Free Trial

Global Telecoms Business Copying and distributing are prohibited without permission of the publisher
Email a friend
  • Please enter a maximum of 5 recipients. Use ; to separate more than one email address.


Interview: Giuliano Berretta of Eutelsat

29 August 2008

Eutelsat is offering telecoms operators a chance to deliver ADSL-quality broadband to those far-away places beyond the reach of conventional technology. Trials are underway, but a new satellite is under construction, CEO Giuliano Berretta tells Alan Burkitt-Gray

Giuliano Berretta: we are looking for external growth opportunities, and have financing in place for acquisitions

Satellite operator Eutelsat is developing a solution for telecoms operators that want to deliver ADSL-standard broadband services to remote places. A new high-powered satellite is due for launch in 2010 - but before then the Paris-based company is running a trial system with Swisscom.
If you have a terminal - $450 now, $270 soon - "you can have your connection to the high-speed internet on top of the Matterhorn" with your laptop, says Eutelsat's CEO Giuliano Berretta.
Maximum bandwidth is two megabits now but 10 megabits when the new satellite is launched and a new generation of user terminal is on the market.
And Eutelsat's US partner in the project, ViaSat, is planning its own version of the same satellite, to cover North America, says Berretta.
Eutelsat will not be selling broadband services direct to the consumer. It will follow its traditional role, as a wholesale supplier to telecoms operators, which will package Eutelsat's bandwidth into services for customers.
Swisscom became the first operator to sign up to deliver the service - called Tooway - in January 2008.
"Swisscom won the Swiss government tender for universal high speed internet service in Switzerland," says Berretta. "They tested our system and selected it as the best one available on the market for this service. Swisscom estimates their initial needs to up to 10,000 terminals."
Eutelsat is also talking to Swisscom's Italian broadband subsidiary, Fastweb, about extending the service south of the Alps, he says. And in June 2008 the company announced a Tooway partnership with a German company, TelDaFax.
But that's for the pilot, borrowing capacity on an existing satellite. The real explosion in capacity will come after 2010, with the launch of the new KA-SAT satellite, now in development by EADS Astrium in Toulouse.
"The KA-SAT satellite was ordered in December 2007 and it will be delivered at the end of 2010," says Berretta. "It takes longer than other satellites to build because it is very complex."
It will have a total capacity of over 70 gigabits a second, he adds, "which is almost twice that of the total fleet of Eutelsat today". He puts the cost per bit at one eighth the current price, so it will allow Eutelsat's retail partners "to offer services at consumer appealing prices", he says.
Users will need to have a dish pointing at the satellite - 67 centimetres in diameter, similar to those used for digital TV today - and a terminal, about the size of a book, to connect into their computer. To keep costs down, and to avoid the need to develop new technology, Eutelsat and ViaSat have chosen to use the existing DOCSIS standard used by cable operators to deliver high-speed internet.
"We can talk about different types of speeds, but technically the new terminal will be capable of supporting up to 90 megabits a second for downloads and up to 10 megabits a second for uploads," says Berretta.
"The standard service for internet access will be offered at speeds of 8-10 megabits for consumer applications." The price and speed with be "comparable to ADSL2", he emphasises.


Middle East service

The satellite will have so much capacity because its antennas, 36,000 kilometres up in space, will be beamed in 80 different spots across Europe. Spots will be about 250 kilometres in diameter, and they will overlap, so the satellite will be able to cover not just most of Europe - areas in the far north get tricky, as satellites are too low on the horizon - but also North Africa as far west as Morocco and the Middle East.
Where will the main market be? Hard to say at this stage, but it's likely that much of the enthusiasm will come from those countries where there's good quality broadband in urban areas.
If town-dwellers get several megs all the time, it will be easier to market to their friends and family who are stuck with dial-up because they live at the end of a 20 kilometre track. But that will be a task for the telecoms operators that take the service from Eutelsat and develop it into retail packages.
The system will be controlled from eight base stations on the ground, spread out across Europe to enable re-use of frequencies, with two back-ups, linked by what Berretta calls "a motorway in fibre" which will be supplied by wholesale operators.
The name, by the way, simply borrows from satellite engineers' name for the 20 gigahertz band it will operate on: the Ka band, above the Ku band that digital TV satellites use today.
Eutelsat plans to put KA-SAT alongside its existing Hotbird range of TV satellites, so that end users will need just one dish - with some clever electronics - to feed video channels to their TV set and broadband to their PC.
Berretta believes that some of Eutelsat's existing customers - the satellite TV broadcasters - will be interested in delivering pay-per-view IPTV over the broadband service. "Maybe pay TV companies will be interested," he says. "We are discussing with the major players. And we are discussing with the telcos about IPTV service and high-speed internet in areas where they cannot reach."
IPTV over ADSL does not always work well in areas remote from the telco's exchange, where bandwidth drops to below a usable level, he points out. "So they need an alternative system. We think that we are in front of a revolution."
ViaSat already has experience of satellite broadband in the US, where it provides the decoder technology for WildBlue Communications, a company - part-owned by Eutelsat's rival, Washington-based Intelsat - which specialises in delivering internet services in remote regions.
Berretta makes much of the importance of ViaSat in this project. "We are working together and will be the only ones using their technology in Europe, but the cooperation could go further," he says. "We are more than customers. Our collaboration with ViaSat is a win-win situation."
ViaSat's own satellite, ViaSat 1, is due for launch in 2011, he adds. It is "very much on the same concept as ours. Their satellite will cover North America - the same model of satellite." Eutelsat wants to give ViaSat "more support in becoming a satellite operator in their chosen market in North America", he adds.


Ambitions

The relationship is particularly intriguing because it hints at ambitions beyond Europe for Eutelsat - in a world where satellite operators are consolidating faster than incumbent telcos. Eutelsat's great European rival, Luxembourg-based SES, or Société Européenne des Satellites, has hoovered up AsiaSat, Americom and New Skies to become a global operator.
Eutelsat is still essentially European, and Berretta is particularly sensitive about this as, he says, he stopped the company from being sold to one of its rivals several years ago: he didn't say to which.
Berretta is the man who in a decade has taken Eutelsat from being an international treaty organisation to a private company - a process that Intelsat and London-based Inmarsat went through at a similar time.
"I was director general of Eutelsat as an international organisation from the beginning of 1999. It took two years and a half to privatize with a lot of challenges to address to transform the international organisation into a private company," he says.
"It was also important for it to be an efficient private company - because we were already considering the next logical step which was to quote the company. So the first thing to do was to get into a satisfactory financial situation."
As an international organisation it was doing very well, but it was under-capitalised at that time, he recalls. "The states were behind guaranteeing the debt, but the signatories were not putting money into the organisation. Just to give an extreme example, in 1993 we had a debt-equity ratio of sixteen to one, which is extremely leveraged even by the standards of leveraged buy-outs today."
But nations do not guarantee European Investment Bank loans to private companies, so he had "to bring the debt-equity ratio to a level one to one at the moment of privatisation".
He achieved it just too late: in the aftermath of 9/11, the financial markets were no longer interested. Other satellite operators, and other telcos, had similar challenges. The company dropped its plans for a stock exchange listing.


Disappearing

"It was also a moment when the company risked disappearing in the hands of a competitor," he says. "Shareholders asked me to sell the company, although this was not how I saw the future of Eutelsat, particularly considering our character as a European company with a strong track record of developing technology and services."
So, in parallel with many other satellite operators, private equity was the answer. After a bit of shuffling of shareholders, Eutelsat became owned by five private equity shareholders: Eurazeo, Cinven, Goldman Sachs, TPG - Texas Pacific Group - and Spectrum from Boston.
Almost three years ago the company was able to revive its plans for listing: 42% was floated on the Paris exchange in December 2005. "We came out of the first day at €11.80 - and despite all the difficulties in the market at the moment we are still about €18," says Berretta. "We have outperformed the CAC 40 and the general industry, even in front of our main competitors."
Since 2006 the rest has been owned by Abertis, a Spanish infrastructure group which bought a 31.5% stake from four of the previous shareholders, and French financial group La Caisse des Dépôts, which bought Eurazeo's stake. "We went from private equity to a new era of stability and continued effort into developing the company," he says.
And now? Berretta has his eye on a role in the consolidation of the satellite business.
"Of course, we are looking for external growth opportunities, and have financing in place for acquisitions," he says.
"So far our main focus has been on organic growth, building strong video neighbourhoods by positioning multiple satellites at a single position, and opening orbital positions to address new markets and expand our geographic reach beyond our core markets of Europe, North Africa and the Middle East."


Investment

The company is spending a lot on new satellites: "We now have seven satellites in construction and due for launch by end 2010," he says. "This is one of the largest investment programmes by a satellite operator and will enable us to renew and expand capacity as well as increase in-orbit security."
But, he adds, "we could increase our debt because we have the possibility to draw finance under very good conditions". Debt is currently €2.4 billion and the debt to EBITDA ratio is 3.48, "within what we currently consider to be the right range for our company", he adds. "When we went to the stock exchange our debt was much higher. We were leveraged by over 5.5 times EBITDA, and by quoting the company we could reduce it."
One of the attractive features about satellite operators - Matt Desch, CEO of Iridium, make a similar remark to GTB in his interview in the May-June 2008 issue - is that they are cash generators. "Our net cash flow from operating activities for the last financial year is up by 7.4% to €566.6 million, representing more than 64.5% of revenues," says Berretta.
So is he looking around? Berretta is too careful to say, but one long-term possibility could be Intelsat itself, which in 2006 bought US rival PanAmSat for $3.2 billion.
Intelsat is also private-equity owned - after similar challenges to Eutelsat's earlier in the decade - but in 2007 a London-based private equity firm, BC Partners, bought a 76% stake from a consortium including Apax Partners and Apollo Management for around $5 billion. The consortium held onto the remaining 24%.
"Buying Intelsat was typically the type of transaction that private equity companies might consider," says Berretta. "Considering the high debt raised and high leverage of the company, the latest results show that BC Partners and the management are doing well." He's clearly watching carefully.


Mobile satellite

KA-SAT is not the only high-tech project that Eutelsat is involved in. The company has set up a joint venture, called Solaris, with rival company SES to deliver TV to mobile devices.
This will use a set of frequencies close to those used by 3G networks, hopefully to minimise the cost of adding satellite reception to the handsets. The satellite is another of those in production - this one due for launch in 2009.
SES and Eutelsat has appointed Steve Maine to run Solaris, with a headquarters in Dublin. Maine is one of the true pioneers of satellite TV: over two decades ago, as a senior executive at what was then British Telecom International, he was one of a group of visionaries who spotted the opportunity for using medium-power satellites to deliver a wide range of channels directly to viewers' homes.
Within a couple of years Rupert Murdoch had developed a small investment in an experimental service into Sky Television, and investors started SES to launch a pan-European satellite which broadcast a remarkable payload for the time of 16 TV channels.
Today, says Maine, "we are standing on the verge of a whole new market for mobile satellite services".
For Eutelsat, which still earns 75% of its revenue from TV distribution - to cable operators and direct to viewers - it is a natural extension of its business. "The company is a 50-50 joint venture," says Berretta.
"Television is still an extremely important driver for satellites, and for us in particular. Over the last financial year our revenues from video applications increased by 10% and our channel count went up by almost 20% to 3,123 channels, of which almost 50 channels are already HDTV channels."
Satellite, he says, "is the most economic way to transmit television". Once they're launched the satellites, after all, are powered purely from solar energy in space.
"In Italy there are over seven million satellite dishes," reaching one third of households. "In Poland there are over four million dishes and in the UK there are even more. The transmission cost per channel, per user, is a few cents a year, making satellite TV the most cost-efficient broadcasting solution."
Next year, he'll be hoping that sceptics about mobile TV will be proved wrong. GTB




Have your say
  • All comments are subject to editorial review.
    All fields are compulsory.



Advertisements