekom at 28.5 degrees E, demonstrate this market development. Not only has Eutelsat assumed the commercialization of the Ku-band capacity on two of France Telecom’s satellites and of all the capacity on one of the German DFS Kopernikus satellites, it is also providing follow-on capacity at both positions: Atlantic Bird 2 at 8 degrees W and Eurobird at 28.5 degrees E. I can see exciting business opportunities at both slots, starting this year with the launches of both satellites. I think the partnership agreement signed with Russia’s RSCC to share investment in the Express AM1 satellite also demonstrates the sort of innovative business models we have pursued.
I am certainly ready to look at opportunities to acquire more business so that we can participate in further consolidation in Europe, the Americas and Asia, even prior to the change of status into the private company. However, the commitment to a joint venture will need to comply with our strategic objectives and with strict criteria in terms of synergies and economic value added. I am sure that our shareholders will not miss interesting opportunities that we might identify. As a general rule, it is faster but more costly to acquire business through external growth rather than internal growth.
CB/CF: How does Hispasat figure in these plans?
GB: We are talking to Hispasat and this is fully in line with our objective to invest in Latin America. However, Hispasat is not the only potential partner with whom we are in discussions.
CB/CF: With the exception of broadcasting’s so-called hot birds, satellite capacity is increasingly a commodity. Does this make life difficult for the industry and Eutelsat in particular?
GB: Just as in any other industry, this requires suppliers to make their mark and gain a competitive edge through innovation, anticipation of market demand, and attractive pricing. I think Eutelsat has an excellent track record in this respect. We have a long tradition in endeavoring to offer something unique to the marketplace, particularly in the field of technological innovation. An example of this is our Skyplex onboard multiplexing payload that has lowered the threshold of entry into the market for television and data broadcasters.
I am also proud that we are breaking new ground with our e-Bird satellite whose basic design is optimized to support two-way Internet broadband access networks. Satellite design has actually remained fundamentally unchanged for the last 20 years and I believe a radical review is now needed in order to accommodate the characteristics of the Internet and to ensure that satellites play their role in this business area.
In general, our policy is to give value to interesting orbital positions through market promotion and innovation in order to create neighborhoods and “hot bird” positions for different services. For example the 8 degrees W position will be built into a “hot” position for multimedia traffic within Europe as well as across the Atlantic. We will push 7 degrees E, already home to hundreds of VSAT networks as well as pay-TV platforms in the eastern Mediterranean Basin, into a “hot” neighborhood for TV and multimedia, particularly in southern Europe and the near Middle East. There is particular scope for 7 degrees E because of the potential for double-feed antenna reception with 13 degrees, home to our Hot Bird satellites. Seven degrees East will also become a multi-satellite position, housing W3 and W3A, the latter backing up the former and increasing capacity for multimedia applications. We have identified 25.5 degrees E as our “hot” position for two-way Internet access and it is here that we will position the e-Bird satellite.
CB/CF: Eutelsat has been accused of being in control of far too many of the available European orbital slots. How do you respond?
GB: All satellite operators in Europe and elsewhere in the world look to expand through the opening of new orbital slots or access to new frequencies. I wouldn’t say that Eutelsat’s case is any different than anyone else’s. What I would say is that if we have multiple orbital slots it is because we need them. We have satellites occupying them and they are routing commercial traffic. I think the real problem is “paper satellites” that create frustrating obstacles for players such as Eutelsat who are running a real business.
CB/CF: You have frequently called for greater co-operation between satellite operators saying that the real competition should not be between them, but with ground-based services. Isn’t this a foolish dream?
GB: Co-existing with other satellite operators is simply a pragmatic and business-like approach that is in the overall interests of the market, as testified by the agreements for frequency and orbital slot sharing that Eutelsat brokered in 1999 with SES and Loral Skynet. Greater co-operation is also required on the sort of standardization that led to successes such as GSM, DVB and numerous Internet standards. The objective of this type of effort is to allow business sectors to grow and innovate freely. I maintain that I regret failures in the satellite business because they cast a cloud over all of us. Since satellites are competing with many other fast moving and heavily funded technologies, I believe their overall image must be one built on success stories. I would therefore like to see us pull together to educate the public on the strengths of satellite-based networks. At the end of the day, I would rather share a large cake with others than eat a small one on my own!
CB/CF: Last year Eutelsat’s revenues grew some 45 percent to almost 630 million dollars. What do you expect in 2001 and 2002?
GB: It is true that 2000 was a vintage year in terms of turnover. Whereas I do not expect that turnover will grow at quite such a pace, we are pushing ahead with our active launch program over the next two years with three new satellites due to go up each year. These satellites will secure considerable new business that will ensure that our turnover continues to grow. In particular in 2001 we are opening new traffic routes across the Atlantic with Atlantic Birds 1 and 2.
CB/CF: The European Union, in allowing your privatization plans to go-ahead, also requires you to set up your own commercial department. In other words you are no longer to be dependent on your telco signatories. How will you manage this transition?
GB: The European Commission’s requirement concerns direct access in Eutelsat member countries, not the creation of a commercial department that I set up 10 years ago when I joined Eutelsat as the first commercial director. We already have longstanding experience in direct sales because in the last 10 years we have been leasing capacity in non-member countries without the support of a telco. In the future, we expect that the distributors that have been using Eutelsat will continue to do so because their business in many cases goes beyond buying and selling raw capacity to include services such as uplink facilities, multiplexing platforms, conditional access systems, VSAT hubs, etc. We will also start to build relationships with new distributors as well of course as build up direct sales in Europe.
CB/CF: The EU also requires you to sell 30 percent of your nominal equity to fresh investors. An IPO is one option, but are there others? What is the timeline for an IPO?
GB: An IPO is the best option for financing future growth from the point of shareholder value and for creating a currency to finance acquisitions. It also creates favorable conditions for closing strategic partnerships and serves as a valuation benchmark. An IPO is also an option that will enable our people to share in the growth potential of Eutelsat’s business. However, our shareholders are obviously free to consider other mechanisms for introducing new investors. In terms of the timetable, the European Commission has requested the IPO within two years of the creation of Eutelsat SA, that is to say by July 2003. Subject to market conditions it could of course be earlier.
CB/CF: What do you think are the obstacles facing the satellite industry today?
GB: I see no obstacles, only challenges and new opportunities! Obviously, a key issue lies with broadband services and how satellites can position themselves with competing terrestrial technologies for a slice of this market.
Contrary to some, I do not believe the broadband debate should be driven by technology and the so-called el dorado of Ka-band frequencies. It is about the basic skill of identifying realistic services that are targeted and priced correctly and come to market in the right time frame. I am convinced that we have a technological edge over other operators through our solution of combining Ku- and Ka-band with our onboard processing package, Skyplex. This will enable broadcasting in MPEG 2 to set-top-boxes and video streaming in MPEG 4 to PCs with interface cards, at a price so compelling that it will radically reduce the threshold of entry into the market for a new generation of content providers. It will also enable uplinking what I call “micro-television” channels with transmit antennas as small as 80 cm. We will be able to offer this type of application through Hot Bird 6 at the beginning of 2002.
One future solution in which I believe strongly is linked to the increase in memory of computers that will enable a quantum leap in how much content can be stored by servers and “cache” memories. This concept applies in particular to direct-to-home reception and edgecasting where the satellite feeds and updates the disk and memory of a terminal direct-to-home or at a server. Another solution is fully satellite-based where the receive dish is also a transmitter. With this in mind, Eutelsat reached a strategic partnership in 2000 with the Norwegian company, Nera, in order to develop a platform which will support availability of low-cost terminals with return path via satellite using the DVB-RCS norm. We are in fact already accommodating multiple clients, such as Gilat, I-Direct, Tachyon and Websat that are running fully satellite-based solutions, as well as 20 one-way platforms by companies such as Teles, HOT, TV Files and Divona.
As a commercial satellite operator, one of our major concerns is in-orbit reliability. With the procurement of Hot Birds 6 and 7, and the forthcoming procurement of W3A, and Hot Birds 8 and 9, we are signalling to the market the investment we are prepared to make in raising system redundancy in order to protect business.
CB/CF: How has the satellite industry changed over the past year?
GB: The satellite industry has repositioned itself over the past year in order to address the market for broadband access and has already achieved considerable success, although I believe there is still ground to cover in the area of consumer access services. A year ago, geostationary satellite operators were still functioning mainly in a broadcast environment. We have now evolved increasingly towards a converged telecom/multicast/multimedia environment. The change in Eutelsat’s traffic flows reflects this new trend: 41 percent of our capacity is now used for digital data services of various kinds. We know that already, of this figure, almost 40 percent is accounted for by IP-based applications.
I think the business is becoming more sophisticated and more complex and that the competition from terrestrial technology is focusing our minds on finding the competitive edge. I admire the achievements of our client companies that have clearly identified their market and have developed affordable IP-based products and services tailored to real demand.
On a note of caution, I think the year 2000 reconfirmed the difficulty for constellations to succeed in business and brings the spotlight back on the geostationary orbit as the most realistic for satellite-based networks.
CB/CF: What remains to be done to expand the usage of satellite services for Internet applications?
GB: There is an enormous window of opportunity available to us in the market for Internet and multimedia applications in general and the basic formula is simple: availability of compelling and innovative services, speed of delivery and low-cost consumer terminals. After a heady year in 2000 for the New Economy, which saw some great success stories as well as crashing failures, I think the potential of the Internet will enter a more realistic phase. On the satellite side, we have a powerful offer in the sense that we provide an unbeatable infrastructure for push services, valuable reach over large regions and high bit rates. The challenge lies in identifying applications and service concepts where satellites have a competitive advantage over terrestrial solutions when they are both available, or are able to propose affordable solutions in areas where terrestrial infrastructure is limited. To meet this challenge, we have to take a proactive role in shaping the market via innovative value-added services. We are actively developing new solutions such as our Open Sky platform that will provide a common IP/DVB satellite network infrastructure for content and service providers who do not want their own platform. We will offer this as a complement to, not in competition with our existing clients.
As I have already said, I strongly believe in multicasting applications for satellites in the broadband environment. Alliances with the IT industry in order to marry our delivery potential with the computer industry’s storage potential will be an important axis for development for Eutelsat. The evolution of payload architecture on our new e-Bird satellite, with spotbeam coverage and wideband channels in the return link that are tailored for direct broadband Internet access, will also enable satellites to expand their role in the Internet environment. The W3A satellite that we are now ordering is also designed for two-way multimedia applications, particularly for Africa where poor infrastructure makes fully satellite-based solutions particularly attractive. It will also optimize the use of Ku-band and Ka-band frequencies, a hybrid solution that I believe has great potential.
CB/CF: What major events does Eutelsat have to look forward to in 2001?
GB: Two-thousand-and-one will see us maintain our rhythm of launching three satellites, which is what I believe Eutelsat needs to grow the business. March sees the launch of Eurobird, July the launch of Atlantic Bird 2 and the year will close with the launch of Atlantic Bird 1. While Eurobird will enable us to consolidate our position for new consumer-focused digital services in western Europe, the two Atlantic Birds will provide us with premium Ku-band capacity for delivering content from North and South America directly into the heart of Europe, as well as the Middle East and Africa. I think that here again Eutelsat is trailblazing new trading routes for IP business-to-business connections where there is enormous growth potential. I also expect us to continue to secure new satellite capacity in order to enhance in-orbit security and to expand the business. Of course, July 2 marks our change of status into Eutelsat SA, which will provide us with the company structure to push the development of new value-added services and technologies. Otherwise, I anticipate the constitution of a number of joint ventures which underpin our strategy to go beyond the business of pure bandwidth supply and will give us hands-on experience in content and service provision. So watch this space!
Cynthia Boeke is the Editor of Via Satellite magazine