Intelsat CEO Assesses New Combination with SoftBank
In the week before the SATELLITE 2017 Conference & Exhibition, one of the biggest stories in our industry’s recent history broke with the news that Intelsat and OneWeb would merge, and Softbank would become a key player behind the new combined entity. SoftBank will buy voting and non-voting shares in the combined company for $1.7 billion in cash and take a 39.9 percent voting stake.
The deal doesn’t come as a complete surprise given that Intelsat and OneWeb have had a partnership since 2015. However, it does signal a new era for Intelsat. In a momentous week for the operator, Via Satellite caught up with Intelsat CEO Stephen Spengler to assess the key strategic rationale behind the merger.
VIA SATELLITE: From an Intelsat perspective, what is the significance of this deal?
Spengler: We were a founding investor at OneWeb. We made an initial investment in 2015 establishing a partnership with them to develop both Geostationary Earth Orbit (GEO) and Low Earth Orbit (LEO) services together as well as certain market segments. So, we have worked very closely with them over the last couple of years. As time has moved on, I think we have become increasingly convinced that there is a real opportunity to bring a new set of services to the marketplace that leverage both LEO and GEO network architecture and all of the services that could be associated with those.
For us, it is a continuation and acceleration of the strategy that we have been on, which is to bring next-generation services forward and deliver better performing capabilities with better economics and better price points for our customers. This will help stimulate growth for higher volume networks, and that also incorporates technology on the ground that makes it simple to access our services on a more cost-effective basis. It ties into some of the other things we are doing in the antenna area. It all ties together.
VIA SATELLITE: Can you give us some background on how this deal came about?
Spengler: We have developed a very close working relationship with OneWeb at multiple levels of our organization over the last couple of years. Then when SoftBank stepped in and became an investor in OneWeb, and the fact that SoftBank is the master distributor of the OneWeb capacity, it was natural that we had engagement with them at that time. Then things developed from that point to the announcement.
I would say it was a very quick process in terms of reaching an understanding from the parties regarding the strategic logic of the combination. I think that OneWeb and Intelsat recognized that we shared a vision for delivering affordable broadband on a global basis. I think that industrial logic developed pretty quickly. For an agreement of this type, there are a lot of details and a lot of work to put it all together.
VIA SATELLITE: Was it a case for Intelsat that being in GEO was no longer enough to fulfill your long-term ambitions?
Spengler: GEO is what we have had and “grown up with” and where our spectrum rights lie. I think we have always recognized that, in an evolving telecoms world, we have to have our eyes open to other approaches, other technologies and other aspects of the broader marketplace and the ecosystem of telecommunications. That includes looking at other orbits, other spectrum and frequency bands. It includes looking at other technologies that may be outside of satellite specifically.
One of the interesting aspects of this combination is that Qualcomm is a current partner and owner of OneWeb and will become a shareholder of Intelsat when this deal is consummated. I think it is exciting to bring other elements into it.
Maybe GEO isn’t enough to satisfy today’s requirements, but the ground systems have not been enough either. So, it is really trying to push different elements in the broader telecommunications landscape and to drive them together for future customer requirements.
VIA SATELLITE: You have SES with O3b, yourselves and OneWeb, Telesat looking to do something in LEO. This is a very interesting trend. Is the standalone global GEO satellite operator now a thing of the past?
Spengler: I don’t know if it is a thing of the past. Different operators will have different strategies depending on customers they serve, and their aspirations and what they want to do as a company and how they want to grow. But, I will say that having a combined GEO and LEO architecture or using multiple orbits gives a company the ability to leverage the inherent strengths of each one of the constellations. In our case, because Intelsat and OneWeb’s networks are mainly Ku-band, we are able to leverage the same frequency bands for fully integrated and interoperable services. We can construct those services where GEO is used where it is most advantageous, and LEO is used where it is most advantageous, and we can optimize that solution for a given application.
VIA SATELLITE: Is SoftBank the most powerful company now in the satellite sector? What role will they have in the decision making process?
Spengler: SoftBank will hold positions on our board and it will assign three out of the seven board positions. They will have a nearly 40 percent ownership of Intelsat at any given time, at least initially. As an arrangement they have in place with OneWeb, they have a role as the master distributor of OneWeb capacity. So, SoftBank will play an important role in the future. In this transaction, they are investing $1.7 billion into the new company. That is going to be used to fund a liability management/debt exchange exercise over the next 90 days. That transaction is a contingent part of the deal that has to be achieved for the deal to be completed. So, SoftBank is going to play a pretty significant role in a number of different ways. I think it is a great indication of their view of what Intelsat and OneWeb can do together, and that satellite communication services of this type can play a meaningful role in the telecommunications landscape.
VIA SATELLITE: How will your job as CEO change in this new combined entity?
Spengler: We have been on a path of transformation over the past few years. We have been focusing on bringing our Intelsat Epic satellites to market and, as we have expanded our relationship with OneWeb, we have engaged with antenna technologies on the ground. We have centered our organizational attention on innovation, the development of new services, and development of strategies to open up new segments, and faster growing segments in the new broader marketplace.
With OneWeb as part of the organization, I would say it is another energy injection into our strategy. I think there will be some great collaborative synergies that come out of that, in terms of bringing a lot of the creativity and entrepreneurial ideas from OneWeb into Intelsat, which has also been working very hard on innovation itself.
My objective is to capture the energy from both parts of the future company and make sure we can create an organization that is customer-focused and focused on the future in terms of applications and services that are really going to be impactful around the world. We will continue on the mission to build out the OneWeb service and then architect the future network that incorporates the OneWeb architecture, the Intelsat GEO architecture and drive forward the services that are going to be differentiating over the longer term. I am excited about it and I think our team is excited about it. I understand the folks at OneWeb are also excited. So, I think it is an interesting, exciting future ahead of us.
VIA SATELLITE: You mentioned about broadband and we are in a data-centric era now with lots of powerful HTS going up. Is there enough demand for all of this capacity?
Spengler: If you look at some of the base statistics that Cisco reports on a regular basis, there are all kinds of statistics, but in one of their most recent reports, it said that IP data traffic is tripling every three years. That is really massive growth. That IP data is a global phenomenon. It is something that will be aided by the connectivity that satellite communications can provide, as long as we are able to provide the performance and the economics, and the right kind of access.
We absolutely believe there is a great market opportunity to expand the existing sectors that are using satellite communications today, whether it is broadband connectivity to mobile platforms or corporate networks or government networks or even media networks to newer applications. We think there is a huge opportunity going forward to connect vehicles, whether cars or other vehicles, or IoT-type applications on a global, ubiquitous basis with satellite services.
I think there are real market opportunities ahead; it would be incorrect to look at it through today’s lens of supply and demand to anticipate what is in the future. If we get the formula right in terms of what the offering is to the customers, there will be a huge amount of demand in the future.
VIA SATELLITE: Given its debt issue, did Intelsat need a deal like to this to ensure a successful long-term future?
Spengler: We have been managing our high level of debt for a number of years. Our debt load has not kept us from investing more than $2 billion in Intelsat Epic — few companies can make that kind of commitment. The capital structure has not kept us from making strategic investments that we have made in OneWeb, and the partnerships we have made with Phasor and Kymeta, among others. So, we have been able to do the things we have wanted to do strategically in order to build the services for our customers.
This particular opportunity is a strategic deal with OneWeb. We have the support of SoftBank in this transaction as well, to fund a debt exchange that reduces our debt load and reduces the debt to a level where we feel it is very manageable, and allow us to be in a position to stimulate more growth. I think it is the right thing to do for our company, both strategically and financially. We are very excited about all elements of this transaction, both the strategic elements, but also what it can do for our financial strength over the long-term.
VIA SATELLITE: Is there anything you would like to add?
Spengler: The International Telecommunications Union (ITU) states that there are 4 billion people un-connected in the world. Our mission is to bring affordable broadband on a global basis to all customers and applications around the world. That is a shared mission and vision of Intelsat and OneWeb. We think this combination provides a great approach to achieving that important mission.