NSR’s Satellite Industry Financial Analysis, 8th Edition (SIFA8), released today, finds most operators demonstrated higher fill rates in 2017, though aggregate operator revenues increased by just 0.5%. Increasing demand in mobility, broadband and backhaul has enabled operators to post higher contractual volumes towards both FSS and HTS fleets in a supply-heavy market; however, this is balanced by declining capacity pricing and shorter contract durations – resulting in decreased backlog, at a CAGR of -4% over last 5 years.
On top of 7-10% growth in fill rates, operators have been able to post significant growth in data verticals, with customers moving from legacy FSS to new HTS fleets. Although, with a declining video revenue base and a low EBITDA service-oriented business, operators continuously look further to build growth through downstream distribution partnerships as demonstrated by Eutelsat with Orange for Konnect VHTS European broadband and by Sky Perfect JSAT and APT Mobile Satcom for mobility.
“These downstream strategy pivots have given rise to two distinct patterns in the satcom industry. The first doubles down on connectivity in broadband to home, ship and airplane via HTS and a service business to execute growth; while the opposite one focuses on higher FSS revenues per unit CAPEX per leased TPE to increase fill rates and improve margins – in order to strengthen regional incumbency,” notes Gagan Agrawal, NSR Senior Analyst and report author. “While regional operators may choose either strategy, global operators like Eutelsat, SES, and Telesat look to execute both in a bid to secure long term revenue growth in mobility and backhaul, with Eutelsat, Hughes and ViaSat slated to expand globally in broadband post 2018-19”, adds Agrawal.
Moving forward, with the interim CAPEX cycle ending, satellite operators will look to increase Free Cash Flow (FCF) in the short-to-medium term at manageable debt levels, with focus around maximizing revenues per unit CAPEX in both FSS and HTS fleets. Further, age extension of satellites has stretched the FSS replenishment cycle, giving operators more time to pivot strategy based on regional supply and demand. With satcom Service Providers continuing to post double-digit growth at negative FCF and extremely thin EBITDA, and with operators deleveraging in the short term, expansion through vertical consolidation becomes likely post 2019 in captive markets.