PARIS — Satellite fleet operator SES gave a mixed message to investors, saying 2017 revenue will be down over 2016 and strongly suggesting that a major SES Video contract renewal was completed with no increase in price.
On the SES Networks data centric side, the company said the fixed-data business remains under pressure but that new contracts are on the way even if they take longer to conclude.
SES Chief Executive Karim Michel Sabbagh, in an Oct. 27 conference call with investors, said SES is moving away from selling increasingly commoditized raw bandwidth in favor or a broader service offering to customers.
That should yield higher revenue, but it requires SES to make more up-front investment than it would have in a simpler, satellite capacity-only deal, and also takes more time structure.
“This has the highly attractive benefit of far broader services than just capacity, giving much greater customer intimacy and stickiness, with much longer-term contracts and value-based pricing,” Sabbagh said.
The flip side of that coin is that “it takes longer to negotiate and implement a contract, and they require higher up-front opex to deploy the full range of services.”
That accounts for the short-term decline in revenue, he said.
Video accounts for 68% of SES’s business. As is the case with competitor Eutelsat, the market scrutinizes each big video customer contract renewal for signs of weakness — whether it be moves to fiber or IP streaming or some other negative factor for a satellite operator.
Any move of a big broadcaster to an alternative delivery platform gets outsize attention. Telefonica Brasil recently said it would take some Pay-TV channels off satellite to move them to fiber.
“We consider this as a unique development,” Sabbagh said. “First, the pace of fiber roll-out is highly constrained as telcos are preparing to invest in terrestrial mobile networks. And the ubiquity of the regional satellite is unbeatable. This is not impacting the business in Latin America.”
For the three months ending Sept. 30, SES’s big-deal renewal was with Sky Deutschland, which agreed to re-lease, for 10 years, seven transponders at SES’s 19.2 degrees east slot.
Ferdinand Kayser, president of SES Video, said the contract renewal was done on terms favorable to SES. But Sky officials in recent months have emphasized their determination to keep the company’s capex flat, if not reduced, as infrastructure contracts renew.
Kayser said the Sky Deutschland leases on seven transponders were up for renewal in the next 12 to 18 months. SES was able to consolidate the differing renewal dates for a package deal.
“What is important to note is that, in this case, the contract terms fully reflect the value that we are bringing to the customer, Sky Deutschland,” Kayser said. “It’s a 10-year deal for seven transponders, which reaffirms Skyi’s long-term commitment to satellite.”
But asked directly whether the new 10-year contract included higher payments, Kayser said: “No, it is about the entire package of terms, which reflects the value we are bringing to them.”
SES Video continues to report growth in the number of TV channels on its fleet. As of Sept. 30, the company carried 7,743 channels, up 6% from a year earlier. Growth was broadly based: plus 4% in Europe, 3% in North America and 10% in the rest of the world.
The number of HD channels was up 7% and brought SES’s HD channel count to 33.6% of total channels as of Sept. 30.
The good news for SES going forward is that nearly two-thirds of of its TV channels have already been converted to the MPEG-4 compression standard, meaning the company will get more of the benefit of conversion to HD rather than having the benefit of a higher-bandwidth channel mitigated by the simultaneous switch to MPEG-4.
Ultra-HD channels remain few, just 24 as of Sept. 30, but that was up 41% from a year earlier.
SES Networks, which includes the former O3b Networks medium-Earth-orbit broadband constellation. SES in September announced a billion-dollar investment in seven new O3b satellites, called O3b mPower, to be built by Boeing, that is designed to permit a huge increase in the addressable market from medium-Earth orbit.
But some of this business requires that SES make up-front investments and complete full deployment of the network before revenue starts to flow.
U.S. government (mainly military) to have 13 sites by end 2017
Sabbagh’s take is that it’s worth the cost.
“You move from six months’ incubation of these opportunities to a year, possibly two years,” he said. “They are much more strategic and of much higher value in terms of secretiveness to our business.
“I can give you one concrete example,” he said. “Back in September 2016, SES Networks had deployed one site for the U.S. Department of Defense — or for the U.S. government. By the end of the year, we will be deploying a total of 13 sites, if not more.”