PARIS — Satellite fleet operator Eutelsat on May 11 said a 4.1% decline in its video business for the three months ending March 31 included one-time items that will not repeat and that HD adoption is outpacing the effects of MPEG-4 compression.
Eutelsat also said U.S. military demand has stabilized after recent sharp declines, raising hope that the price cuts the Pentagon had been able to secure with its commercial providers may be easing.
The company said the most recent round of U.S. Defense Department satellite contract renewals resulted in renewal of 85% of the capacity it previously had, plus an additional lease of 108 MHz of capacity.
U.S. military demand still dropping, but less dramatically
Eutelsat Deputy Chief Executive Michel Azibert told a conference call with investors that the U.S. Defense Department’s total volume renewal was slightly less than 90% of the previously leased capacity, with an average price about 5% below previous levels.
“Prices are still decreasing, but they are decreasing less,” Azibert said. Compared to recent quarters, this constituted good news for Eutelsat, he said. Government services revenue was 45 million euros ($48.3 million at March 31 exchange rates) for the three months ending March 31, down 3% from a year ago. It represented 12% of the company’s total quarterly revenue.
Like all satellite television capacity providers, Eutelsat’s TV business is negotiating the countervailing forces of increased adoption of MPEG-4 compression, which means less satellite bandwidth needed per program; and the uptake of HD programming, which needs more capacity.
Azibert said 61% of Eutelsat’s total fleet capacity has now converted to MPEG-4. On its core Hot Bird direct-to-home fleet over Europe, the figure is 51.7%.
Of the 6,366 TV channels carried on Eutelsat satellites — an increase of 3.2% in channel count from a year ago — HD now accounts for 16.6% of the channels. It was 13% a year ago, Chief Financial Officer Sandrine Teran said.
Azibert said the effect of adding an HD channel has a greater positive effect on bandwidth utilization than the negative effect of a channel moving from MPEG-2 to the higher MPEG-4 compression standard.
MPEG-4 not as bad as HD is good
“When you move one channel into HD, the capacity you bring on is significantly higher than what you lose when you move from MPEG-2 to MPEG-4. It’s significant, like three times higher,” he said. “And the speed of HD migration now is higher than the speed of MPEG-4 migration.”
Paris-based Eutelsat has been broadening its product base to include consumer broadband, aeronautical broadband and government services. It has leased capacity to EchoStar Corp.’s Hughes division for consumer broadband in Latin America, and to Panasonic Avionics for aeronautical connectivity in Asia.
“Government” business used to mean the U.S. Defense Department, but Eutelsat and other fleet operators are reporting a slight uptick in government use among civil government users inside and outside the United States.
Eutelsat won a 15-year contract, valued at 102 million euros with the European Commission to place a GPS augmentation payload on the Eutelsat 5 West B satellite.
The company has created a joint venture with ViaSat Inc. for the deployment of European consumer broadband and is expected to decide by December whether to extend the agreement to the next-generation ViaSat-3 satellite. Eutelsat would finance half the ViaSat-3 construction and launch costs in that event.
Eutelsat has stopped providing subscriber figures for its European consumer broadband business, provided by the Ka-Sat satellite, preferring to bundle this revenue with the company’s other fixed-broadband business such as the lease of capacity to Hughes in Latin America.
For this business, revenue was up 36% in the quarter, to 24 million euros, on the strength of the entry into service of the Eutelsat 65 West A satellite leased by Hughes.
Despite these diversification, Eutelsat still depends on the video market for 64% of its revenue. Quarterly revenue from video was down 4.8% in the quarter, to 228 million euros.
Teran said Eutelsat is sticking with its earlier forecast of about a 2 percent decline in total revenue for the fiscal year ending June 30, with stable revenue the following year and modest growth the year after that.