Interview: Stephen Spengler, Chief Executive, Intelsat, and intended CEO, Intelsat-OneWeb

March 5, 2017

 
 
Credit: Intelsat

Credit: Intelsat

 

What is the timing of the transaction with bondholders?

We plan to launch the debt exchanges within a couple of weeks, in March. There is a 90-day period from the time of the announcement, on the 28th, to get the exchanges done.

So by the end of May.

Correct.

Are there any indications of initial bondholder reaction?

I don’t want to get too much into that. Our stakeholders are trying to understand what we announced. That is what their focus is, but we have not launched an offering memorandum yet.

Have you done a deep dive into OneWeb on capex, technology, regulatory issues, market size, etc?

We made an investment in OneWeb in 2015. As a shareholder and a partner we started working with OneWeb on a number of different fronts. That included initial development of an approach to customers and how we would match up LEO and GEO services. We’ve discussed these concepts with our larger customers.

We announced that we included OneWeb services in our deal with Gogo last year. So we have already begun or process in terms of go-to-market with products and services. We also began the process of developing, with OneWeb, interoperable terminal solutions so we could go to the marketplace, once OneWeb was operational, with a single terminal solution for customers using LEO and GEO. That’s part of our investment.

So we have had close engagement with them and visibility on where they are with the program— where the successes are and where the challenges are. As with any startup there are going to be challenges. They have a pretty solid management oversight around that and they are making good progress.

We’re comfortable with all that. You mentioned the challenges, but we look at these as opportunities. We see it as a huge opportunity to architect the future network between LEO and GEO, and how we determine where to deploy our capex and how to build each of the constellations to prepare for the services of the future.

The user terminal? Yes, there is a lot of work to be done on the terminal, but also opportunities to do further integration and take it a step further than where we were before.

There is a lot going on, it’s a startup and something we think we can support and add value to and assist in a lot of different areas.

We also think the startup energy and mindset will be helpful to us as a company. The new company will have a miix of cultures that I think will be very beneficial for us.

So you’re all going to be drinking Mojitos?

I’m not sure about that! But as the largest operator with a very big customer base, we have a lot of legacy services. It’s not easy to change overnight and say we’re going to start going this way.

We don’t have a greenfield where we can start development from scratch. We have been making steps in that direction though: Our investment in OneWeb and what we’ve done with Kymeta and Phasor and a few other things. These are indications of what we are doing to drive forward. Not to mention what we’ve done with Intelsat Epic. We still feel that is an incredibly innovative system and that experience is going to be valuable.

The customer makeup is good and customer reaction is good. So we are evolving.

Intelsat has customer sets all over the world. Regulatory access is going to be one of the biggest challenges for OneWeb. Are there synergies here with Intelsat?

I think it will certainly help. It is one of those organizational synergies that we think will come into play. We have relationships with regulators all over the world. We have landing rights everywhere. Where there are challenges — like China — there are challenges for everybody.

Added on top of that is the customer set and partners in-counrty that we have in all these places that are supportive of our bringing in new services and technologies.

It’s still a big task. Regulatory approval on a global basis is a big task but we do think the combination of our team here and the relations we have with our customers and partners will be beneficial.

You’ll have your work cut out for you in India and China.

There is an education process to it. There always is. But here’s the bottom line. Regulators want to enable fundamental connectivity and the growth of Internet traffic and telecommunications. We think we bring to them a pretty powerful story.

We have a very good business in India with television distribution, with a good set of customers and a good position in the marketplace. The Ku-band s a challenge. ISRO is pretty well-defined in terms of what they want to do.

At some point the CEO of SoftBank is going to ask your assessment of OneWeb’s capex requirements, estimated at about $3.5 billion. Have those conversations occurred or are they still to come?

Those conversations have occurred, we can assume, between SoftBank and OneWeb. SoftBank made a billion-dollar commitment to OneWeb. It’s reasonable to assume that those conversations have happened. They are supportive of the plan OneWeb has to build out for development.

Should we conclude that Intelsat now believes in consumer broadband as a market as a business opportunity?

I have never disputed the fact that there is a market and a demand. But Intelsat has not focused on that market, because we have quite a few business-to-business markets in other places where our focused is better served.

But for consumer connectivity and consumer services there are multiple solutions. There are multiple ways to serve consumer connectivity. It may also mean to provide connections to companies and a more cost efffective, efficient way to serve that customer through an extension of the mobile network. I

In many parts of the world it will be more cost-effective to serve that customer over an extended network when that consumer terminal is not a computer but a cheap smartphone to give basic data connectivity. We have some of that with the vision of OneWeb in connecting small cells.

The question is whether you can do good — connect the poor — and do well as a new business. OneWeb has struggled with this in the past.

Doing good is very important and it can be done in a sustainable commercial way. The equation has not yet been quite defined to whether that can really work. It’s not just installing a subsidized terminal. It’s putting in something that can be revenue generating and self-supporting in a community. Then you have a long-term solution in supporting people and populations.

On your GEO business. Bandwidth prices in Asia, Africa and Latin America seem to have stabilized after big drops, especially in Asia and Africa. is it too early to call a floor?

It’s hard to call a floor. But I have mentioned increasing stability in the last three earnings calls. We have seen stabilization in those markets and hopefully it maintains itself.

Your contract for global services with theU.S. Navy, which you lost to Inmarsat, ends in March after an extension. Are we likely to see another extension?

We already got an extension of nearly a year, so we don't think there’s necessarily going to be another one.

 

Peter B. de Selding