What a difference a couple of months make. When Interspace spoke to New Skies Satellites CEO Dan Goldberg in November (Interspace, issue 757), the operator was confident that it would have double-digit revenue growth in 2003. Now, it is not so sure.

The operator has revised its forecasts and has reduced its target to 6 to 11 per cent revenue growth in 2003, although it is still aiming for the top end of this forecast. For revenues this year, it gave a range of $212 million to $222 million. Revenues for last year were $200.5 million.

New Skies is still painting a bright picture despite the fact it admitted that low single digit revenue growth is a distinct possibility.

Andrew Browne, New Skies Satellites CFO, told Interspace: “I think most industry analysts are forecasting growth rates from anywhere from 2 to 3 per cent. If you compare that with the guidance we are giving, which is 6 to 11 per cent, I think that is pretty significant. In particular, if you look at the EBITDA [earnings before interest, taxes, dividends and amortisation] line, you are looking at implied growth of about 5 to 14.5 per cent, which is fairly good.”

The reduced revenue growth targets partly stem from the changing strategy towards its NSS-8 satellite. This satellite was originally to be deployed at 105 degrees West over Latin America. Now, it will replace the NSS-703 satellite at 57 degreesE over the Indian Ocean. The NSS-8 satellite is expected to commence commercial service at the beginning of 2005, instead of this year. NSS-8 will carry 56 C-band and 36 high-power Ku-band transponders, with coverage of Europe, the Middle East, India, Africa and Asia. As yet, New Skies has not decided what will happen to the NSS-703 satellite when the NSS-8 replaces it.

With competition intense in Latin America and the economies still struggling, it is not a surprising decision. Yet, it could be viewed as a defensive move. William Kidd, a satellite equity analyst at Lehman Brothers, said in a research note: “We believe that redeploying a satellite from a Greenfield to a replacement role is not indicative of management that is optimistic about its immediate prospects. In other words, we believe that management may be thinking that its current business doesn’t have the underlying strength to support a new growth satellite, whereas prior to this decision, the company obviously believed it did.”

Browne prefers to concentrate on the positives of the NSS-8 decision, saying it will lead to cost savings of $250 million and allow the company to reach the free cash flow point earlier than expected.

Understandably, Browne denies that the redeployment of NSS-8 is a sign of a more conservative approach by the management at New Skies. “When we looked at the NSS-8, we didn’t say: ‘we need to be conservative.’ We reviewed our fleet and capacity. We looked at where demand is coming from and given the backdrop of the economics of the world, we feel this is a good decision. Anything that can help us execute on our strategy and result in $250 million in additional free cash flow over the next four years is actually a good thing. We feel this is a very prudent and good decision.”

This move does seem to indicate a change of regional focus. The operator derived 13 per cent of its revenues from Latin America in 2002 and seven per cent in Asia. It seems likely that Asia will become a more significant market for New Skies in the not too distant future, perhaps even overtaking Latin America in terms of revenues generated before too long.

India is in particular a strong focus. The redeployment of NSS-8 gives further indication of the importance of these markets for New Skies.

Tom Watts, a satellite equity analyst at SG Cowen, said: “India is also becoming a key region for expansion. Last month, NSK announced that it inked a multi-year, multi- transponder deal with Reliance Infocomm, one of India’s leading telecom companies. The agreement will enable Reliance to launch international long-distance telephony services to the United States and will provide a bundled offering utilising multiple transponders on the NSS-703 satellite. Also, last quarter, the company announced a 10-year agreement with Data Access, the first private international voice carrier licensed to operate in India and one of India’s leading ISPs.”

Despite New Skies Satellites still talking up their presence in Latin America, it seems difficult to believe any thing other than the region has been put on the backburner. Browne said, “I don’t think there is really any change in our overall strategy. I think the decision to re-purpose NSS-8 fits in very well with how we see the markets today. We feel we have got capacity now in the regions where we will be able to sell.”

In a separate announcement on Feb. 18, New Skies announced it had signed an agreement with the Maritime Telecommunications Network (MTN) for capacity on the NSS-5 communications satellite.

–Mark Holmes