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As a part of SES’ business outreach strategy, U.S. Ambassador Mandell and several embassy staff members visited SES headquarters in January 2012.
Image credit: U.S. Embassy-Luxembourg
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[Satellite TODAY 07-16-13] SES could be in for a challenging couple of years. A new research report by Morgan Stanley has moved SES to an “underweight” rating. The report highlights a number of risks that could impact the operator in the near future. Patrick Wellington, a satellite equity analyst at Morgan Stanley, suggested a number of reasons behind the new rating in a research note saying overcapacity could be a more serious issue than the industry is expecting.
“We calculate [that] the proliferation of traditional satellite launches, coupled with the rollout of High Throughput Satellites (HTS), could increase the total marketable transponder capacity globally by up to 75 percent by 2016. We think the risk that HTS, which have a more powerful and cost-effective technology than traditional satellites, drive price deflation in data (c.30 percent of sales) could be greater than consensus expects,” Wellington said.
The somewhat pessimistic outlook is at odds with what industry experts think of the situation. “The view of SES and the rest of the FSS industry concerning overcapacity is that it will prove [to be] temporary (maybe a couple of years) and that, ultimately, demand will catch up. While this is a possible outcome, we are concerned [that] (i) the magnitude of the imbalance may mean it could take several years for demand to catch up, (ii) by this time new technology that will further increase supply and which could disrupt the pricing dynamics of the industry will have hit the market (HTS, for example) while (iii) the continuous roll-out of terrestrial networks, especially optic fiber, will have increased competition from the telcos,” Wellington said.
Wellington also talks about the impact of HTS on SES’ fiscal health. With SES deriving around 70 percent of its business from video, the company’s data business is not its main revenue-driver; however there could be an impact. “Part of the remaining 30 percent could very possibly be prone to sharp pricing pressure as superior HTS technology hits the data market en masse. This is something that is reflected neither in our model nor in consensus expectations since HTS are driving a paradigm shift that is extremely difficult to model,” he said.
The health of the U.S. military market is also a source of concern. “We believe the weakness of U.S. military demand creates an additional source of potential downside, or at least a lack of upside surprise,” Wellington added. “We estimate SES generates just under 10 percent of revenue from military activities. Budget constraints, sequesters and troop withdrawals have had a negative impact on this segment over the past 18 months, and we do not expect an uptick in the short to medium term.”
The changing dynamics of the market will create some interesting challenges for Karim Michel Sabbagh, who will take over from Romain Bausch as the CEO of SES next year. Despite highlighting a number of challenges that could face Sabbagh, Wellington believes that SES is still a healthy business and giving it an “underweight” rating was a “relative call.”
“SES remains a strong business with a number of undeniable assets. 70 percent of its business is highly visible and looks poised to keep on growing for the next decade. Our new, more conservative numbers still see SES print 5 percent EPS growth p.a. boosted by the many launches realized over the last 18 months. SES has invested in O3b (>40 percent stake) and has a path to full control. It will therefore partly benefit from the HTS growth, which will mitigate the negative impact that HTS will have on its existing data business,” Wellington said.
Indonesia
Recently, SES has signed a slew of capacity deals in Asia. the company has followed up contracts with Mediascape in the Philippines and IPMTV in Thailand with a new deal with MNC Sky Vision in Indonesia, which runs services through the Indovision brand.
SES will provide capacity on the SES 7 satellite to support Indovision’s future Chinese-language DTH package. Handhi Kentjono, Vice President, Sky Vision admitted to Via Satellite Asia recently that there is a huge potential still for DTH in Indonesia. “In my opinion, DTH has the potential to reach 22 million subscribers in Indonesia. I am very optimistic about the prospects of reaching the entire addressable household in the country. We think 22 million of them will have the ability to have to pay-TV services. So, the potential is quite big. Right now, DTH is the dominant platform in Indonesia with 81 percent of the marketshare. DTH is the only platform that can go across all of Indonesia. Cable and IPTV are hampered because of infrastructure. Until 2015, we think DTH will grow to have 84 percent marketshare,” he said.
Vivek Couto, executive director, Media Partners Asia (MPA) in his column in Via Satellite Asia also highlighted the potential of the pay-TV market in Indonesia. “At end-2012, pay-TV subs totaled 2.4 million, 7 percent penetration of TV households and still only 10 percent of the addressable market for pay-TV. Monthly ARPU declined by 8 percent in 2012 to $12.5 while DTH was the major distribution platform with 87 percent market share,” he said.
Couto also said in the column that by 2020, MPA forecasts that total pay-TV revenues will reach close to $1.2 billion. As per government data, 45 million people were in the middle-income class in 2012 and this number is expected rise to 170 million by 2030.
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