Satlynx Confronts Broadband Challenges

The departure of Satlynx CEO Yves Elsen was “a bit of a blow,” admitted Robert Feierbach, vice president of corporate and direct-to-home (DTH) services. The European satellite broadband venture, however, wasted no time in appointing Paul Heinerscheid as its new CEO and president.

Feierbach said that Elsen’s departure came as somewhat of a shock to the company. “Yves has had quite a challenging year, integrating many different groups and cultures, and even corporate cultures. I think he has done a good job of doing just that. It has been quite a challenge; however, he has been under a lot of pressure.”

The financial structure of the company seems sound. “Satlynx had announced that it was not too far from breakeven at the inception of the company, as it would need around 30,000 total sites to do so. Towards the end of this year, we expect to be at a cashflow breakeven position,” noted Feierbach.

Alcatel Joins In

The agreement with Alcatel [NYSE: ALA] to take a 17.9 per cent stake in Satlynx was announced in June, although there had been indications that it had planned to do so much sooner. Feierbach explained that there were three separate agreements with Satlynx owners that had to be concluded before the investment could be completed. “Firstly, a deal had to be struck between Alcatel and SES Global for technology developments, which meant that Alcatel would be providing additional DVB-RCS hubs and tools and developments for the existing products and services which were in Satlynx’s portfolio. The second deal was the same sort of agreement with Gilat Satellite Networks [Nasdaq: GILTF]. They would also be involved in an industrial agreement to do follow-on products that would require engineering and development on the Gilat hardware, bringing those closer to DVB-RCS. The third agreement was the Alcatel investment into Satlynx,” Feierbach explained.

The delay in the Alcatel investment has posed problems for Gilat in particular. Gilat had to restructure its debt, has had various changes to its management team and has spent its time trying to put its financial house in order. Feierbach is concerned that Gilat’s difficulties could have created perception issues about Satlynx for potential clients. “Gilat’s problems … did affect the risk perception of some of our clients – especially for some of the newer deals – vis-a-vis a continuous supply chain. The larger companies have had some questions about that. From our point of view, Gilat did go through a major belt tightening and reorganisation of the management during the last six months. I think they have done all the streamlining they can do. They are now well-structured and focused for the next growth phase.”

Feierbach said that Satlynx took longer than expected to put in the right organisational structures and that it had been a “challenging” time. “At the time, we were expecting to use the time between May and September [2002] for Satlynx integration and organisation. It actually turned out to be more like May to December for organisation, and then December to present for rollout. So, there was a three months slippage in terms of expectations and actuality.”

While the company appears now to be in good shape, expanding its customer base will be a major challenge for the new CEO. When Interspace spoke to the outgoing CEO Elsen last year (see Interspace issue 747), he said the company’s goal was to have 400,000 – 800,000 sites by 2005. Feierbach admits the company has a long way to go. “It has been a bit slower than everyone expected industry-wide. In terms of the last 12 months, we started by inheriting roughly 25,000 sites. By the end of this year, we expect to add another 10,000 sites. The numbers are coming much more from the corporate sector and not so much from the consumer sector because of the current costs of equipment.”

To reach a half million sites in two years would be a major success for the company, but at this stage it looks like an uphill climb. To meet its targets, the company needs to tap the consumer market. “The reality is that the satellite consumer broadband market is going a bit slower than everyone expects. I think this is partially due to the fact that CPE [customer premise equipment] hardware is not dropping fast enough in price. In order to get those tens of thousands of consumers a month, it has got to be an impulse buy of around 300 to 400 euros ($338 to $451), retail. We are not there yet,” he said.

Satlynx is looking to target areas not covered by DSL or cable. Research has indicated that around 8 million European homes and 1.2 million enterprises are not served by these technologies.

In the months ahead, the operator will look to cement its presence particularly in southern Europe.

“There is low ADSL pricing so it is very difficult for any satellite operator to do anything in Germany. The opportunity markets and the ones which are developing quite nicely for us are more in southern Europe … Spain, France and Italy are markets where we are most active today,” Freierbach said.

–Mark Holmes

(Contact: Barbara Schuman, SatLynx, e-mail: [email protected])