How Satellite Operators Stay Above Economic Fray

By | November 13, 2008 | Feature, Telecom

[Satellite News 11-13-08] The key factors in the third quarter financial success of satellite operators Inmarsat and Intelsat have been efficiently managing and maximizing bandwidth for customers and strong support from government customers, according to Futron Corp. Technical Director Andrea Maleter.
    Maleter told Satellite News that despite the current economic crisis, both companies have been able to meet bandwidth needs and provide efficient communications infrastructure for their longstanding customer base. “They have been around a long time and have weathered many storms and they do it well,” she said.
    Mobile satellite services (MSS) operator Inmarsat and fixed satellite services (FSS) operator Intelsat posted figures that exceeded expectations in their third quarter financial reports.
    Dianne Van Beber, Intelsat’s vice president of investor relations, said high demand for capacity and improved prices on capacity compared to 2007 were among several driving factors behind its strong quarter. “Our strong results also point to the value of having diversity in your business,” she said. “Diversity allows you to grow faster and lower your risk profile.”
    Intelsat reported revenue of $598.5 million in its third quarter 2008 report, along with record revenues for the first half of the year at about $1.7 billion.
    “Intelsat’s third quarter results showed strength and stability as we improved revenue by 10 percent, grew adjusted EBITDA by 11 percent and increased our contract backlog to a company record $8.7 billion at quarter end,” Intelsat CEO Dave McGlade said in a statement. “We are satisfied with our business performance. Given the uncertain economic environment, we are operating with a heightened awareness of the potential impacts to our business, and thus are carefully monitoring our key performance indicators,” he said.
    Inmarsat saw revenues increase 16.4 percent to $162.5 million in its third quarter 2008 financial report, released Nov. 10. The MSS operator reported strong growth across all of its business sectors, with earnings before interest, taxes, depreciation and amortization up 15.4 percent at $112.3 million, profit after tax up 58.6 percent at $37.6 million and Broadband Global Area Network (BGAN) revenue up 6.6 percent from the second quarter 2008 at $20.9 million.
    “We have seen no impact of global economic weakness in the usage and take-up of our services and we are firmly on track to deliver revenue growth for the full year well ahead of the top of our target range,” Inmarsat CEO Andy Sukawaty said in a statement.
    Maleter said operators were faring better than other sectors in the industry because of healthy spending from their biggest customer — the U.S. government. While some financial analysts have speculated that a possible reduction in military operations could lead to a reduction in military spending, Maleter believes that operators, particularly MSS operators like Inmarsat whose government customer makes up 40 percent of its total business, have nothing to fear.
    “Even though the nature of the government’s use of satellite capacity is going to shift as the nature of their operations change, it doesn’t necessarily mean that it is going to be reduced,” said Maleter. “As [the U.S. military] shifts from boots on the ground to eyes-in-the-sky operations, they may shift away from using certain kinds of terminals, but they do not reduce the amount of bandwidth they will need. They will most likely increase it as they need more bandwidth for everything from high-definition video to unmanned aerial vehicles to more different kinds of users.”
    Maleter said Inmarsat benefits from the fact that its largest military user, the U.S. Navy, has established long-term lease contracts with the company to continue providing services to meet its high-bandwidth requirements. “I do not see that there is necessarily going to be a change or reduction in the Navy’s requirements over the next several years,” she said.
    Van Beber said Intelsat also is enjoying an increase in demand from its government customers. “Our government business is up 16 percent from where it was last year based primarily on transponder sales and also our offers of satellite and hybrid solutions,” she said.
    While, in some cases, financial analysts have lumped all sectors of the satellite industry together when comparing it to other industries, Van Beber said FSS operators are not affected by the economic crisis in the same way as other sectors. “A lot of the economic problems stem from a consumer-led recession. The FSS sector is not a consumer-based business, we are a business-to-business player and we have not seen much impact.”
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