Eutelsat CEO Sees Promise In Broadband Market

[Satellite News – 2-22-08] Eutelsat entered 2008 running, including a January announcement that it ordered a Ka-band satellite as the operator looks to become more of a force in the broadband arena.
    The satellite, along with a similar spacecraft ordered by ViaSat Inc., will form the cornerstone of a major new satellite infrastructure program to develop more satellite broadband capacity for Europe and North America. EADS Astrium will manufacture Ka-Sat, which is scheduled to be placed into orbit in the 2010 third quarter to provide consumer broadband services across Europe and the Mediterranean basin. The procurement of the satellite and associated ground system is part of the investment objective Eutelsat laid out in October.
“There are three main elements to our proposal,” CEO Giuliano Berretta said. “The first is the innovative architecture of the KA-Sat satellite. Equipped with over 80 spot beams, each providing 900 megabits per second shared between forward and return links, this satellite will achieve record levels of frequency reuse and deliver a throughput of more than 70 gigabits per second. The second factor is the on-ground infrastructure comprising eight gateways, each of which will communicate with a group of spotbeams and connect by fiber to the Internet backbone. The gateways and the user terminals will all be based on the SurfBeam Docsis technology, which ViaSat will also deploy on their ViaSat-1 satellite, giving important synergies and economies of scale. The third element is that our Ka satellite capacity will be collocated with our Hot Bird satellites at our 13 degrees East neighborhood. We are developing integrated Ku/Ka terminals for digital TV in Ku and triple-play services in Ka, all through a single dish. We think this is a pretty compelling proposal for consumers and view it as the first far-reaching response to addressing a digital divide that will still concern 15 million homes across Europe in 2010.”
    Eutelsat also is looking at other revenue platforms to supplement its strong performance in the video services arena, including new markets such as mobile broadcasting. Berretta spoke with Satellite News about the new business opportunities as well as his thoughts on the state of the satellite industry.

Satellite News: What has driven Eutelsat to order a full Ka-band satellite?

 
Berretta: In terms of satellite resources, the features that underpin the success of a one-to-many model, which characterizes broadcasting, are less efficient when it comes to consumer broadband, which is a one-to-one relationship. Another key issue is driving down equipment costs to affordable price levels for consumers. In 2007 we addressed this key issue through our partnership with ViaSat to introduce into Europe their SurfBeam Docsis technology which enables higher bandwidth efficiency and significantly lower consumer terminal costs. Using existing Ka capacity on four beams on Hot Bird 6 and regional beams on our Ku Eurobird 3 satellite, our Tooway service can approach ADSL in terms of costs and bitrates. However, to reach mass market success we need to radically increase bandwidth from a single satellite in order to decrease costs per bit.

Satellite News: Why do you think the dynamics are different now that you can build a successful business?

 
Berretta: We need to make a clear distinction between satellite broadband services for professional markets and for consumer markets. Ku-band capacity is already supplying professional markets very well and we are making successful inroads here with our D-Star product for enterprises and local communities beyond range of terrestrial broadband. The service has also been developed for maritime, in-flight and most recently rail applications. D-Star reported revenue growth of 30.2 percent over the first half of [fiscal year] 2007-2008 after posting 16 percent growth over the first half of [fiscal year] 2006-2007. Since December 2006, almost 2,500 additional professional D-Star terminals have been activated, over 1,000 in Africa and nearly 800 in the Middle East. We have also expanded in Europe, where D-Star was selected by the region of Saragossa in Spain to bring full broadband amenities to the residents of 120 communities.
    In the consumer market, I think it is important to credit the achievements of WildBlue and Telesat in North America, who have attracted 325,000 subscribers, also with the SurfBeam Docsis technology. WildBlue has clearly not saturated the market for consumer satellite broadband in North America and it has provided a successful first-generation model for other markets.
 

Satellite News: What makes you think that satellite broadband will offer a compelling alternative to other technologies such as WiMax?

 
Berretta: The ubiquitous coverage of satellites is one of our biggest trump cards, and we believe this will never be challenged by WiMax, which will most likely provide coverage over semi-urban areas for reasons of cost, environmental impact of towers in the landscape and technological limits. The recent selection by Swisscom, Switzerland’s national telco, of our Tooway consumer broadband service adds serious credibility to satellites as a long-term solution. Yes, satellite and terrestrial technologies will continue to pursue their development in their respective markets and in complement to one another. Take a look at ADSL, which was considered a few years ago as the most powerful network solution that would eclipse all other networks. Today, telcos are defining ADSL as a network for serving urban areas and are considering satellite as the most effective solution for reaching as much as 50 percent of homes in some countries.
 

Satellite News: What levels of customer take-up are you expecting in the first years of operation?

 
Berretta: The launch of Tooway on Hot Bird 6 and Eurobird 3 gives us an important platform to roll out the service and to develop the brand. With the launch of Ka-Sat in mid-2010, consumer broadband services will obviously ramp up, and we expect to generate average annual revenues of around 100 million euros beyond fiscal year 2011-2012.
 

Satellite News: Is there a back-up plan for the satellite if the satellite broadband business does not materialize?

 
Berretta: Our objective is to create an in-orbit and ground infrastructure which will primarily serve the consumer broadband market with more than 1 million subscribers, but we certainly envisage other video applications following the example of the North American market where Ka is increasingly serving the markets for local TV, HD (high definition) contribution and professional video networks. Ka-Sat’s architecture, with up to 900 megabits per second of capacity per spot beam shared between forward and return links, may also herald future applications that require very high bitrates such as HD cinema and 3-D television. We also believe that the 250-kilometer footprint of the spot beams opens opportunities for local and regional broadcasting, which is still an underdeveloped market in Europe. There is a big difference for small broadcasters between leasing capacity with pan-continental coverage which may require encrypting for copyright reasons and using focused bandwidth closely aligned with your target market.
 

Satellite News: Is there a concern that your revenue growth seems to be reliant on your performance in video services?

 
Berretta: Our financial and operational performance for this first half-year underscore the exceptional attraction of our satellite neighborhoods and our ability to capitalize on digital broadcasting and broadband services, which are the two most dynamic activities in the fixed satellite services sector. We are very pleased with the performance of video and have proactively allocated capacity to video, which gives us high visibility on revenues and further anchors our key satellite neighborhoods. Video activity for our last half-year accounted for 74.4 percent of revenues, mainly driven by a strong dynamic in Russia, the Middle East and Africa. I believe there will be a second wave of video in the future which will be driven by HDTV and which will certainly benefit from the emergence of Blu-Ray as the accepted HD DVD standard.
    Today, we are broadcasting 31 HDTV channels in Europe. We were prudent about the take-up of HDTV, largely because of the transition process from MPEG-2 to MPEG-4. The higher compression rate of MPEG-4 naturally makes it the preferred choice for broadcasters. The obstacle is the installed base of set-top boxes. In the course of this year we think that HD take-up will accelerate, including in emerging markets. This HD growth is well timed for us because we have opened a new video neighborhood at 9 degrees East which can be twinned with the Hot Bird neighborhood for [direct-to-home] reception with dual-feed antennas. This extra capacity in the vicinity of the Hot Bird position will enable us to absorb more video customers who can benefit from an attractive pricing structure on Eurobird 9 and still reach the Hot Bird audience with off-the-shelf consumer equipment.
 

Satellite News: Do you see the next wave of consolidation being major operators looking to cherry pick regional assets?

 
Berretta: I think so. There will be certain assets that come on the market which could add greater scale to our business. After a major wave of consolidation in recent years the only thing that will remain will be smaller players who don’t have the dimension to compete effectively or large players that may offload some of their in-orbit assets. I think there will be some of these types of assets on the market in the short-term future. We will analyze what comes on the market and look carefully at what brings synergies in terms of frequencies, orbital locations, business opportunities and overall profitability.
 

Satellite News: Telesat’s Dan Goldberg said recently that “Telesat and Eutelsat are complementary businesses that would fit together well.” Do you agree with that assessment?

 
Berretta: We are very focused on our roadmap of organic growth which includes a record seven satellites to launch by mid 2010. We were certainly interested in Telesat when it was on the market a year ago, although Loral’s offer was too good to be refused. Any collaboration with Telesat could be profitable in the future as I think we are very complementary. With Dan Goldberg, I think we could do many things together.
 

Satellite News: Do you see any more collaboration with Abertis?

 
Berretta: We are in a good triangle with Abertis and with Hispasat, of which we own almost 28 percent. Hispasat is performing very well and contributing better than ever to our results. As an infrastructure business, like Abertis, we share a similar vision on how to grow the business.
 

Satellite News: How do you now view the mobile TV opportunity for Eutelsat?

 
Berretta: The Mobile World Congress show in Barcelona was an excellent platform to demonstrate the prospect of satellites for playing a key role in the mobile TV market in Europe. Together with Alcatel Lucent, DiBcom, Abertis Telecom and Sagem Mobiles we set up a demonstration of live Mobile TV in S-band with handsets from Sagem Mobiles integrated with DVB-SH-ready chipsets produced by DiBcom. What we have in front of us is one more year to transform this demonstration into a real business and, together with SES, we are very pleased with the appointment of Steve Maine as CEO of our joint venture company.
    The real obstacle we are facing is the license issue and the artificial competition created by paper satellites in Europe in comparison to the concrete investment made by SES Astra and Eutelsat in a satellite infrastructure already in construction and ready for launch at the very beginning of 2009. We believe strongly that regulators need to give a chance to the companies that have invested money and who have taken the risk. This is a time to be serious in this market, and we have shown our intentions through our investment. I feel very strongly on this.
 

Satellite News: Are you looking to expand your presence beyond our current geographic markets?

 
Berretta: One of the reasons of our high profitability has been our ability to concentrate on driver applications in specific geographical markets. Now that we have achieved good profitability in our core markets of Europe, Africa and the Middle East, we are ready to consider further geographic expansion. We are developing stronger relations in China with a very active representative office, and there is also potential for development in Latin America, particularly with Hispasat. Our close collaboration with ViaSat for the Ka-band satellite programs has strengthened our ties with a technology leader in North America, and we want to intensify this as the ViaSat-1 satellite program in North America and our Ka-Sat program in Europe advance. But in parallel to casting our net further East and West, we are tightly focused on the two new Hot Bird and four W-series satellites, which will be launched from 2008 to 2010 and which are core to further developing markets in Europe, Africa and the Middle East and to increasing in-orbit redundancy.