Cover Story: Via Satellite’s Satellite Executive of the Year 2001

An Interview With Romain Bausch

By Cynthia Boeke

For many years, Intelsat, and more recently Panamsat, has enjoyed top billing as the”world’s largest satellite operator.” Last year, however, another company took over that spot. SES Global became the number one operator in terms of size when it completed the $4.3 billion purchase of GE Americom.

The SES Global fleet now comprises 29 fully owned spacecraft. SES Global and its partner companies have 14 additional spacecraft under construction or on order. According to Via Satellite’s database, SES Global operates 13 percent of the world’s 225 Western-built, geostationary, commercial communications spacecraft.

Although bigger is not always better, it does provide significant advantages in the realm of commercial communications satellite operations. Increasingly, programmers and businesses are establishing worldwide audiences and networks, and they prefer to turn to companies that provide the greatest global reach. In addition, after suffering outages on a spate of malfunctioning satellites, they are demanding greater levels of redundancy. Only operators with multiple satellites can provide such significant back-up options. SES Global’s fleets are characterized by their huge landmass coverage, along with transoceanic connectivity, making a global network feasible and seamless. Its partners and subsidiaries are some of the most respected satellite companies, with the technical know-how and ingenuity required for complex communications networks.

SES has long been a leader in technical innovation. With 10 satellites collocated in two orbital positions over Europe, SES Astra has spearheaded the placement of multiple spacecraft in single slots for DTH/DBS applications and is a leader in the re-use of scarce Ku-band frequencies. Its ongoing efforts in introducing Ka-band are being watched around the world as a litmus test of the business possibility these unused frequencies have to offer.

Headquartered in Luxembourg, SES Global employs a work force of 700. Its 2001 revenues for the first half of the year were U.S.$387 million, and brought in an EBITDA margin of 82 percent, making SES Global one of the most profitable and well-run satellite machines in the marketplace today.

SES has been led by Romain Bausch since 1995. According to his staff, Bausch’s leadership style can be described as that of a visionary with a strong team spirit. This style is reflected in SES’ organizational structure, which he shaped, with both Astra and Americom being led by strong management executive committees that he chairs. His leadership is further cemented by his highly developed work ethic (some may call him a workaholic), his outstanding financial acumen stemming from his previous career and education in the Luxembourg Finance Ministry, and the considerable technical expertise that he has developed since joining SES.

Bausch can operate comfortably in diverse environments and cultures, he has built constructive personal relationships with business leaders, board members and staffs on different continents, and he is open to new ideas and committed to constant dialog, while being quite tenacious and focused on results. His leadership is further characterized by his enthusiasm about the industry, in general, and the satellite business, in particular.

Bausch answered a wide range of questions on the past, present and future state of the satellite industry posed to him by Via Satellite.

Via Satellite (VS): What do you think were the most important events that took place in the satellite industry in 2001?

Romain Bausch (RB): Certainly the ongoing–and not yet completed–consolidation process, which is undoubtedly shaping the future of satellite communications worldwide. The trend for consolidation started a couple of years ago on the manufacturing side, with the likes of Boeing/Hughes. More recently it led to the birth of a new global satellite operator under the SES Global banner. And by the end of this year, it may culminate in Echostar’s proposed take-over of DirecTV. Expect more to come.

Needless to say, from a personal point of view, the creation of SES Global and the successful completion of the combination of the Astra and Americom businesses were real highlights in 2001. But I would also like to name the privatization of the former government organizations for Fixed Satellite Services (FSS), Intelsat and Eutelsat, which ultimately means that there should no longer be any more privileged relationships between the now-commercial organizations and the former telecom monopolies.

Then there is the looming problem that operators may be trying to sell in a marketplace where supply may outstrip the demand. We all feel the impact of the recent economic downturn, which according to most experts will shift in a positive direction by mid-year. However these harsh realities combined with an oversupply are going to make our revenue targets especially challenging in the near term.

Overall the industry has adopted a more sober approach to broadband solutions and recognized that the greatest promise may be realized through hybrid (terrestrial combined with satellite) solutions rather than single frequency or single transmission technology-based solutions. Specifically at SES Astra, we have been working to realize some of the great potential in bundling new broadband offers with existing audiovisual services. This is one of our key initiatives to diversify our service offerings targeted to consumer markets.

VS: Why did SES acquire GE Americom, versus your more traditional policy of taking partial stakes in international satellite operators?

RB: I understand your question not to be about the rationale of the latest transaction–for example Americom’s proven high-quality standards, its state-of-the-art satellite fleet, its strong and diversified business, or the skills and know-how of our new colleagues–but about it being structured differently from previous SES investments. Geographic expansion has been an integral part of our strategy as formulated and implemented since the SES S.A. IPO in 1998. It is based on the principle that our regional presence outside of Europe relies on strong partnerships with established local players. Our partner in Asiasat is China’s CITIC, NSAB is co-owned with Swedish Space Corp., and in Star One we hold a strategic equity stake alongside Embratel. Since the conclusion of the transaction with Americom, our partner in the United States and beyond is GE Capital, now a strategic shareholder in SES Global. Taking minority stakes only has never been a proclaimed aim of our policy.

I would also like to point out that SES Global, through encompassing shareholder agreements, actively participates in the development of the future strategy of the companies where it holds equity investments, and that, with the ongoing industry consolidation, our equity investments may develop over time, particularly in Asia and Latin America:

VS: How is SES Global different than SES Astra? How is the corporate culture different? How is it structured differently?

RB: Until completion of the Americom transaction, the former SES S.A. company was responsible both for developing its core Astra direct-to-home business in Europe and implementing our strategy of geographic expansion and service diversification. The structure recently put into place clearly distinguishes the group management functions of SES Global from the operating activities of SES Astra and SES Americom; they are now free to focus on meeting customer requirements. As the publicly quoted entity with listings in Luxembourg and Frankfurt, SES Global enables the activities of Astra and Americom, ensures adequate access to the capital markets, acts as the interface to the financial and investor community, the press and the public in general, coordinates satellite and launch vehicle procurements, supports business and service development, and leverages the best practices of both Americom and Astra across the entire Global organization.

For years SES has counted more than 20 different nationalities on its staff, providing for a truly multicultural organization, but all the while its business remained firmly anchored in various language markets and cultures. I believe that this was, and is, one of the differentiating strengths of the SES organization. And now with Americom employees added to the SES family, the group has become even more international, mirroring its global aspirations.

VS: What is your position on rising insurance rates for building and launching satellites? Will SES Global turn to self-insurance in light of this trend? What should satellite manufacturers do to ensure spacecraft quality?

RB: This is an issue that is close to my heart. This is how I look at it: Both Americom and Astra have distinguished their fleet operations and their launch records consistently from the competitors–in fact, I believe we are the “best in the industry.” With that track record, I would expect the insurance industry to recognize that exceptional performance, and reflect it in our rates. Unfortunately, what happens most often is that all of us pay higher premiums to cover those few that do not put quality first.

Astra and Americom have traditionally invested heavily and established considerable in-house technical expertise. We work closely with our vendors to develop technical specifications and testing routines in order to meet the quality and performance requirements of our customers. In many instances, these standards far exceed those normally recommended by the vendor. And although this results in more lengthy production processes and slightly more expensive spacecraft in orbit, the outstanding performance and availability records of our spacecraft speak for themselves. For SES Global’s future insurance requirements we will develop comprehensive solutions with the insurance underwriters and we will also evaluate the option of taking on some risk via self-insurance.

With respect to spacecraft quality, manufacturers need to re-evaluate their willingness to absorb more of the risk and the consequences of introducing new, unproven technology. They cannot expect the operators to subsidize what, in many instances, has turned out to be inadequate product development or testing. Furthermore, the manufacturers need to ensure that all of their subcontractors apply the same strict quality standards, product testing and best practices that we, their customers, expect from them.

VS: Does an overabundance of launch vehicles affect you, as a satellite operator, negatively or positively? If so, how? How would consolidation in this sector affect a company like SES?

RB: In the short term, an oversupply of launch vehicles may have seemingly positive effects for satellite operators as price competition plays in favor of the customer. In the mid- to long-term, however, overcapacity will create pressure for consolidation between launch services providers, and ultimately that would mean fewer launch alternatives for given payloads in a more restricted “sellers'” market. Luckily for satellite operators, political and strategic considerations, as well as the high development costs for new launch vehicles currently coming to the market, make consolidation between launch service providers difficult and not very likely, as considerable investments would have to be written off.

VS: Does SES Global plan any more acquisitions in the near future? If so, what regions are you targeting?

RB: SES Global, through its 100 percent owned operating companies SES Astra and SES Americom, enjoys prime market positions in Europe as well as in the United States. In these two key world markets we now focus on coordinating our activities, interconnecting the 29 satellite strong Astra and Americom fleets, providing “single point global access” and growing our business by rolling out new services to meet the requirements of additional customers.

In other parts of the world, SES Global’s presence builds on strategic investments in established regional satellite operators, namely Asiasat and Americom Asia-Pacific in the Asia-Pacific region, and Star One and Nahuelsat in Latin America. In these markets, we see huge potential, but also still some need for enhancement, and we intend to stay an active player in the consolidation process. But don’t anticipate any further transactions by SES of the size of the U.S. $4.3 billion business combination with Americom.

VS: How is the roll-out of Ka-band services coming along? What new lessons have been learned that you can share with the industry?

RB: I believe that most of the much hyped “large LEO” and dedicated Ka-band GEO projects with onboard processing have been shelved because of their “green-field” approach and huge upfront investments. We’ve taken a different approach with Astra BBI (Broadband Interactive), which is based on a hybrid Ku-forward/Ka-return system architecture. In Europe it is the only commercially available Ka-band service today. But we should not overemphasize frequency bands, which, in themselves, are not so important, as long as you have access to them. What matters most are applications that are important to a given market. And while Ka-band should facilitate the offering of broadband services over satellites in markets like North America and Europe, we can easily envisage BBI-like services using different frequency bands in Asia or Latin America.

We have learned that the key factors to ensure that new broadband services via satellite appeal to users are: first, the bundling of these new services with traditional audiovisual content; second, that reception equipment must be readily-available, attractively priced and easy to install and third, that the services and applications offered must correspond to market demand. Broadband is not a revolution, but an evolution, and broadband via satellite, at least initially, will be offered via existing space segment, while more sophisticated, and more expensive, payloads will only be added over time.

VS: How has the industry changed since you began working in the satellite field?

RB: (Laughing) What strikes me most is the constant change of senior executives in the satellite industry! Most of the CEO’s that were in office when I took responsibility at Astra in 1995 have moved on, retired, or do consulting work these days. Thinking about it, these are frightening prospects, as I consider myself still too young not to assume executive responsibility!

But seriously: There have been too many high-profile project failures. And I’ll spare you the list of those that came into operation but are no longer around or are just barely alive. Who still remembers aborted projects like Celestri? Or still considers Teledesic viable? The truth is simple: Market realities have brought some of the overly ambitious technology-focused players in the industry down to Earth. The lesson to be learned is: We should not pursue business based on what is technically possible; rather, we should build a business based on reliable, high-quality and well-priced services that the market requires.

What we have also seen are traditional players in the satellite communication field like telecoms as well as media groups, who were harboring plans to invest in satellite operations during the ’90s, now backing away or retreating completely. We believe this trend will continue, especially with telecoms.

VS: What are some of the biggest roadblocks affecting industry growth and what needs to be done to remove them?

RB: For FSS satellite operators in general, potential roadblocks, or at least challenges, relate to the quality of spacecraft and operations. DBS operations specifically, although excluded from WTO, show potential in developing countries, but regulatory hurdles and the desire to control content usually hamper this potential. Fragmented regulatory frameworks around the globe–and for example in Europe from country to country–particularly for two-way satellite services–represent a stumbling block. The industry as a whole needs to come together and lobby on the political and regulatory front to push for a uniform regulatory regime that allows satellite services to compete fairly with terrestrial infrastructures.

The current situation for two-way broadband services reminds me somewhat of the early days of Astra, when certain European countries were trying to circumvent the European Directive “Television Without Frontiers” by imposing taxes on satellite dishes or directly forbidding the installation of dishes for direct-to-home reception. In this context, the Global VSAT Forum’s activities can only be welcomed and supported.

VS: What do you think are the most important events that will take place in 2002 for SES Global? For the industry in general?

RB: SES Global is currently focused on ensuring the successful integration of the Astra and Americom businesses as well as tying our equity participations into a coordinated and coherent strategy for growing our combined businesses. The second avenue will be the further diversification of our services, be it one-way or two-way broadband, notably to the residential market. Here you may expect some new partnerships. Furthermore, during the last few weeks SES Global has been reviewing its capital requirements, considering several options for raising capital, including a possible public equity offering combined with a New York listing. If we proceed with an equity offering, I would expect to complete it prior to year-end. This would be a major step toward increasing the attractiveness and liquidity of investing in SES Global. Last but not least, we are looking forward to four additions to the SES Global family fleet with the upcoming launches of Astra 3A, Astra 1K, Asiasat 4 and AMC 9.

With respect to the industry as a whole, expect more divestments by traditional players in the satellite field. In my opinion, Telecom Italia’s partial divestment from Eutelsat and Lockheed Martin’s retreat from the satellite telecom business are only the first of many, contributing to a potential overhang of satellite company shares in the capital markets.

VS: What do you think the satellite industry will look like five years from now?

RB: Five years from now, the satellite industry will be characterized by fewer, but bigger and stronger players competing in the field of satellite communications, manufacturing and launch service provision. The consolidation wave will, however, not lead to vertical integration amongst those players or with media/telco companies. A couple of global satellite operators will have efficient global broadband networks, offering access services to residences and businesses for bundled audiovisual and broadband services. Some of these networks will be satellite-based only (two-way satellite), but the satellite infrastructure will also be efficiently combined with the terrestrial ones, enabling them to offer hybrid broadband solutions. I strongly believe that five years from now SES Global will have developed in the main world markets value-added services that not only differentiate us from other broadband communication solution suppliers, but serve as engines of growth.

Cynthia Boeke is the Editor of Via Satellite magazine.