SES CEO Steve Collar Expects U.S. Demand for IFC to Outstrip Supply in ‘a Few Years’
SES has a busy year ahead in 2022. The global operator has multiple new satellites scheduled for launch during the next 12 months and its success depends on balancing new growth opportunities in data, maintaining its video business segment, and finding new customers. It also finds itself competing with a growing number of new satellite service entrants.
Via Satellite spoke with SES CEO Steve Collar in early December to talk about the company’s progress in 2021 and the strength of its position as it looks to grow in 2022. Collar also shared his views on SES’ investments in ground segment technology and how technologies are key to creating new opportunities for satellite service providers. This is the first part of a two-part interview. In part two, which will be published Jan. 20, Collar talks about the Viasat/Inmarsat industry consolidation and how satellite can play a role in 5G.
VIA SATELLITE: Given that 2021 was the first full year that SES operated with COVID in the background, do you feel that the company met your expectations for the year?
Collar: I am really pleased with the year that we have had and happy with the performance of the business. On the Video side in particular, we have outperformed our own expectations and the expectations of the market. The COVID environment has had a somewhat positive impact with more people at home and higher focus on news and entertainment, but it goes beyond that. We have made a lot of progress with our HD+ business in Germany, and have seen strong renewals across our broadcast business.
In Networks, it looks like we are trending towards flat year-on-year, which is less than we would have liked at the start of the year but given the extended COVID environment and the ongoing challenges faced in the international aviation and cruise sectors, we are pretty pleased. We have had to cope with some unexpected one-off developments that were hard to predict, including the withdrawal of troops from Afghanistan, and a couple of Chapter 11 restructurings that impacted our service provider customers. Given all of that, we are extremely satisfied with the year we have had.
VIA SATELLITE: How do you break down that assessment between your Networks and Video division?
Collar: We were growing close to double-digits in Networks pre-COVID. It has flattened during the COVID period but I am very confident as we look ahead into 2022, particularly with the arrival of SES-17 and O3b mPOWER that we will be back at those levels. These satellites are coming to market at exactly the right time. Our Video business will remain flat-ish. Our broadcast business is a mature industry with prime TV neighborhoods, cashflow, and profitability. Growth will come from networks.
VIA SATELLITE: The mobility market seems to be more competitive than ever right now. Do you feel SES is in a strong position to compete with other mobile providers?
Collar: We are pretty differentiated in what we offer. For example, our O3b MEO capability in cruise enables us to deliver the best solution into the market, with SES supporting five of the top six cruise lines and being contracted to connect pretty much every new build that has come to market and will come to market in the coming years. Despite our leading position, we are constantly trying to improve the level of service that we provide to the cruise industry and could not be more excited by the arrival of O3b mPOWER which will super-charge our services to cruise.
In aviation, we have seen the U.S. market come back well. Our expectation is that demand is going to outstrip supply in the next few years which is a healthy situation. While there is a lot of talk about the capability that will come in the future, very little of it is here today. The launch of SES-17 at the back end of last year is timed well to intercept the recovery from COVID, and will be a key asset for our aviation business. More broadly, we are the only company able to offer multi-orbit global solutions to the mobility segment and this differentiation will become increasingly important.
VIA SATELLITE: In a recent interview with John Padgett from Carnival, I asked if the industry was providing the holistic approach to connectivity that they needed. He responded, “No, they are not. I think the industry remains distracted by bandwidth and cost per megabyte.” How do you respond to that?
Collar: John is super focused on guest experience and delivering the very best experience to cruise passengers from the moment they book to the moment they leave the ship, so my interpretation of what he is saying is that the industry needs to focus more on what it takes to provide an amazing experience for guests on board and grow the pie for all rather than using cost per megabyte as the winning metric. I think he is right. We have a very successful partnership with Princess Cruises, with whom we have developed MedallionNet, and I would like to think it’s because we focus on how we deliver the best service as opposed to unit cost and haggling over megabytes.
VIA SATELLITE: At our Connected Aviation Intelligence event this year, Jonathan Hofeller of SpaceX said in 10 years, he expected 90% of airline traffic to be on LEO satellites. How do you see the mix of different orbits for in-flight connectivity developing?
Collar: Just as the industry can be wrapped up in bandwidth and cost per megabyte, the same is true for religion around orbits. The truth is that customers and end users don’t care. What they want is a seamless, reliable service, with the best performance, at an affordable price. Latency is an important part of this equation as we have proved with our O3b constellation, but in my mind, LEO [Low-Earth Orbit] constellations still have much to prove. No LEO system can offer anything close to a reliable global service today and it is very hard to deliver a consistent experience from a single orbit, particular one that requires numerous handovers per minute and constrains the available service around choke points such as airports. I believe it is smarter to have as many tools in your toolbox as you can and use the right tools to deliver great service and great customer experience. Whoever does that well will win a large share of the market.
VIA SATELLITE: What are your goals in regards to SES service and O3b mPOWER capacity sales in 2022?
Collar: 2022 will be an enormous year for SES. The first piece of big news is that we will be collecting the first $1 billion from the phase one [C-band] clearing in the U.S. that we have successfully executed and certified. That is a very significant milestone in a four-year journey. It means that we start the year with an extremely strong balance sheet and whets the appetite for the further $3 billion coming from phase two clearing that we expect to complete well ahead of the December 2023 deadline.
We will also be launching a lot more satellites! Our first three O3b mPOWER satellites will go up, likely in [the first quarter], followed only a few weeks later by the second three and by the end of the year we will have our brand new, state-of-the-art constellation in service. O3b mPOWER is not only going to be transformational for SES but also for our industry. For the last decade, we have operated the only successful NGSO [Non-Geostationary] broadband constellation, and I think there is a reason that we have been successful where others haven’t. We chose an orbit and an architecture that was deliverable, where the cost economics make sense, and where we could get into service with a modest number of satellites (six). And all of this applies equally with O3b mPOWER where we have taken the same building blocks and scaled them ridiculously.
We have more than 5,000 beams per satellite versus the 10 beams in the first-generation O3b constellation. Our ability to deliver high bandwidth and high flexibility services to cruise, aviation, and government, with an added multi-orbit dimension means that we can offer solutions that others can’t. We are also comfortably the first to market which should allow us to capture a substantial share while others are learning about their constellations and capabilities.
On top of this, we will be bringing SES-17 into service over the Americas and we have three separate C-band satellites launches to facilitate our phase two clearing, it really is going to be a momentous year and we have lots of work to do.
VIA SATELLITE: You have been working on ground terminals with Isotropic Systems over the last 12 months Do you believe the ground segment has been keeping up with the evolving requirements of operators such as SES?
Collar: The ground has been an Achilles heel for the industry for a while as the focus always tends to be on the space segment while a lot of the enablement for good customer service happens on the ground. We recognized that fairly early in the O3b mPOWER development, not just on the terminal side but across the ground eco-system.
For example, we have drastically evolved our gateway architecture, reducing the unit costs of deployment and co-locating with data centres and cloud hubs. This provides customers one hop to the cloud and allows us to operate and manage important network functions for customers remotely. It also allows us to orchestrate services across our network for our customers as they turn our network into an extension of a telco or cloud provider.
With terminals we have driven the idea of a multi-orbit network with the ambition to present a larger, more capable global network to our customers. We don’t believe in walled garden. Instead we believe in scale and interoperability. One of the challenges for the industry is how do you broaden away from everyone building their own unique infrastructure, sacrificing scale and customer experience. One of the ways we do that is extend MEO [Medium-Earth Orbit] into GEO [Geostationary Orbit] and vice versa, and the work we do with Isotropic shows that. Not only is it a terminal that is capable of accessing GEO and MEO, it can access both simultaneously. This has real value in a government context in delivering a resilient service and supporting multiple paths to receive or transmit information. It also opens up the scope for software defined networking and application-based routing where latency-sensitive data can flow over the MEO network and non-latency sensitive data can go over the GEO network, optimising user experience, performance and cost. There is a lot you can do once you have a terminal that is affordable and able to connect to multiple assets simultaneously.
VIA SATELLITE: How do you see the next chapter when it comes to capital investment initiatives? It seems right now there is a bit of a global arms race when it comes to satellite constellations and assets.
Collar: We try very hard not to get involved in what you would call an arms race. We have been very thoughtful with the investments we have made. It is important that, as an industry, we are responsible with the capital that we are entrusted with and deliver a return on capital for investors. At SES, have invested in a network that is demonstrably differentiated and provides us with a strong right to win in high-value segments. We are not trying to be all things to all customers but for high throughput, high flexibility services I believe we have the best solutions. Conversely, we are not spending time and money in areas like residential broadband. We are choosing the markets in which we have a strong ‘right to win’ and investing in them judiciously.
VIA SATELLITE: SES has invested a lot of money in recent years in building out its fleet and service portfolio. Will SES continue to have big capital expenditure years beyond 2022?
Collar: No. I would say we have had a couple of years of abnormally high capital investment with SES-17 and O3b mPOWER launching and coming to market and that also goes for 2022. Once we get beyond this year, we will be into a much more nominal period of investment. By 2023, we will be growing top line, growing EBITDA while meaningfully reduced capex means substantial cash flows being generated in the business for the benefit of our shareholders.
We have just announced additional satellites for 19.2 degrees East. That is very exciting. This orbital slot takes us back 36 years to the start of SES and remains our most important Geostationary slot and our prime TV neighborhood. What we have announced is a very cool combination of traditional direct-to-home satellite and a flexible digital satellite that will allow us to offer new transformational video services to the large neighbourhoods that we serve across Europe.
Beyond that, we have designed an incredibly scalable constellation in O3b mPOWER and the expansion of the constellation will depend on our market success. It’s another big advantage in MEO. We don’t have to invest $5 billion with a ‘build it and they will come’ mindset. We can develop the market and, as our business grows, launch incremental satellites and add to the capacity and capability of the system. As we do, the constellation becomes more and more efficient. The satellites become more affordable so, it really becomes a virtuous circle. But that is all for later and we can make those decisions on the basis of market success.