Industry CFOs See Continued Need For Financial Discipline

[Satellite News – 2-25-08]  While many satellite industry CFOs understandably highlighted the strong fundamentals of the industry, not all are optimistic that investment conditions will improve any time soon.
    “I think the optimism from the bankers (at this morning’s panel) was slightly misplaced,” Inmarsat CFO Rick Medlock said Monday during the “Future Financial Investments – Where Will the Money be Going Next?” session at SATELITE 2008. “I don’t think we are going to see any changes in the credit markets for two years. I think it is going to be tough to get things funded. I think there will be a shortage of liquidity.”
    Medlock believed a return to a more disciplined financial environment is good for the business as a whole. “I think we have some elements of replication of the dot.com boom in recent years,” he said. “From a competitive point of view, I welcome rational decision making from lenders.”
    All the operators spoke about the need for continued financial discipline. Scott Macleod, CFO of Mobile Satellite Ventures, said the operator has had to be very “prudent” in its financial strategy. “We did do a financing into some strong headwinds,” he said. “Prudence makes a lot of sense. I think competitors need to find a way to work together [to allay financial risk]. We entered into an agreement with Inmarsat. It gives us spectrum certainty.”
    SES CFO Mark Rigolle said that the operator was trying to be “boringly consistent” in terms of financial management and said joint ventures, such as the operator’s work with Eutelsat to develop S-band services, is another way to watch finances. “We have reduced the risk,” he said. “We think S-band is an exciting opportunity. It is a great way to get into a new business without betting too much.”
    Eutelsat CFO Catherine Guillouard said the operator had a strong balance sheet and is looking into new areas to boost its revenues, driven by partnerships to help spread the financial risk. “We are working very hard on the next growth driver for us, which is S-band, as well as broadband,” she said. “We are very confident about the business we are developing with SES.”
    However, being successful in the mobile video market may not be so straightforward. Rigolle admitted that Tu Media’s struggles in Korea act as a potential warning. “It is difficult (for Tu Media) as they are competing against essentially a free service,” he said. “However, the opportunity is clearly there (in terms of mobile video). However, the business plan has not been validated. But I do see people wanting these services.”
    Jeff Freimark, Intelsat’s CFO, also said strategic alliances are key in trying to extract extra value for the operator. “We are focused on top-line and cash flow growth,” he said. “We need to instill financial discipline. I don’t necessarily see more consolidation. I think there will be more responsibility and rational behavior. The types of transactions we have entered into such as partnerships and strategic alliances act as a strong creative vehicle for us.”
    For Telesat, with the Loral deal behind it, this year will be all about execution and maximizing the most from the synergies as a result of that deal. “The biggest opportunity is in the video business,” Ted Ignacy, Telesat’s CFO said. “The biggest challenge is to execute on our business plan. We are under the gun to increase revenues.”
    Ignacy admitted that any new bold expansion plans could be difficult for the operator to execute in 2008. “I would expect that if we were to try and launch a new program in these markets, we would have to demonstrate a solid business case,” he said.