Category: Broadband

C-Band Alliance promises ‘significant, voluntary’ payment to US Treasury if FCC OKs auction, rejects other satellite companies’ claims

Peter Pitsch, C-Band Alliance. Credit: U.S. House of Representatives video
PARIS — Bending to pressure, the C-Band Alliance (CBA) of four satellite operators doing business in the United States agreed to donate to the U.S. Treasury an unspecified amount of the proceeds from their proposed spectrum auction.
In July 16 testimony to the U.S. House Energy subcommittee on communications and technology, CBA’s Executive Vice President for Advocacy and Government Relations, Peter Pitsch, committed to a “significant, voluntary contribution” to the U.S. general treasury.
Pitsch said the U.S. Federal Communications Commission (FCC), which the CBA says will oversee the proposed auction of 180 MHz of C-band spectrum, could make such a future payment a condition of approving the auction.
Beyond saying that CBA believes it is legal for private parties to make unsolicited donations to the U.S. Treasury, Pitsch did not disclose how CBA would calculate the proposed payment.
Industry estimates are that the auction could yield gross revenue of between $10 billion and $30 billion.
The prospect of the four operators, none of them U.S.-headquartered, reaping billions in revenue from 5G terrestrial network providers through an auction of 180 MHz of U.S.-controlled spectrum has been cited as key CBA flaw by opponents of the plan. The CBA members are Intelsat, SES, Eutelsat and Telesat.
Asked to amplify on Pitsch’s remarks, the CBA on July 18 said:
“We are willing to discuss a contribution with the appropriate government authorities at the right time. Upon acceptance of the material components of our proposal, we would address the economic aspects of a contribution. As we said before, we will not let a resolvable issue get in the way of moving forward with our proposal.”
The CBA offer removes, in principle, the taxpayer-compensation issue as a weapon used by many of its opponents since the four operators first proposed a privately managed auction as a way to cede spectrum needed for 5G rollout while protecting current satellite C-band users.
CBA has also made written commitments to owners of receive-only C-band satellite Earth stations saying the costs of relocating or modifying their facilities would be borne by the CBA.
In his testimony, Pitsch reiterated a principal CBA argument, that the proposed auction would be the quickest, easiest way to make mid-band spectrum into the hands of 5G networks. Spectrum could be cleared within 36 months of an FCC decision, with the first 60 MHz available in major markets within 18 months.
The FCC has said transaction speed has a high value in assessing proposed spectrum-clearing auction methods.
FCC Chairman Ajit Pai has said the commission is likely to decide the issue in the autumn.
Compensation for ‘prior investment and opportunity costs’
In his July 16 testimony, Pitsch said the auction’s proceeds would allow CBA members to “secure compensation for their prior investment and opportunity costs, in addition to compensation for their reconfiguration and relocation costs, based on objective and verifiable measures such as 2017 C-band satellite service revenues.”
Two of the four CBA members, Intelsat and SES, account for some 92% of the current C-band satellite business in the continental United States. Eutelsat and Telesat Canada divide the rest.
But despite their minority position, Eutelsat and Telesat are indispensable to CBA, which must present a united front to the FCC because each of the operators has rights to the entire 500 MHz of C-band spectrum now reserved for satellite services.
Should even the smallest CBA member choose to quit the alliance, the prospect of a “holdout” would immensely complicate CBA’s life.
That would suggest that CBA, which has never disclosed how it would divide the proceeds among the four members beyond a pro rata distribution based on past revenue, may need to further incentivize Telesat and Eutelsat.
Asked whether these companies’ “prior investment and opportunity costs” mean Telesat and Eutelsat will get a higher percentage share of the proceeds than their past revenue would warrant, CBA said in its July 18 response to questions:
“The CBA not disclosed that [the split among the four members]. First we need an FCC decision. Then, we need an auction. We can’t anticipate the results now. We are discussing our proposal with the FCC, and there are still many moving parts. What is certain is that under our proposal to clear 200 out of 500 MHz, 40% of the satellite capacity becomes unusable.
“We have said the investment in realizing our proposal — developing filters, testing, labs, logistics, installations, the order and launch of new satellites – all this will amount to up to $2 billion. Then there is the acquisition cost at the time when we bought the U.S. entities that were holding the US licenses — in case of SES it was [GE] Americom, for which we paid billions. As far as incentivizing small market share members is concerned, let’s be clear about who that would be: The four satellite operators servicing the U.S. with C-band are in the CBA.”
The Small Satellite Operators group rejects the C-Band Coalition’s metric — 2017 U.S. C-band revenue — in favor of a model that accounts for potential future revenue impact of the loss of spectrum rights. Under this model, operators with aging fleets would suffer less than those that have incurred more-recent capex. Credit: Small Satellite Operators FCC filing
Four other satellite operators have received licenses to operate C-band satellites in the U.S. market — ABS, Empresa Argentina, Hispasat and Embratel Star One.
Acting together under the Small Satellite Operators (SSO) in FCC filings, these companies have said that the same “opportunity costs” that CBA proposes to include in distributing the proceeds among CBA members should extend to them as well.
The Small Satellite Operators argument, made as recently as July 3 to the FCC, is that past revenue cannot be used as a measure to apportion harm. Instead, they use some of CBA’s own reasoning to argue that it’s the loss of future spectrum rights, and not past revenue, that counts.
“In no way to a satellite operator’s spectrum rights depend on the amount of its past revenue,” the SSO members said in an FCC filing. “All eight [satellite operators] will suffer the loss of spectrum access.”
The SSO said all of its members “had plans to market or were actively marketing services using C-band spectrum in the United States,” but concedes that under its argument this should not matter much.
The left side is the distribution of proceeds to satellite operators under the C-Band Coalition proposal. On the right, the Small Satellite Operators’ proposed distribution, based on each operator’s active C-band satellite capacity and the age of each satellite. Credit: Small Satellite Operators FCC filing
The SSO group wants its four members to share in the proceeds as part of what it calls a Distribution and Scoring Model. Here’s how it would work:
Gross auction proceeds would first be used to compensate Earth station operators for their costs, plus a fixed incentive to get them to act quickly.
Then the U.S. Treasury would get its cut, a fixed percentage of the remaining proceeds.
The satellite operators would take their share from the remaining portion.
One-third of the proceeds would be equally distributed among all eight satellite operators with valid U.S. FCC C-band operating licenses.
The remaining two-thirds would be allocated to the eight operators as a function of the age and number of satellites that each of them has in service. The older the satellite — the nearer it is to retirement — the less compensation would be paid.
The SSO group says 62 C-band satellites are in operation with U.S. coverage.
In a July 18 FCC filing, CBA dismissed the SSO argument, principally because its members have no C-band business in the United States and therefore nothing to lose.
Moreover, CBA said the SSO group’s satellites’ beams in many cases do not reach the continental United States, and others have extreme look angles that make services “highly impracticable.”
“It is hardly surprising that the SSOs have been unable to obtain a single U.S. customer or earn a single cent of U.S. revenue despite having held U.S. market access authorizations for years — and in one case, over a decade,” CBA said.

Maxar starts work on Ovzon-3, a novel, 500-kg GEO design for a new satellite operator

Ovzon has ordered an SSL-500 satellite platform, designed to carry up to 250 kilograms of payload for communications missions for a 500-kilogram launch mass.
PARIS — Commercial geostationary-orbit satellite orders are rare enough these days, and startup Swedish satellite operator Ovzon AB’s order with Maxar Technologies is even rarer — a 500-kilogram spacecraft for mobile, mainly government, communications to mobile terminals.
Maxar is using its Legion satellite frame, designed for Maxar’s next-generation optical imaging satellites in low Earth orbit, and borrowing elements from its venerable 1300 geostationary satellite design for the Ovzon-3 satellite.
Maxar announced July 12 that work on the satellite had begun following the latest financial raise by Ovzon. The satellite is scheduled for launch in 2021 aboard a SpaceX Falcon Heavy rocket. It will include an Ovzon-designed digital signal processor.
The use of a Falcon Heavy to launch a single 500-kilogram satellite sounds like overkill. But Ovzon has said the choice made to assure direct injection into the geostationary arc rather than at a more-common drop-off point in geostationary-transfer orbit.
Ovzon has said it has already had bookings totaling $65 million for Ovzon-3, including a three-year contract with Intelsat valued at $56 million. Ovzon is leasing capacity Intelsat’s IS-39 satellite, scheduled for launch this summer aboard a European Ariane 5 rocket.
The Ovzon financing that set in motion the Maxar contract — which was signed in December 2018 — includes a loan from Proventus Capital Partners. Ovzon completed a rights offering in January for 750 million Swedish krona ($79 million)  and a senior secured six-year loan for $60 million and a subordinated loan of 200 million krona.
The Ovzon order was a vote of confidence in Maxar, which had openly speculated whether to close or sell its telecommunications satellite business given the decline in that market. Maxar has since decided to reorganize the business.
How much of a market there is for small geostationary satellites is unclear. Several companies have expressed interest in building or buying such spacecraft to fill in capacity at a given orbital slot without having to commit $200 million or more for a standard-size geostationary satellite.
“We chose Maxar to build Ovzon 3 because they have a strong reputation of delivering world-class, reliable products backed by industry leading customer service and manufacturing agility,” Ovzon Chief Executive Magnus Rene said in a July 12 statement. “Ovzon 3 is an important first step towards fulfilling our strategy to further revolutionize mobile broadband by satellite, offering the highest bandwidth with the smallest terminals.”

Indonesia, unable to find gapfiller Ku-band HTS satellite, seeks extension of regulatory deadline

Indonesia’s PT Palapa Satelit Nusa Sejahtara and China Great Wall Industry Corp. signed the $220-million Palapan-N1 in-orbit delivery contract in May 2017, but it did not enter into force until October of that year. Credit: CCTV
PARIS — Indonesia’s May 2017 contract signing ceremony with China Great Wall Industry Corp. (CGWIC) for the Palapa-N1 Ku-band high-throughput satellite was always going to be a close call with respect to the satellite’s regulatory in-service deadline of August 2019.
Given the five-month delay between the ceremony and the $220-million contract’s effective start date on Oct. 20, 2017, that became mission impossible.  The contract calls for CGWIC to deliver Palapa-N1 into orbit by early June 2020.
Indonesia’s PT Palapa Satelit Nusa Sejahtera, the company signing the contract, knew it needed to find an in-orbit satellite using the same Ku-band HTS frequencies as those reserved for the Palapa-N1 to keep the reservation with the International Telecommunication Union (ITU).
A gapfiller satellite was necessary because even though Indonesia’s Palapa D now occupies the 113 degrees east orbital location planned for Palapa N1, it does not cover all the Ku-band capacity reserved for the new satellite and its HTS capacity.
Indonesia estimated that there are the equivalent of seven transponders of capacity that would be abandoned if it could not find a temporary replacement to add to Palapa D at the 113-degree slot.
Indonesia’s Ministry of Communication and Informatics had reserved the Palapa-N1 slot with the ITU in August 2012 under the name Palapa-C1-B. Under the standard ITU rules, that meant the frequencies reserved had to be put into use within seven years, or August 2019.
The remaining frequencies in the reservation would be secured by Palapa-D, whose anticipated retirement date is July 2020.
Indonesia in recent years has become one of the world’s most active nations in terms of satellite use and the dynamism of its domestic satellite market. With a population of 250 million spread over 17,500 islands, it is a satellite service provider’s dream come true. Multiple fleet operators are active in the country.
But finding a suitable in-orbit satellite proved difficult. “Given that only a few satellites are equipped with the frequency band of interest, it has not been possible to identify a suitable satellite,” the Indonesian ministry said in a statement to the ITU.
With the deadline fast approaching, the ministry is now asking the ITU for a deadline extension, to July 2020.
Indonesian authorities have not sought to hide behind smokescreens such as “force majeure” or alleging military use for Palapa-N1 to explain why the country will miss its deadline by nearly a year. The reason was simply “the difficulty [in finding] financing,” the ministry said.
The CGWIC contract includes an offer of financing in addition to the satellite’s construction and launch and a portion of the ground segment.
In defense of its request, the ministry is asking the ITU to take account of Indonesia’s status as a developing country.
This stands every chance of obtaining the extension. The ITU’s Resolution 80, which is now being reviewed for possible modification, deals with applying due diligence to the ITU’s Convention and says:
“[C]onditions could be specified under which extensions might be granted on an exceptional basis to developing countries when they are not able to complete the regulatory date requirements, so that sufficient time for design, construction and launch of satellite systems is made available….
“[The conditions created under the previous paragraph should be included in the Radio Regulations as provisions that would allow the Radiocommunication Bureau to grant the extension.”

Arabsat-Avanti Ka-band interference dispute still unresolved despite imminent launch of Avanti’s Hylas 3

Shown here are possible coverage areas’s for the Ka-band beam on Avanti’s Hylas 3 satellite, to launch this summer. Credit: Avanti
PARIS — Satellite fleet operators Avanti Communications of Britain and the 21-nation Arabsat organization of Saudi Arabia have so far been unable to resolve a Ka-band interference dispute that, if unresolved, threatens to undermine both companies’ business plans.
With less than a month to go before the launch of Avanti’s Hylas 3 satellite, the two operators, backed by their respective governments, continue to argue over who has rights to Ka-band transmissions from the region around 31 degrees east in geostationary orbit.
Arabsat in April launched its large Arabsat 6A satellite to 30.5 degrees east. It carries a Ka-band payload that cannot be fully exploited unless Avanti cedes ground. Arabsat said it had already “brought into use” Ka-band frequencies on the Arabsat 5A satellite, launched to 30.5 degrees east in 2010. The latest satellite is just a continuation of that business, Arabsat said.
The problem is that Britain’s Ofcom telecommunications operator and Avanti have challenged the veracity of Arabsat’s claim, saying no one anywhere has registered any Ka-band transmissions from Arabsat 5A.
When challenged on this point by Ofcom/Avanti filings at the International Telecommunication Union (ITU), Arabsat invoked the ITU’s Article 48, used to denote military services that are not subject to ITU inquiries.
ITU in March asked Avanti and Arabsat and their two governments’ telecom regulators to meet to sort out the issue: http://bit.ly/2Kxk9y5 A first meeting was held in April, and ended with no agreement.
A second meeting, mediated by the ITU’s Radiocommunication Bureau, was held June 26-27 in Geneva.
“The spirit of cooperation and goodwill that prevailed during the first meeting was also shown by both delegations during this second meeting,” the bureau said in a summary of the event.
The two fleet operators opened discussion “on the principles for identifying the service areas that are going to be served by each satellite operator. The meeting allowed both delegations to agree on such principles,” the bureau said.
The Arabsat 6A coverage. Credit: Arabsat
The two sides further agreed to review each other’s proposed broadcasts in the areas where interference is inevitable without a compromise.
Arabsat’s principle interest is in northern Africa and the Middle East, whereas Avanti’s business objective is sub-Saharan Africa.
With an optimism that may or may not reflect the chances of a negotiated compromise, the bureau said “it is feasible that a technical agreement between both satellite operators will be reached… [and] will be ratified by the respective notifying administrations.”
Arabsat and Avanti “agreed to complete these steps by 15 September 2019…. During the process, both delegations agreed to avoid the risk of mutual interference in overlapping coverage areas by informing and cooperating with each other for any planned change in service,” the bureau said.
Hylas 3 is expected to have been launched aboard a European Ariane 5 rocket, a launch currently set for late July.
Avanti’s Hylas 3 payload is riding on a satellite that the 22-nation European Space Agency (ESA) calls EDRS-C, with a laser data-relay payload to be operated by Airbus Defence and Space as a commercial business called the SpaceDataHighway.
ESA and the European Union have invested about 90 million euros ($103 million) into the EDRS project first customer will be the European Union Copernicus environmental surveillance network, for which EDRS will relay data from low-orbiting environmental satellites equipped with a similar laser communications terminal to EDRS-C and then to customers.

Ground services provider KSat, expanding in all directions, books $86 million in two new contracts

KSat President Rolf Skatteboe. Credit: KSat
PARIS — Satellite ground station operator Kongsberg Satellite Services (KSat) has booked two contracts valued at about $86 million in recent weeks from well-heeled customers at a time when KSat is looking to attract the lower-profitability NewSpace market for constellations of small satellites.
The new contracts are with NASA and Space Norway. The NASA contract is valued at $4.7 million over four years and likely a total of $14.9 million over 10 years to provide data reception services for NASA’s NiSAR and Pace satellites — “ground-station as-a-service, fully managed and with API´s for request, delivery and monitoring of the service, interfaced with existing cloud solutions,” KSat said of the NASA work.
KSat Chief Executive Rolf Skatteboe said said his company “is the only actor capable of delivering operational services in Ka-band. This service will considerably increase bandwidth, enabling NASA to transmit information faster and more reliably.”
KSat’s Svalbard station in the Arctic at 78 degrees North and its Antarctic TrollSat facility at 72 degrees South offer polar-orbiting satellites a data download capability every 45 minutes in a 90-minute orbit.
The second recent contract is with KSat’s 50% shareholder, Space Norway, to provide ground station service and satellite operations for Space Norways’ two highly elliptical orbit Arctic telecommunications satellites, which will carry payloads for the U.S. Air Force (EHF-band), the Norwegian Ministry of Defence (X-band) and mobile satellite services provider Inmarsat (Ka-band).
The Space Norway contract is valued at 608 million Norwegian kroner, or $71.2 million over 15 years. The satellites are scheduled for launch aboard a SpaceX Falcon 9 rocket in 2022. The satellites are under construction by Northrop Grumman: http://bit.ly/2YxmyeG
KSat Chief Executive Rolf Skatteboe said the Space Norway business “is of high strategic, as well as financial, importance” to KSat.
Credit: KSat
Both the NASA and Space Norway deals will require KSat to invest in new antennas —  11-meter multi mission S-, X- and Ka-band antennas at KSat’s Arctic Svalbard station and at the Punta Arenas station in southern Chile for NASA, and an expanded antenna facility at the company’s Tromso site for Space Norway.
Tromso, Norway-based KSat is also pursuing development of a maritime domain awareness service using satellite-based Automatic Identification System (AIS) sensors and synthetic aperture radar (SAR) imagery. A small Norwegian SAR satellite is scheduled for launch in 2020.
KSat’s station in Punta Arenas, Chile. Credit: KSat
Ground station operations, SAR imagery, AIS ship detection — all these fields are now full of new entrants, commercial and governmental. Whether this new activity is a net benefit to KSat or a competitive headwind remains to be seen.
The company has said developments such as Amazon’s AWS Ground Station are good for the industry and for KSat.
On the NewSpace front, KSat in 2018 introduced KSat Lite, a series of small-aperture antennas priced on a per-pass basis to appeal to startups whose business starts small and then expands with additional satellites.
The KSat Lite service provides upload and download in UHF-, S- and Ku-band, and download in Ka-band.
Skatteboe said in KSat’s 2018 annual report that initial results for the smallsat business were good, but that “It’s a sector with small margins. The company is looking to reduce its operating costs to improve margins.”
KSat has struck deals with NewSpace startups including Hawkeye 360, Iceye, Axelspace and Hiber, and has a contract with the OneWeb global broadband service for data download from the Svalbard facility.
KSat is owned 50% by Space Norway, a government-owned company, and 50% by Kongsberg Defence and Aerospace.
With the exception of 2005, KSat has posted revenue increases every year since its creation in 2002. Credit: KSat
Neither of these investors has much reason to complain about KSat’s performance over the years.
The company has increased revenue in every year but one since its start in 2002. In 2018, revenue was 844 million Norwegian kroner, or $96.7 million at Dec. 31, 2018, exchange rates, up 12% from 2017.
Operating cash flow for the year was 302 million kroner, up 11% from the previous year.
With the increased revenue came increased investment. The company increased its antenna data-download capacity by 18% and at the end of 2018 had 170 antennas at 21 locations making 37,000 contacts per month with customer satellites.
A new facility in Nuuk, Greenland, is expected to be completed this year. Full-time employee headcount increased by 15% in 2018, ending at 190 people.

Space Norway orders 2 Northrop Grumman satellites with USAF & Inmarsat as customers; SpaceX launch in 2022

Two Northrop Grumman Innovation Systems Geostar-3 satellites, just 2,000 kg at launch and with 6 kW of power, will be launched for Space Norway on a single SpaceX Falcon 9 rocket in 2022. Credit: Space Norway
PARIS — Space Norway has concluded contracts with the Norwegian Ministry of Defence, the U.S. Air Force and commercial mobile satellite communications provider Inmarsat to fly three payloads on each of two satellites to be launched into highly elliptical orbit on a single SpaceX Falcon 9 rocket in 2022.
The partners include Northrop Grumman, which is under U.S. Air Force contract to build two modified Advanced-EHF payloads and, under a separate contract, will provide the satellite platforms.
Each satellite, a Northrop Grumman Innovation Systems GeoStar-3, is expected to weigh some 2,000 kilograms at launch and to provide 6 kW of power for 15 years’ in-orbit life to provide Arctic communications.
Space Norway will be selling capacity from its X-band payload to other NATO governments and has said it’s in talks with Britain, Canada, France and Germany.
The U.S. Air Force will integrate its Space Norway EHF payloads into the AEHF satellite constellation in geostationary orbit. This is apparently the first time that an operational U.S. military payload will fly on a commercial satellite.
London-based Inmarsat will lease the Ka-band payload — both military and commercial Ka-band — to add to its Global Xpress constellation in geostationary orbit to provide Arctic coverage for maritime and aeronautical users, including commercial aircraft at the edge of the Arctic, to provide them with a higher elevation angle than is possible from geostationary-orbit spacecraft.
The government of Norway has agreed to invest some $101 million into the project now that Space Norway has confirmed, with the U.S. military and Inmarsat commitments, the financial viability of the project, which will be managed by a subsidiary, called Space Norway Heosat AS.
Kjell-Ove Orderud Skare, the program’s manager at Space Norway, said the three customers’ payloads fill up the available space on the GEOStar-3, “which is key to making this a cost-effective solution.”
“We look forward to providing the world’s first and only mobile broadband service in the Arctic region, something which has long been an important objective for the Norwegian authorities.”
The satellites’ highly ellipitcal orbit means they spend little time at the South Pole but linger for 12-plus hours each over the North Pole. Credit: Space Norway
And not just Norwegian. The U.S. and Canadian militaries for years have tried to structure a system that would serve the relatively modest, but strategically important, bandwidth requirements in the Arctic but have come up short.
It took Space Norway Heosat, created in 2018, to close the business case by assembling Norwegian and U.S. military demand, plus Inmarsat’s commercial ambition.
Even with the U.S. Air Force as a customer, the Norwegian government had withheld its promised financial support until the business case was firmly closed. That happened with the arrival of Inmarsat.
The confirmation of the Space Norway Heosat program could remove one sales argument used by backers of proposed constellations of low-orbiting broadband satellites, almost all of which view government business as a key customer set.
Inmarsat designed the Ka-band payload on the Space Norway satellites using some of the same specifications used for the next-generation Inmarsat 7,8 and 9 Global Xpress spacecraft recently contracted from Airbus Defence and Space.
But the contracting of the Ka-band payload, also to be built by Northrop Grumman, was left to Space Norway. Inmarsat will be leasing all the Ka-band capacity over the satellites’ 15-year operational lives.
The payloads in the highly elliptical orbit, which allows them to linger over the Arctic, will have some of the same software-defined flexibility as the Airbus-built satellites.
Inmarsat Chief Technology Officer Peter Hadinger said each Space Norway Ka-band payload will have substantially less capacity than the three Airbus satellites. What matters, he said, is to provide coverage whose importance to governments and to some commercial airlines and maritime fleet operators goes well beyond the modest bandwidth requirements of the region.
“It’s hard for any one entity to cover the business case on its own,” Hadinger said of the need for Space Norway to assemble all three of its customers.
“But once somebody’s done it, the market for somebody to do another one is pretty small,” Hadinger said. “I expect that you will see countries that had been contemplating how to do this start to cut their own deals with each of the three parties for some amount of the capacity.”
Hadinger said the several years it took Space Norway to close its business case is a lesson that the LEO broadband constellations would do well to learn.
“Going into the mobility market, there is a take-up rate that is not instantaneous. This has been true of every generation of mobile equipment we’ve deployed. It takes a long time,” Hadinger said.
“Especially for a government user it takes a long time. They say: ‘OK, once you’ve deployed, come and take do us. Then we’ll test it. After we’ve done our op/eval testing, we’ll put in a budget request.’ Then that goes to Congress, and a few years later you get the money. They they have to put it out for a bid, and select a contractor. Then you go through the process of getting it installed, which may take a couple of years.
“We have designed this not for Singapore, unlike a LEO constellation whose satellites need to be designed for peak demand. We’ve designed it specifically for Arctic coverage. That’s what it’s sized for and what the gateways are for.”

Newtec CEO on being purchased by ST Engineering: Many satcom companies should do something similar

Newtec CEO Thomas Van den Driessche. Credit: Newtec
SINGAPORE — In 2018, satellite ground terminal manufacturer Newtec, after several years of double-digit growth, decided it needed more heft given the changes in the business.
The initial idea was that a private-equity investor would fill the bill. Instead, Newtec agreed to its purchase by ST Engineering of Singapore.
ST Engineering’s purchase of Newtec, for $286 million — 2.7 times revenue and 14.6 times EBITDA: http://bit.ly/2KPiN0P — is expected to close by the end of this year and will make Newtec a sister company of its onetime competitor, VT iDirect, which has been part of ST Engineering since 2005.
Newtec Chief Executive Thomas Van den Driessche said much of the commercial satellite communications sector — including satellite operators and service providers — needs a good dose of M&A. Newtec, he said, is showing the way.
Is fitting inside ST Engineering alongside iDirect going to be a challenge?
I don’t think so. Today we are in the merging control period, which we expect to take 4-5 months, with the acquisition before European and U.S. regulators, among others. The U.S. one typically takes the longest. We expect the close to be late this year. We are very restricted as to what we can discuss with iDirect because of anti-trust concerns.
What about ST?
It’s less restrictive because we have the confidentiality of the NDA. We can discuss strategy.
Newtec has been successful. What argues in favor of being acquired by ST Engineering?
We’ve gone through a five-year period with a growth CAGR of around 18%. It’s obvious we can continue organic growth the way we have been doing for another two years.
However, the challenges and opportunities that are beyond 2021 are huge. Designing and building ground segment for constellations is a lot of engineering and deployment work and intense capex. They’re big projects. We had encountered similar periods, like around 2013 when we were beginning our multi-service VSAT operations and we wanted to go into multi-service HTS satellites, the non-pure consumer-designed ones.
Credit: ST Engineering
And we were confronted with the fact that these full-platform GEO HTS projects were maybe 10, 20 or 30 million dollars of ground segment costs to start.
When you’re a 50-million-euro company and you want to sign a 30 million dollar deal, that causes some problems. We moved on, but still, when you have 120 million in revenue and you want to sign a 120 million deal, that also causes some problems.
So even though our organic growth was going great and looked like it would continue to 2021, we wanted to be prepared for what comes beyond that point. We came to the conclusion that we needed non-organic growth next to the organic growth.
We started the process to find private equity to do a buy and build strategy, but we soon concluded that first of all we needed a pretty big private equity investor to acquire a company.
A little debt too, maybe?
That’s the risk. But we also came to the conclusion that it’s a very risky and time-consuming effort that may not bring what you want.We want to have enough critical mass to tackle big programs when they arrive. Acquiring other companies and growing them and integrating them may not get to that critical mass in time.
Did your exercise presume LEO broadband constellations in the next few years?
It presumed an enormous amount of potential that would cause a lot of work. So it could presume a LEO program with a $100 million ground segment. We were very proactive at 2018 and early 2019, saying we need to do something which is more than organic growth. This growth curve that we have is going so nice and linear, but it’s not going to last forever. So while we didn’t have to do anything immediately, we were going to have to change the strategy and increase our critical mass.
There are many things going on at the same time — virtualization and cloud services, all these vertical markets you need to cater to, IFC, maritime, government, 5G, cellular backhaul — together with new platforms for constellations.
We had to be big enough to cope with all of them or we weren’t going to play.
So you set out for private equity, and ended with ST Engineering. Did they find you or did you find them?
There were a lot of strategic players that found out we were on the market for private equity, which meant that our shareholders were at least willing to give a portion of their shares. We got contacted by a lot of strategic players.
Our view is that by merging Newtec with the satellite communication activities of ST, we immediately have the right size to tackle the things we want to tackle.
Credit: ST Engineering
Is your strategy going to require ST investment?
It’s more about critical mass and capabilities. We have 400 people now.  Combine the number of activities with them and you have 1,000 very capable engineers in the satellite industry. Even without new investment, your capabilities are just higher. What you need to do is not necessarily more, but you simply have more people.
The Yahsat broadband agreement with Hughes Network Systems in the Middle East has now been extended to Brazil. Is that going to affect your Brazilian work with Yahsat?
A: We presume so. It’s also a JV, which will take some time before it actually comes into effect. In the meantime, of course we have our activities with Yahsat that are going quite well. The ramp-up of terminals being deployed for them in Brazil is good.
Q: It sounded like Hughes needed Yahsat’s presence in the Middle East, and Yahsat needed Hughes in Brazil.
Hughes needs the Yahsat satellite as well because they don’t cover the whole of Brazil on their own. I can only say that our cooperation with Yahsat is good in Brazil. The ramp-up is going to lead to quite a big installed base by the time the JV is approved.
So there’s an incentive not to replace all that hardware.
Well, we’re not going to change it out, that’s for sure!
What happens at that point?
It’s up to Yahsat to make those decisions. I talked to Masood [Yahsat CEO Masood M. Sharif Mahmood] and it sounded like a good idea in terms of business logic. If they think it’s really good for their business, then it’s a good thing.
The financial stresses of the in-flight-connectivity providers have eased a bit. Here too you think consolidation would be a good thing?
There are maybe 700 service providers in different markets, geographically and by market segment, and at least 26 satellite operators — probably more, but 26 that have more than national footprints.
The industry likes diversity. You heard SES Chief Executive Steve Collar say there are seven satellite industry associations, which he said is six too many.
I’m president of one of them. I wonder if SSPI counts as one of those…. The point is if you think about the future and how you position yourself, there’s probably more of these people in the ecosystem that should make a move.
You’re including IFC, maritime service, hardware providers?
Everybody, including satellite operators. I see good things happening, for example the investment in LeoSat by traditional satellite operators to make sure there’s some kind of play. I like the idea.
I wasn’t opposed when Intelsat wanted to merge with OneWeb, which by itself wasn’t a silly thought. It didn’t work out, but the idea had merit.
The idea that somebody with 55 traditional satellites and some very nice HTS satellites, the Epic class, would merge with a MEO/LEO constellation is not a bad idea at all.
There are some 20 LEO constellations, include IoT and other narrowband applications, that are being designed.
There must be other people that think that they need to do something. We were doing fine and still thinking we needed to do something to move us to the next level.
You see Newtec as a natural fit inside the broader ST business?
Yes. There’s more than one or two companies. ST activities include satellite communications as well. We really want to combine the strengths of these companies.
And in your management team, nobody’s unhappy with this?
Nobody’s unhappy.
Le’s return to in-flight connectivity and consolidation. Ku-band provider Panasonic Avionics struck an agreement with Inmarsat’s Ka-band Global Xpress service. Do you understand it?
I like Panasonic, they’re one of my biggest customers. I understood the Inmarsat agreement it when they explained it to me. Airlines want to have a certain coverage and they don’t care whether it’s Ku or Ka. There is a complementary nature to the two networks, which makes sense.
But then you’d need complementary on the aircraft with Ku- and Ka-band terminals, no?
Yes, but it’s not necessarily only about single aircraft, it’s sometimes about an airline, which may have regional aircraft that fly here, and international routes that fly there. The international may fly in Ku and the regional in Ka. If somebody wants to be on the front as the interface with the airlines, somebody has the service people for installations, and the other party may have a global network which is complementary. There are multiple aspects to this which kind of makes sense. Of course the proof of the pudding is in the eating.
It’s not that Panasonic has concluded that Ka-band is the future, or that Inmarsat thinks Ku-band will be around a long time?
No, I don’t think so. Some things you would think are obvious because it’s Ka-band are not necessarily the case.
An operator recently said it was having trouble finding a Ka-band slot.
Yes, and the Ka-band on this particular Inmarsat constellation does not have have a huge amount of throughput.
Panasonic is doing quite well in terms of their backlog and in terms of their vision on how many planes they have and how many they are outfitting. They’re moving fast.
Panasonic Avionics’s IFC market share over the last five years hasn’t changed much?
They have a dominant market share. With their capabilities and our platform and scalability, their deployment is higher now. It’s not just how many contracts you have, it’s also about how fast you commission an airplane onto a network. You need a lot of ground personnel to do it and they have the capabilities and also the scalability needed.
Whether it’s line-fit and put it into service or its a retrofit, they have all the capabilities and they have the network to support that roll-out speed. They don’t have a blocking factor, where the others definitely do.
I thought the blocking factor was the airlines not wanting to take their craft out of service.
That’s one factor, but Panasonic is the most capable company today in fulfilling their backlog, which is one aspect of market share — how fast are you signing up new contracts. The other is how fast can you put them in service. And Panasonic is the most capable one today to put them in service, more capable than any of the others we talked about.
Where are you with Eutelsat?
We see Eutelsat as a strategic partner and we’d like to move forward with them on everything from their media side, their fixed data side, their maritime and IFC ambitions and if possible also the broadband side too.
Is the ground segment still open on Eutelsat’s Konnect HTS and VHTS broadband programs?
The broadband is still to be defined. They do have Hughes as a mission partner, although not necessarily for the VHTS. And they’ve had them from before because they are using Yahsat capacity as well with HNS.
China’s aero IFC and maritime markets seem to be opening a bit.
You have to have really good partnerships in China to get the deals done. A lot of them are in some kind of joint venture or partnership. We see a lot of activities on the maritime side, a lot of potential, with more than 100,000 fishing ships.
The ecosystem in China is quite interesting. They have online markets, Alibaba style, for fresh fish. One of the initiatives is to connect the shipping codes to the exchange, to make sure the supply and demand is synchronized.
Would they agree to go outside China for that service?
To buy technology, yes. They have enough satellite capacity.
Does having ST Engineering along help you in China?
I think it does. We’re a European company by nature, and we’re a global player. iDirect is a U.S.-based global player. Then we’ve got a Singapore home. So we’ve got three regional HQs, which has helped our global presence. ST technology, and the relationship they have with other regions, is fantastic.
ST has wonderful technology. They’re in technology for harbors, port authorities, airfields. That’s obviously going to help.
Do you believe in the LEO broadband business model?
I don’t think there’s a good business case to start a LEO in the short term to do consumer broadband. But there’s good reason for just about every other market.
What’s one market that cries out for a LEO broadband solution?
The maritime industry can really use LEO capabilities, that’s clear, given that the LEOs cover the oceans pretty well.
Couldn’t a GEO operator can put up a satellite over the oceans if there was demand?
Yes, but on the other side if there’s a LEO constellation there and the economy of scale is such that it provides terabits over the ocean at a certain cost, and maritime and aircraft have the right equipment on board to connect to them, which is likely in the future, then it looks good.
There’s still some work to do on the antenna side.
If you look today at the antennas being supplied to maritime activities, they’re really trying to be forward compatible. That’s a word we’ll hear more. There are modems as well, they’re software defined and trying to be forward compatible with both GEOs and LEOs. That’s new.
Anything on the antennas side in the last year struck you?
I see a lot of discreet efforts, I don’t see anybody coming out, really.

AsiaSat owners CITIC and Carlyle Group, citing illiquid share price, want to privatize the company

The low liquidity of AsiaSat’s shares, the cost of a listing on the Hong Kong Stock Exchange, and the public-disclosure requirements of a listed company are reasons cited by CITIC Ltd. and The Carlyle Group in seeking to privatize the company. Credit: Google Finance
PARIS — The principal owners of satellite fleet operator AsiaSat proposed to de-list the company from the Hong Kong Stock Exchange and offered a 31.46% premium to minority shareholders in an all-cash transaction valued at 1.053 billion Hong Kong dollars, or $134.8 million.
Bowenvale Ltd., a British Virgin Islands-based 50-50 joint venture between Chinese government-owned CITIC Ltd. and The Carlyle Group, owns 74.43% of AsiaSat. They said the low liquidity of AsiaSat stock has made it difficult for shareholders to exit and also complicated efforts to issue new equity at a time when the business model of telecommunications satellite operators is under stress.
The transaction awaits approval by a three-member board of independent directors who will be advised by Anglo Chinese Corporate Finance.
AsiaSat suspended trading in its shares on June 21, saying it planned an announcement that was made July 28.
But the company apparently had been preparing the move for the better part of a year.
U.S. State Department approval received last October
Because some of AsiaSat’s satellites use U.S. components and its shareholders included the Chinese government, the U.S. State Department has a say in the assets’ ownership. Bowenvale said it sought and received State Department approval of the transaction last Oct. 31.
Bowenvale said that given the delay in preparing the deal, it “updated” the State Department on April 25 that the transaction would in fact occur and considers that “this authorization has been obtained.”
Bowenvale offered minority shareholders 10.22 Hong Kong dollars per share, which represents a 23.4% premium over the share price before trading was suspended on June 21, a 34.6% premium over the average price in the five days preceding the suspension and a 70.96% premium over the average share price since the beginning of the year.
Bowenvale said there are 100.02 million shares held by the minority shareholders, plus 30 million vested shares held by company management. At 10.22 per share, the transaction is valued at 1.053 billion Hong Kong dollars, or $134.8 million at July 1 exchange rates.
There will be no new proposal now that the transaction has been announced, Bowenvale said. It expects to secure external debt financing for the deal.
The fixed satellite services business in Asia has long been perhaps the most competed among the world’s regional satellite markets, with multiple national satellite operators owning satellites whose coverage is regional. That has put downward pressure on transponder-lease prices for years.
More recently, the same technology-driven phenomena that have rocked satellite telecommunications markets in the Americas and Europe — high-throughput satellites allowing much lower cost-per-megabit prices, the changing habits of satellite operators’ core DTH audience — have further roiled the Asian satellite scene.
It is unclear whether either Carlyle or CITIC wishes to exit the joint venture or reduce its holdings, but the Bowenvale joint venture dates from well before the recent market upheaval and it would not be surprising if Carlyle especially were to seek an exit.
A consolidation among Asian operators has long been viewed, by the operators themselves, as one way to stabilizing pricing in the region.
That notwithstanding, Bowenvale said it plans no immediate changes to the AsiaSat business once the privatization is completed.
“The company remains cautiously optimistic about revenue prospects for 2019 and beyond for the core business,” Bowenvale and AsiaSat said in their joint announcement to shareholders.
“However, in order to better adapt to a rapidly changing business environment and to position itself for potential areas of growth, such as regional demand for network connectivity including maritime and remote communications, the company may be required to consider changes to corporate strategy and/or business model to effectively compete in the current marketplace and generate future growth. Such potential changes will have inherent execution risk and may also create volatility to the company’s financial and earnings profile. The company may also be required to further invest in adapting its business model, which may require further debt or equity funding to be raised.”
The financial cost of maintaining the stock market listing, and the disclosure requirements as part of the listing, also argue in favor of a de-listing, Bowenvale and AsiaSat said.

Canadian pension funds, already in Telesat LEO, now invested in SpaceX Starlink, too

Olivia Steedman, senior managing director, Teachers’ Innovation Platform. Credit: TIP
PARIS — The Ontario Teachers’ Pension Plan investment in SpaceX means two Canadian pension funds are now invested in competing global satellite-broadband projects.
The Ontario teachers’ fund joins the Public Sector Pension Investment Board, PSP Investments, which invested heavily in satellite fleet operator Telesat Canada a decade ago, when Telesat was a staid, predictable-cash-flow, fixed satellite services operator.
Telesat is now preparing for a low-orbiting broadband constellation mainly addressing corporate and government markets, not the mass consumer sector. Telesat LEO has been roughly estimated to cost around $4 billion. Telesat is expected to select a prime contractor later this year.
Neither PSP nor Telesat’s other shareholder, Loral Space and Communications of New York, has indicated whether they would invest in Telesat LEO beyond their support for Telesat’s strategy of using existing cash flows and bank financing to pay for the project.
Telesat and SpaceX’s Starlink constellations have very different architectures, capex requirements and markets. Starlink is looking at business and consumers as customers using several thousand satellites, with a capex of $10 billion or more.
But they are both risky projects that promise thrills and chills for investors.
SpaceX officials in the past have said an investment in the company is an investment in the general treasury and is not earmarked for one or another of the company’s many projects — launch vehicles, Starlink or Mars exploration.
That appears to be OK with the Ontario pension plan, which issued a June 27 statement saying it was investing in SpaceX for both launch and satellite services.
“SpaceX is the world’s leading private space launch provider, and we are excited to work with the company in the next phase of its growth as it rolls out its Starlink satellite network,” said Olivia Steedman, senior managing director for the Ontario funds Teachers’ Innovation Platform (TIP), which spearheaded the investment.
“Our investment in SpaceX fits well within the TIP investment strategy of capitalizing on significant global opportunities in new businesses and sectors that are emerging as a result of unprecedented technological change.”
Sixty Starlink demonstration satellites are shown here stacked in preparation for their May 24 launch. Credit: SpaceX
The fund said in a statement: “SpaceX was identified as a compelling investment opportunity for TIP due to its proven track record of technology disruption in the launch space and significant future growth potential in the satellite broadband market. TIP focuses on late-stage venture capital and growth equity investments in companies that use technology to disrupt incumbents and create new sectors.”
The fund did not disclose the amount of its investment in SpaceX. As of Dec. 31, it reported 191 billion Canadian dollars ($122 billion), which is manages on behalf of 327,000 active and retired Ontario teachers.

Rignet cuts its losses, agrees to pay Inmarsat $50.75 million to settle GX contract dispute

Rignet shares have fallen sharply as a result of the Inmarsat litigation. Credit: Google Finance
LONDON — Maritime terrestrial and connectivity provider Rignet Inc., after spending millions of dollars defending itself against contract-violation charges by satellite fleet operator Inmarsat, has reached a settlement that will not reduce Inmarsat’s previous award but will put an end to Rignet’s spending on the case.
Houston-based Rignet said it spent $2.1 million in the three months ending March 31 to prepare counterclaims against Inmarsat’s earlier victory at the International Center for Dispute Resolution.
Under the settlement, Rignet will pay Inmarsat $45 million immediately, $5 million by Sept. 30 and a final $750,000 by Sept. 30, 2020.
Rignet had told shareholders in May that it was ready to continue to defend its case as part of what was called a Phase 2 hearing scheduled for late June. The company had established, in December 2018, a non-cash litigation reserve of $50.6 million.
More recently, Rignet restructured part of its bank financing to free up cash in anticipation of the award.
“Settling this matter reduces risk for our shareholders, customers, and employees,” Rignet Chief Executive Steven E. Pickett said in a June 26 statement. “We were able avoid additional costs related to the arbitration and to secure value for our counterclaims which offsets Inmarsat’s additional claims, as well as their claims for interest and attorneys’ fees. Now we can return 100% of our focus to our ongoing business operations.”
The dispute related to a take-or-pay contract Rignet signed with Inmarsat for up to $65 million in services from London-based Inmarsat’s Global Xpress (GX) Ka-band broadband service: http://bit.ly/2VzPSD3
Rignet cancelled the agreement, saying it had not yet entered into force. Inmarsat said the contract had in fact begun. The arbitration tribunal agreed.
Rignet, whose business is sensitive to the movements of the energy sector and the active-rig count, reported $57.5 million in revenue for the three months ending March 31, down 4.5% from the previous quarter. Adjusted EBITDA was $8.4 million, down 20%.
Pickett expressed frustration that the GX arbitration weighed more heavily than was justified in investors’ minds.
“When we announced the [Inmarsat] award back in December, the equity dropped,” Pickett said during a May 7 conference call with investors. “Six weeks ago, when we disclosed our reserve for essentially the same amount as the award, the shares took another tumble and have languished.”
Pickett said the drop in share prices have resulted in a company valuation equivalent to one year’s revenue in just the Managed Communications Services business, with no accounting for the higher-value cyber security and machine learning segments, which are growing  faster; and the LTE infrastructure deployed in the Gulf of Mexico.
“Needless to say, both the board and the management are disappointed in the stock performance,” Pickett said.

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