SES’s Bausch Explains Reasons Behind Surprise Eutelsat Tie-Up

In one of the most significant announcements of the year in the European satellite industry, traditional rivals SES Global and Eutelsat will team up to launch a satellite-based mobile broadcasting system. The two companies will share the costs, about 130 million euros ($165.9 million), in the development of the S-band payload that will be placed on the W2A satellite. Regulatory approval for the joint venture is expected to be received in early 2007.

Across Europe, a number of operators already have launched video services, and most of the top operators have been involved in digital video broadcasting-handheld (DVB-H) trials as they look to capitalize on mobile TV. SES and Eutelsat plan to offer their service initially in the United Kingdom, Ireland, German-speaking markets, France, Spain, Portugal, Italy and Poland. The question is what how successful satellite will be in this new landscape.

Romain Bausch, CEO of SES Global, spoke with Satellite News International Editor Mark Holmes about the creation of the joint venture and what role he hopes SES will play in the mobile TV market.

Satellite News: From SES’s perspective, what is the significance of this announcement?

Bausch: It is not so much about two competitors joining forces in order to develop a new application or service. The significance is that we have decided jointly to invest in the first satellite infrastructure capable to broadcast TV and radio into Europe. I believe that is the most important dimension of what we have announced. We will obviously continue to compete in our core business.

In terms of when the idea of the joint venture came about, Giuliano and I were in Brussels together after having a meeting with the European Commission. I mentioned to him that we should seriously consider to join forces in order to develop the S-Band, and he had a very positive reaction. This was at a time when we were looking separately at investing into an S-Band payload: Eutelsat for the W2A satellite; SES for the Astra 3B satellite. It took a couple of months before we took it up again. As reasonable business people, we came to the conclusion that it might not be that stupid to jointly invest in one S-Band piggyback payload.

Satellite News: You said on the one hand that this was a great opportunity, but that there was also a great deal of risk. Were you not confident enough in the size of the mobile broadcasting opportunity to go it alone?

Bausch: There are some risks. The commercial risk is the risk that continues to exist, whether you go alone or whether you go jointly. So I really believe it came down to a question about the size of the investment in a new application or business development. Would we have done it separately? I am not sure because besides the commercial risk there is also the issue of access to frequencies and orbital positions. That would have been another major risk, if we would have developed this in parallel. It is a mix between commercial risk and the fact that when you are operating in S-Band, it is not as easy as in the other frequency bands to operate satellite at different orbital positions servicing the same geographic market.

Satellite News: Considering the number of DVB-H trials going on around Europe, and the fact this looks like becoming the main standard for mobile broadcasting, what role will satellite play alongside this?

Bausch: A customer can use this to compete with DVB-H, but he can also use this spectrum as a complement to DVB-H. We believe that DVB-H will become the standard used by terrestrial networks in the UHF frequencies. Players like Alcatel, Samsung and others will work on solutions, which will allow the use of DVB-H and S-Band, including S-Band satellite from the same device. S-Band chips will be built into handhelds. There is this DVB-SSP standardization effort going on. That will mean there will be handhelds capable of receiving DVB-H and S-Band, be it via satellite or terrestrial networks. We are really adding bandwidth and therefore adding value to the mobile solution for potential customers.

Satellite News: Do you expect more customers to use this as a complement to DVB-H or in competition to DVB-H?

Bausch: It is difficult to say. Maybe the answer is also different from market to market. In some markets, such as Germany — and no one knows whether this will be there forever — but the mobile network operators have joined forces in order to develop DVB-H by using the frequencies that will come available after the switch-off of analog terrestrial TV in Germany. I guess that this consortium in Germany would like to include S-Band in their solution in order to have more bandwidth available in order to rollout their mobile TV broadcasting services.

In other markets, you might have competitors. Maybe one of the players will have access to UHF frequencies and another player will not. This other one might want to use S-Band to be in the market. It really depends on the customers. The customers could be the mobile network operators, virtual mobile network operators or broadcasters. In some markets, you might have telcos or mobile network operators offering the service and coming to agreements with broadcasters. In other markets, you might have broadcasters who want to offer their content directly to subscribers by using mobile broadcasting without passing through a mobile network operator.

Satellite News: Do you expect that to happen?

Bausch: I could imagine that innovative operators like BSkyB in their strategic thinking might also evaluate the alternative to offer mobile TV services directly. The value of satellite for companies like BSkyB and Canal+ is that the satellite subscriber is a direct subscriber to them. The same could be true in the mobile arena. A subscriber to a hybrid S-Band solution combining satellite and terrestrial networks might become a direct subscriber of the pay-TV operators of this world.

Satellite News: When do you hope to have the first deals in place with operators, and when you expect this venture to become profitable?

Bausch: Eutelsat and ourselves have had separate contacts with existing as well as potential customers, mobile network operators as well as broadcasters. We have not decided to go into this risky venture without having explored the market and having spoken to the market players beforehand. In our relationship with Alcatel, we have made sure that they will continue to promote S-Band in combination in DVB-H. This is also one of the projects that has been selected by the French Agency for Innovation. Alcatel is committed to develop this technology on the ground. That is also very important.

According to our lawyers, regulatory approval is likely to happen in the first quarter of next year. Once the approval will have been granted, the [joint venture] will start to commercialize the payload and have a structural approach to potential customers. I see the first contracts being signed at some point in 2007. In terms of revenues, our plan is to have the satellite in orbit no later than early 2009, and revenues are expected to flow from that point.

Satellite News: Satellite operators down the years have had problems monetizing broadband services, what makes you think it will be any different in terms of mobile broadcasting?

Bausch: I am always convinced by the strengths of satellite, as long as satellite is used for broadcasting i.e., in a point-to-multipoint mode. Whether we broadcast TV and radio for fixed reception or for mobile reception, it does not really matter, as long as it is broadcasting where you can serve millions of users with one communication. When you are using satellite for broadband access you are in point-to-point communications and you lose the main advantage of satellite. That is what we try to achieve in broadband, where we compete with terrestrial in point-to-point communication. Satellite will always remain a niche, although an important one, as satellite will be used to serve customers not served by terrestrial infrastructures. So mobile broadcasting and residential satellite broadband are completely different applications.

Satellite News: Do you see certain territories where it is more likely you will gain business from?

Bausch: The name of the game here will be first come, first served. Those markets where players show the highest interest and are prepared to commit first will be the markets we go for. It depends on the response of the market. We have no priority in mind.

Satellite News: What do you expect out of this joint venture a year from now?

Bausch: In a year from now, I hope we can look back and say we have had a great year, and that the [joint venture] has succeeded to contract capacity in some of the European markets. The beauty of the proposed solution is that it is flexible. All the large European markets can be served by this satellite.

Contact, Yves Feltes, SES Global, e-mail, [email protected]