Intelsat CEO Steve Spengler Talks C-Band, Covid, and Chapter 11
Intelsat has been at the center of some of the biggest stories in satellite this year, from the splits in the C-Band Alliance (CBA), the technology breakthrough with the remote servicing of its Intelsat 901 satellite, to rumors that the operator considered entering Chapter 11 bankruptcy protection. In the first of a two-part interview, Intelsat CEO Steve Spengler talked with Via Satellite about these key topics and what is next for the operator as it looks to navigate these difficult times.
VIA SATELLITE: First, I hope you and your family are staying safe and keeping well. I would like to ask you what Intelsat as a company is doing in the face of COVID19. How are you safeguarding employee health and what measures is the company taking during this time?
Spengler: Of course, the health and safety of our employees is absolutely our top priority. Second to that is taking care of our customers. We need to make sure our staff is healthy and able to serve our customers. We have been teleworking virtually, almost the entire company. There are still some employees who are working in our teleports and [Network Operations Centers] NOCs, and we’re doing everything in our power to protect their health and safety, but for the most part, we are largely operating remotely from home, and it has been business as usual, really. It has been remarkable. The reason for that is we have been prepared. We have business continuity plans for all of our departments. When we saw this coming, we dusted them off, took them out and looked at them, and did a little bit of system testing and then we made the decision for everyone to work from home, all the digital tools worked perfectly.
We have to work on our connections with our colleagues, customers, vendors and suppliers in a different way, using a lot more video. Our operations people have all of the applications and the tools that they need to support customers on their home laptops. It is very much business as usual. We did the traffic transition from Intelsat 907 to Intelsat 901 almost entirely remotely. Why is that important? Intelsat 901 has Northrop Grumman’s Mission Extension Vehicle-1 (MEV-1) attached to it. We are keeping the business running.
At this point, we don’t have anyone positive with the disease, and we have great support from our medical people. We have a full-time nurse and a full-time doctor that work with us. We are doing everything possible to keep people safe, whether at home, or the few that are still working in our facilities.
VIA SATELLITE: On the subject of COVID19, what impacts are you seeing on your day-to-day business? Is it likely to impact contracts with key customers, or even delay the launch of key satellites going forward?
Spengler: We do know that the Kourou Spaceport is shut down right now. We do have launches scheduled in the mid-year time frame. We have the Galaxy 30 satellite and the MEV-2. That is an Ariane-5 launch. We are watching that day by day. It is possible there could be some delays there. This is a replacement satellite and Mission Extension Vehicle. There is no criticality of services right now for us impacting the business. We will watch that carefully.
Otherwise, we are seeing business as usual. We are still very active with our customers. Connectivity and uninterrupted service are absolutely critical during this pandemic. Our customers are experiencing higher traffic requirements, and we are catering to those with enough equipment in place, or in many instances, we’ve been able to upgrade equipment. We also support many remote communities, business operations and refugee camps in Africa, or the FirstNet network – all of these are mission-critical services. In some cases, we have seen customers ask us for expansion of services to support these kinds of applications. We need to have some time to see how it will impact our operations overall, whether it is a launch delay, revenue delay, etc.
When you look at mobility services, that is the one area that we know that has been a dramatic change in the end user community. People are hardly flying at all. Cruise lines are coming into port until this is over. We will see how this plays out over time. All of those services and businesses will come back over time. We have to wait and see.
VIA SATELLITE: The mobility market is very important for Intelsat. Recently, the aviation and cruise sectors have been hit hard. Is this going to be a really tough market for satellite as a result of what we are seeing due to COVID19?
Spengler: We should expect short-term challenges there. That is just logical, and you can see it now. We can’t really measure the magnitude of that, and how long it may take for that sector to come back to normal. The mobility sector as a whole is a great long-term market for satellite and non-terrestrial services. Our view of the long-term hasn’t changed. We are still really at the early stage of some of the aeronautical services. We are the very beginning of services in terms of land mobility-type services. There is strong growth potential there. There is a lot more that can be done on the seas as well. We think that our infrastructure, the types of services we are developing are well suited for that sector. We also think the Ku-band ecosystem we are operating in is very resilient, strong and has some great strengths as we move forward into the future, as new capabilities come on. Over the long-term, I still think this is one of the primary drivers of satellite communications and our business as well.
VIA SATELLITE: A big story this year was about the FCC approving a C-band auction and payments of just under $10 billion. A lot of analysts seemed to think that overall figure was good for the satellite industry, even if it may have been less than the expectations a year ago. What was your overall view in terms of how things played out here?
Spengler: The way it played out was not the original plan and proposal that we put forward with the CBA. It was obviously a departure and different approach to it. I would say a couple a of things. I am glad we reached this milestone, in other words, this Order is out and the process is moving forward. You have to give the FCC credit for managing a very complex proceeding. I am not sure everybody is happy, but I think they did their best to balance through the complexity that was there. We always advocated for fair compensation through the process. That was our goal. We had to make sure it was fair and that our costs were addressed correctly.
Where we are now is that we are analyzing the order. It is a 225-page document, a complex document. Clearing this spectrum is a complex and expensive undertaking. We are focused on understanding what is expected of us, the risks, and how we determine to move forward.
VIA SATELLITE: We need to talk about the C-Band Alliance. When it was created, it seemed to be an example of the best of the satellite industry, traditional competitors coming together for a common goal, yet seems to have descended in a fairly acrimonious fashion. What is your view on this?
Spengler: The CBA did excellent work as an entity. The collaboration was outstanding. I think it was very effective in what it was focused on doing. When we created the CBA two years ago, the focus was to advocate fast clearing of the spectrum, protection of existing customers, and a market-based approach to achieve all of that. At the end of last year, the FCC rejected that approach and decided to go in a different direction. When you look at the final order, it addressed each satellite operator individually. The whole situation changed. We are proceeding as the FCC laid it out.
VIA SATELLITE: There were strong reports earlier this year that if the C-band ruling had been even worse, that Chapter 11 might have been an option for Intelsat. Was that discussed? Was it ever considered a realistic possibility? How do you view the financial health of the company?
Spengler: I’m not going to comment on something in the past that didn’t happen. Our focus is on moving forward.
In terms of financial health of the company, we are in a sector right now that has its challenges. The whole satellite services sector and ecosystem has a lot of issues right now. We are very much in a transition period. I think the industry is in a transition period, and we are in a transition period. But, we are still moving forward. We just placed an order for Intelsat 40e, which is an addition to our high throughput fleet that is going to cover mobility services in North America. We have the Galaxy 30 launch coming up. So, all of these things are investments that we are making right now. Our business is moving forward. We will continue to invest in our network, and our services to customers and keep moving forward as we go through this transitionary period.
VIA SATELLITE: You did opt into a 30-day grace period on an interest payment that was recently due, what happens after those 30 days are up?
Spengler: Enhanced financial flexibility has become increasingly important to Intelsat, and many others, in light of new challenges facing the global business environment due to COVID-19. It’s also important to us in light of the recent FCC C-band spectrum order, which – if we choose to proceed with clearing the C-band – will require hundreds of millions of dollars of incremental capital expenditures before costs begin to be reimbursed by the FCC. So, we’re in the process of exploring a range of financing options with new and existing stakeholders.
Notwithstanding our decision to enter that grace period, it’s important to note that Intelsat generates significant unlevered free cash flow, operates a strong and fundamentally sound business, and has ample cash on hand to finance our operations and continue to invest in the innovation and growth that will drive our business forward.
I’ll tell you that we are laser-focused on positioning Intelsat for the future and continuing to serve our customers at the level of excellence they expect from us with our industry-leading portfolio of services.