CEO Bausch Seeks More Cost Savings For SES Global

By | May 14, 2007 | Europe, Feature, Telecom

SES Global excited analysts in early May when the company revealed that it expected to realize cost savings on future satellites by focusing on its procurement process.

"It is obviously a permanent objective on our side to optimize our capital expenditure," Romain Bausch, CEO of SES Global, said. "In order to do so, we are trying to come up with the most creative approach, be it for the satellite manufacturing, the launch vehicle procurement or the launch insurance."

The first step in this plan has taken place, as Orbital Sciences Corp. announced on May 8 a deal to manufacture the AMC-5R satellite as well as a ground spare for SES Global. The agreement also includes options to add up to three more spacecraft. The second step followed May 10, as Space Systems Loral (SS/L) won the contract to build NSS-12. The satellite will replace NSS-8, which was destroyed in a January launch failure.

Bausch discussed the operator’s capital expenditure plans and how SES Global is planning to become more efficient.

Satellite News: Has there been a major change in your capital expenditure strategy?

Bausch: What we definitely have done over the last year or two is that we have looked more systematically at productivity improvements. The replacement cycle at SES Americom is an example, and we will try to do the same with SES New Skies and SES Astra when we will start work on their respective replacement cycles. We are taking the approach that, in the first round of discussions with the satellite manufacturers, we show more flexibility than in the past with respect to the use of different technical solutions. When we are in the [request for proposal] process we have been able to work out with different manufacturers solutions that are really optimized for their satellite product. It is finding the optimum between our requirements and the capabilities of the product from each manufacturer.

Satellite News: How will this lead to capital expenditure savings?

Bausch: When you enter into a new replacement cycle – which we currently are doing with the Americom satellites, where we have to replace four to five satellites starting in 2009 – we know precisely what the business is for those satellites as they are using established orbital positions. You consequently try to optimize the payload design by going into the sweet spot of what different satellite manufacturers are capable of delivering. Furthermore, by standardizing satellites, you are asking the satellite manufacturers to build four to five times basically the same satellite, although the antenna pattern might be slightly different for each satellite. As a consequence, you should be able to achieve quite efficient capital expenditure approaches. Compared to our business plan numbers, the savings should be around 20 percent.

We are taking the same approach of productivity improvement when looking at launch vehicles. We are having discussions with a couple of launch service providers in order to establish a long-term relationship. We aim naturally to get good financial terms and conditions, but more importantly to get higher security when it comes to access to space and making sure our satellites are launched on schedule and on reliable launch vehicles. What we are trying to achieve is to have, for each satellite, multiple launch slots with multiple vehicles. So we intend to add a lot of flexibility to our satellite launch manifest.

In terms of insurance we are trying to have innovative approaches with the insurance community, and these discussions are also ongoing.

Satellite News: What effect did this strategy have in shaping your agreement with Orbital Sciences?

Bausch: As usual we issued a request for proposals. So we had a competitive bidding process. The Orbital product was tailor-made for our needs. The selected satellites carry 24 Ku- and 24 C-Band transponders, [with] the output power in C-band being slightly lower than in Ku-band. These are normal-sized satellites; they are not big birds. We are trying to adapt our power requirements with what the manufacturers are capable of offering best. We are doing this with all the manufacturers, and we have history of having procured satellites from different manufacturers and we want them all to come in with competitive bids for our [request for proposals]. I think that is the best way to serve our interests as well as the interests of the satellite manufacturers.

Satellite News: Are you going to look at more bulk-buying of satellites?

Bausch: Yes, but that is not really new. If you look at the history of Astra, we ordered two satellites from Hughes in the early days. The next four to five satellites were also from Hughes. So we had a very long relationship with them. Americom had the same kind of relationship with Lockheed Martin. I think that is not new. But, having said that, it might just be the result of our approach.

Satellite News: What does this mean for your deals with launch providers?

Bausch: We are in final discussions with the different potential providers. We will select one or two service providers to cover two-thirds of the satellites we intend to launch between 2009 and 2013. The satellites we are launching in 2008 and in early 2009 have already been contracted for. We need to gain contracts for those in 2009 onwards. However, we don’t want to close the door to those who would not be selected in the first round. As indicated, the first round will only cover about two-thirds of our launch requirements, so there is a possibility for procurements to be placed at a later stage with other launch service providers as well. We expect to finalize negotiations this month and to communicate on the outcome in late May/early June.

Satellite News: Why have you decided not to exercise your option for Boeing to manufacture the replacement for NSS-8?

Bausch: We terminated the contract with Boeing because Boeing was not capable of delivering what was in the contract. The contract was to deliver a satellite in orbit, and to be able to build a clone to be launched within 26 months once we would have exercised the option. We have an immediate need for a replacement satellite for NSS-8, … a large satellite which was meant to go to 57 degrees East where we currently have the 703 satellite. This satellite will likely reach its end of life in about three years. So we need to have quite a large satellite in orbit in that relatively short time frame. We have had to act quickly, as you can see with the NSS-12 announcement.

Satellite News: Why did SES Global perform the recent transactions that shifted your ownership stakes in several operations?

Bausch: With the [General Electric] transaction we have become the 100 percent owner of all of our satellite assets and operating companies or, as in the case SES Sirius, a majority owner. The lesson we have learned from our minority participations in AsiaSat and Star One (where the divestiture is still subject to Anatel regulatory approval) is that if you are a large satellite operator and you really want to optimize the synergies you can develop between your different assets, then you are only able to do so if you control the different assets. This is a change for us. We will now continue in terms of developing our fleet with assets under our control.

What isn’t changing is our regional focus. There should not be any misunderstanding here. We have Astra focusing on Europe, Americom focusing on North America, including Mexico and Canada, and we have New Skies focusing on the markets outside of Europe and North America. Within New Skies, we will still have regional sales teams, so people close to the respective markets. The change is not about our regional sales approach, but the change is regarding the control of satellite assets.

Satellite News: Do you believe after giving up your stake in StarOne that you lack presence in Latin America?

Bausch: It is possibly the region in the world where we are now relatively weak. We have coverage by two New Skies satellites and we also have the capabilities to activate transponders on two Americom satellites that have a South American footprint. But obviously our coverage in the region is not as developed as it is in other regions. Over time, we could consider strengthening our position in these markets. However, it has to be understood that this is not the fastest growing market either. If you look at it from an SES New Skies perspective, and when considering the major growth markets, we are first looking at Africa and then the Middle East as well as at some markets in Asia, like India, where demand is much more dynamic than it is in Latin America.

Satellite News: Was it a mistake previously to have minority stakes in assets such as AsiaSat?

Bausch: No, I think it is the normal development of a company that is also growing and maturing. SES entered into these minority participations in AsiaSat and StarOne in 1999 and 2000. At that time, we were already an important satellite player – but European only. After the acquisition of Americom we increased the size and the scope of our business to make it global. I would say it was quite natural, and I would say it was not a mistake to do the first investments in these new regions by partnering with strong regional players. I believe we would probably not do it differently were we having to do it again and would still be the same company. From an [return on investment] perspective, AsiaSat was always profitable and always paid a dividend to its shareholders. StarOne did the same. These investments were not bad investments from a financial perspective.

Satellite News: What is the status of your efforts in developing a business providing satellite broadband for the consumer?

Bausch: We have had several trials to launch residential broadband in Europe. I think we looked at this already 10 years ago. We did it first with Ka-band, [but] … it was at that time too expensive from a device perspective. The costs was 1,500 euros ($2,031) for the hardware, which was not really consumer-friendly.

We are now trying again with Astra2Connect. It is a development which is based on what we did with SatMode two years ago. That was designed as a narrowband return channel for interactive TV applications. During the development, we realized we could develop the product into a two-way asymmetric residential broadband product, which was not that different to DSL offers.

Astra2Connect is now commercially available. Astra signed the first contract with a small service provider in Germany. Astra is also in discussions with telcos in Germany and in Eastern Europe. We are also looking to north Africa and the Middle East. We think these are good markets for satellite broadband. This can be residential, but also for [the small office/home office and small and medium enterprise markets]. The price of the hardware is now 250 euros ($338.58) ex factory, So it is much closer to what you can sell in the consumer market. We have told resellers and telcos the broadband service could be offered for around 30 euros ($40.63) a month depending on the speed. That is quite interesting. Remember, this product is not meant to compete with DSL, but to be complementary and to be offered to service providers so they can market it outside of the reach of terrestrial broadband infrastructures.

Mark Holmes

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