Gilat Satellite Networks [GILTF] is looking for a successful 2004. The company has had its trials and tribulations in recent years but armed with a new business strategy, the company is optimistic it can rebound from the financial troubles it has had in recent years.

Gilat designs, develops, manufactures, markets and services products that enable complete end-to-end telecommunications and data networking solutions based on Very Small Aperture Terminal (VSAT) satellite earth stations, related central station (hub) equipment, and software. It has been in the VSAT business since 1987.

In July 2003, the company announced a comprehensive restructuring plan during which it streamlined its operations and reduced the numbers in its workforce to put the company on a stronger financial footing.

With a restructuring plan in place, Gilat now is embarking on an aggressive new growth strategy. In terms of new products and services, the company is placing a lot of faith in its new SkyEdge family of products, which it claims is the “the first truly comprehensive satellite platform to deliver superior voice and video services over a single powerful system.” Gilat claims this new system represents a giant leap forward in VSAT technology, and it will enable to serve its customer base around the world. It is planning to launch the family of products in the middle of this year.

The company is also playing a key role in developing the European broadband market. It is part of the SatLynx JV with SES Global (Luxembourg and Frankfurt Stock Exchanges: SESG) and Alcatel Space, a provider of two-way satellite broadband services to enterprise, consumer and SOHO markets in Europe.

The man charged with leading Gilat into a new era is Oren Most, who was appointed CEO in April 2003. Most previously had founded Israel’s largest wireless operator Cellcom. In an interview exclusive to Satellite News, Most outlines Gilat’s new growth strategy to international editor Mark Holmes and why he thinks its new SkyEdge portfolio of products will give the company an edge in the satellite marketplace.

Satellite News: As the CEO of a new management team, what do you hope to achieve during the course of this year?

Most: There are two major challenges. Firstly, the commercial launch of SkyEdge along with state-of-the-art, cutting-edge technology VSATs and, secondly, positioning ourselves to attack a number of markets globally for these solutions.

SN: Has Gilat’s philosophy in terms of where it is trying to position its product offerings changed during the last 12 months?

Most: There have been a lot of changes that we have gone through in the last eight or nine months, including new ownership, new management, financial restructuring and organizational changes. Our new strategy is to focus on the core business of Gilat, which is to be primarily a technology developer and innovator and on the sale of networks and solutions to carriers, enterprises and SMEs.

Gilat has another significant part of its business, which is the service business. We have seven service providing companies. We are committed to these companies in Brazil, Colombia, Peru, the United States and Europe.

When new service opportunities come up, we will prefer to team up with strategic partners rather than do it ourselves. We will continue to expand and improve the existing service companies but, in terms of new opportunities, we will look for partnerships with other carriers. We want to focus more and more on the technology and the R&D, production and sales of our products.

SN: Market conditions for satellite operators have been pretty tough during the last two years? When do you see a recovery taking place in terms of deals and new orders for satellites and satellite products?

Most: One of the hurdles we have in the expansion of VSAT penetration around the world is the cost of the space segment. In actual fact, satellite companies have to participate in the marketing effort by becoming more competitive in order to help promote the wider penetration of VSATs. On one hand, that calls for cost reductions. On the other hand, there is the potential for demand to increase significantly and then, of course, this will fill up the unused capacity and in turn this could require for new satellites to be launched. I think it is a dual-phase process.

SN: You recently announced the launch of SkyEdge product family. Could you tell us the significance of this product launch and the competitive advantages it gives you in the VSAT marketplace?

Most: The idea behind SkyEdge is a strong emphasis on the economics of the solution from the point of view of the carrier or the operator, whether a carrier or an enterprise. We present a benefits-and-costs model that demonstrates how we optimise the VSAT solution through SkyEdge, showing it provides higher efficiency using the space segment plus the fact that one hub provides multiple solutions and applications. All this translates into significant savings for the carrier or the operator, which, of course, means they can be more competitive and [they can] transfer economies to their customers. With the technological advances of SkyEdge, we are aiming to lead the technology in the VSAT industry.

The comparative competitive advantages of the SkyEdge family is that it is really in one package. We offer solutions in terms of applications and needs that previously required a number of products, whether they were from Gilat or other vendors. Now we can provide one solution with multiple applications and services.

SN: In terms of revenue prospects, while you don’t want to give forward forecasts, is it fair to say that this new product family will play a key part in revenue progression during the next 12 months?

Most: We are planning to launch SkyEdge commercially in the middle of the year, with the second phase adding the DVB-RCS standard toward the end of this year or the beginning of next year. Obviously, many years of R & D and marketing are going into this project, so we are looking at the fruits to come over the next few years. We are counting on the revenue stream and the impact during the next three to five years.

SN: In terms of geographical opportunities for the new product family, where do you see the greatest opportunities? What percentage of your revenues do you derive from Europe and North America?

Most: The expansion of ADSL and GPRS as terrestrial solutions in many areas of the world is creating a lot of pressure from rural areas and urban areas that do not have these solutions for high-quality communications solutions. This opens up opportunities for VSATs in Europe, the United States, Latin America and Asia. We think the SkyEdge has many many potential markets.

Right now, the areas with growth potential are China with the USO obligation there, which requires many tens of thousands of telephony and data lines. The deregulation of the VSAT industry in Russia should open up that market. We are hopeful that SkyEdge will be benefit from this potential.

SN: What are your opinions on the prospects for SatLynx during the next 12 months? What opportunities do you see for the company in terms of global broadband?

Most: I think we are looking at very ambitious and active development for SatLynx in the European market. In the rural telephony market, Gilat holds around 80-percent market share; and in the data and Internet market, we are at around 35 percent. Together with SES and Alcatel, we have gone through a lot of work in terms of the management of SatLynx.

We believe that SkyEdge, with its advantages and capabilities, will enable Gilat to grow its position in the broadband market. ADSL penetration is expanding so rapidly that it is creating a lot of pressure for those who do no have these solutions. Governments around the world are becoming more and more aware that there is an opportunity to upgrade the level of education to children in rural areas dramatically by enabling Internet access, which right now is not available in many areas. Through the template of the VSAT solution, they can equalize the level of education with those children in the urban areas.

Another example is that banks have branches in many rural areas, and they want to offer ATM services. VSAT is an ideal solution for them. There are also areas such as the monitoring of oil, gas and water, where there are more opportunities for us there. Restaurant chains may also want to use our products and offerings.

SN: What are your views on Spaceway in Europe, and the potential impact it could have on SatLynx?

Most: We are watching very closely what will happen with Spaceway in the United States. SatLynx is also watching it very closely, and it will prepare itself if there is a Spaceway challenge in Europe. I honestly don’t know whether that challenge will materialize in Europe, though.

(Barry Spielman, Gilat Satellite Networks, e:mail: [email protected] )