Eutelsat, originally known as the European Telecommunications Satellite Organization, is known for being the first satellite operator in Europe to broadcast television channels direct-to-home beginning in the 1980s with its first generation of Hot Bird satellites.
The company was founded in 1977, has its headquarters in Paris, and now operates ground stations in every region of the world. Its business interests have diversified to include cable distribution, video conferencing services, IP backbone connectivity such as corporate VPNs, and mobile connectivity services. With approximately 40 operational satellites in orbit, Eutelsat’s reach now covers most of the world’s population. It’s major revenue markets are Europe, the Middle East, and Africa.
While Eutelsat has enjoyed decades of growth and stability thanks to its cash cow of delivering television services in western Europe, questions have continued to count with the rising number of cord-cutting households who are adopting over-the-top (OTT) services. As discussed below, Eutelsat's primary revenue category is flat to declining. Moreover, the company is late to offer 4K video services that might appeal to the growing number of consumers who are now buying these screens in volume.
Despite these headwinds, Eutelsat has numerous opportunities ahead, especially in segments such as in-flight connectivity, which can only really be serviced by satellite on transcontinental routes. The mobile sector may also bring opportunities, especially as C-band satellite spectrum may overlap with 5G networks, bringing opportunities for operators to collaborate.
31-Dec-2017
|
30-June-2016
|
31-Dec-2016
|
|
Operational transponders
|
1416
|
1372
|
1326
|
Leased transponders
|
949
|
931
|
940
|
Fill rate
|
67%
|
67.9%
|
70.9%
|
6 months to Dec 2016
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6 months to Dec 2017
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Change vs. reported revenues
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Like-for-like change
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|||||
In € millions
|
||||||||
Video Applications
|
455.4
|
449.2
|
-1.40%
|
-1.20%
|
||||
Fixed Data
|
84.9
|
73.4
|
-13.50%
|
-10.60%
|
||||
Government Services
|
86.1
|
80.7
|
-6.30%
|
-0.10%
|
||||
Fixed Broadband
|
48.6
|
44.1
|
-9.30%
|
-8.10%
|
||||
Mobile Connectivity
|
38.5
|
37.1
|
-3.60%
|
20.60%
|
||||
Other revenues6
|
41.6
|
12.2
|
-70.70%
|
-70.20%
|
||||
Total
|
755.1
|
696.6
|
-7.70%
|
-5.70%
|
Video remains the Eutelsat’s main source of revenue, accounting for 66% of sales. However, video revenues in the first half were down 1.2% like-for-like to €449.2 million. Broadcast revenues were up 0.3% excluding the carry-forward impact of the termination of the TV d’Orange contract last year, with growth coming predominantly from MENA.
Professional Video revenues, which include corporate video conferencing services, continued to experience a mid-single digit decline. With the exception of maritime communications and remote field work for the oil and industries, or other such esoteric sectors, most enterprises now find an abundance of fibre-fed IP communications alternatives.
Currently, the Eutelsat fleet of satellites are carrying 6,810 TV channels, of which 1,275 channels are HD – a penetration rate of only 19%, which seems low in this era when 4K television screens are now widely available in many markets at declining prices. This implies that 1080 TV screens are already present in many the consumer homes ultimately served by Eutelsat’s partners, and yet 80% of content delivered is not yet at that resolution and while the consumer movement to 4K is well underway.
A year earlier, the HD penetration rate was about 16%, which is concerning given the pace at which the market has been evolving.
For comparison, rival Intelsat currently distributes over 5,400 video channels, including approximately 1,100 high definition channels – a penetration rate of 20%, as of 30-September-2017. Intelsat’s system utilisation rate currently is about 78% of total capacity., not including its next-gen EpiCNG platform.
On the commercial front, Eutelsat has recently announced contracts with Cyfrowy Polsat, Globecast, and SFR-Altice. New DTH contracts were also signed in several emerging broadcast markets, including Fiji and the Caribbean.
Still, the video business is relatively flat to declining. This could be due to the limited HD penetration rate, as previously noted, or simply the growing availability of fibre to all corners of the continents, as well as the more populated islands. Of course, it takes years to plan, build, launch and commission a satellite, and even longer to sign broadcast partners to make it an economically viable business. Many of Eutelsat coverage zones in EMEA are rural locations that would not be considered tier-one global cities but whose population makes for a huge global audience.
There still are growth opportunities for satellite video distribution, even at standard definition or 1080 high definition. Recently, Elettronica Industriale, a subsidiary of the Italian group Mediaset, signed a multi-year capacity agreement with Eutelsat to transition to HD. The three flagship channels of the Mediaset Group (Canale 5, Italia 1 and Rete 4) will be broadcast simultaneously in SD and HD. This is progress, but cord cutters with 4K screens will know that they can get better quality through OTT services., such as Netflix Italia.
Fixed Data, which accounts for 11% of all revenues, is also declining. In the first half, Fixed Data revenues stood at €73.4 million, down 10.6% like-for-like. Second quarter revenues stood at €36.3 million, down 9.4% on a year-on-year basis, and by 2.9% quarter-on-quarter.
Eutelsat says its data delivery business continues to face ongoing pricing pressure in all geographies.
Wherever fiber reaches, satellite will be at a disadvantage. There is really no way to combat this, and so Eutelsat will continue to see declines wherever new fibre arrives.
Government Services, which constitute 12% of all revenues, €80.7 million for the first half. The performance is stable like-for-like, as most government contracts generally are. Eutelsat reports solid levels of renewals with the US Department of Defence in the last 12 months. The company has also recently reported activity with the Colombian Ministry of Defence for capacity on the EUTELSAT 115 West B satellite.
Fixed Broadband, which now represents 6% of revenues, is in decline due to terrestrial and mobile competition. In the first half, Fixed Broadband revenues stood at €44.1 million, down 8.1%. However, Eutelsat says revenue trends are expected to improve in the second half now that the retail joint-venture with ViaSat is up and running. The first offers have been launched in Norway and Poland in December, and in Sweden and Finland in January.
Mobile Connectivity, which represents 5% of revenues, is perhaps the best opportunity going forward. While revenues in the first half only amounted to €37.1 million, they were up 20.6%.
Eutelsat has just signed a multi-year agreement to provide in-flight connectivity for UnicomAirNet (UAN), which was recently formed by China Unicom's broadband network unit and Hangmei, a Chinese Wi-Fi service and content provider for railways and buses, to provide IFC services to Chinese commercial airlines. As of 2019, UnicomAirNet will lease the remaining capacity on the High Throughput payload of EUTELSAT 172B, which is one of the company’s newest satellites having been launched in June 2017 by an Ariane 5 rocket. This satellite offer 11 spot beams, which can deliver dynamic power allocation on high-traffic air routes in the Asia Pacific region.
It should also be noted that Panasonic is previously announced customer to in-flight connectivity delivered by EUTELSAT 172B. With these two contracts in hand, EUTELSAT 172B’s HTS payload is now fully sold.
To be continued
