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Satellite CEOs Stuck With Partnerships as Politics Slow M&A

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Satellite CEOs Stuck With Partnerships
Political considerations are a challenge for SES, Telesat, Eutelsat Communications SA and closely-held Intelsat SA, the biggest operators, because they need to expand in new markets as a glut of satellite launches will add record capacity in the next years. Source: Space Systems/Loral/Intelsat SA via Bloomberg

Sept. 16 (Bloomberg) -- Satellite operators SES SA and Telesat Holdings Inc., trying to defend some of the technology industry’s highest profit margins, may need to stick to partnerships to expand in fast-growing emerging markets as acquisitions are often blocked by politics.

“For emerging-market countries, owning a satellite operator is often an issue of ambition and prestige,” Telesat Chief Executive Officer Daniel Goldberg said in an interview at an industry conference in Paris. “These, coupled with security and regulatory issues, are an impediment and a barrier to consolidation.”

SES, Telesat, Eutelsat Communications SA and closely-held Intelsat SA, the biggest operators, are scouring new markets as a glut of satellite launches adds record capacity in the next years. With acquisitions difficult, partnerships and the sharing of satellites are the best ways to get access, says Liberum Capital analyst Mark James.

“We may see more partnerships in the future as it gives them access to orbital positions they otherwise can’t access, together with local relationships,” James said. “For the local providers, it gives them access to the scale that SES, Eutelsat and others bring.”

Emerging markets accounted for 90 percent of the net increase in capacity used in the past two years as more and more consumers in countries such as Brazil and India gained access to TV and Web services, Euroconsult said. Smaller regional operators also captured more than 60 percent of global satellite revenue growth last year, compared with 40 percent in 2007.

‘Very Aggressive’

While partnerships may be needed, they won’t be easy to achieve for the established western rivals as the economic boom bolsters confidence among local operators, according to Euroconsult CEO Pacome Revillon.

Companies such as Malaysia’s Measat Global Bhd and Egyptian Satellites, also known as Nilesat, are “very aggressive in competing with global players and have very ambitious expansion plans,” Revillon said in an interview.

SES, Telesat, Eutelsat and Intelsat had a combined market share of about 66 percent of the fixed-satellite service market in 2010, according to Euroconsult. The rest of the market is fragmented and Asia is especially “crowded” with about 20 active operators, the researcher said.

Measat, controlled by Malaysian billionaire T. Ananda Krishnan, has seen sales rise from $35 million in 2005 to almost $100 million this year and “we are looking at ways to continue this growth over the next five years,” CEO Paul Brown-Kenyon said in an interview. He might cooperate with one of the top global operators or team up with a regional company to add capacity, he said.

Profit Margins

“I don’t believe there is any one model for cooperation,” Brown-Kenyon said. “We are considering a number of different approaches, with internal projects and working with either regional or global operators.”

Partnerships with emerging-market operators are important for the big players as they’re going after growth and growth is coming from emerging markets,” Sarah Simon, an analyst at Berenberg Bank. Partnering will help “in maintaining above-average revenue growth rates and contributing to their very high margins.”

SES’s profit margin, based on earnings before interest, taxes, depreciation and amortization, reached 74.7 percent in 2010, while Eutelsat had a margin of 79.3 percent in the 12 months through June. That compares with 32 percent for Vodafone Group Plc, the world’s biggest mobile-phone operator, and 29.8 percent for Apple Inc., the world’s largest technology company, according to Bloomberg data.

Safe Haven

The high profitability and stable business made satellite operators safe investment targets as the sovereign debt crisis battered Europe and global markets.

Eutelsat has risen 10 percent this year and SES has gained 0.5 percent, compared with a 15 percent drop in the Bloomberg European Communications Index, which includes 50 companies ranging from phone operators such as Telefonica SA to TV company British Sky Broadcasting Group Plc and network makers including Ericsson AB.

Today, SES rose 0.2 percent to 17.91 euros in Paris while Eutelsat gained 0.5 percent to 30.24 euros.

Sharing Satellites

SES, based in Luxembourg and the world’s largest publicly-traded satellite operator, is currently doubling its headcount in emerging markets to 120 people, CEO Romain Bausch said.

“Governments of some emerging markets often consider satellites as a sovereign right and that’s why you have few M&A deals and more partnerships,” Bausch in an interview. “So we’re in discussion with some Asian operators for a partnership.”

SES on Sept. 7 said it entered a partnership with Russian satellite operator Gazprom Space System to provide additional capacity to serve the Russian market.

Under a multi-year agreement, SES has relocated its Astra 1F satellite previously located at 51 degrees east to the orbital location 55 degrees east. Gazprom Space System will use 16 transponders on the satellite to provide services for Western Russia until its own Yamal-402 satellite, which is currently under construction and scheduled for launch in November 2012, becomes operational.

Eutelsat, based in Paris, has partnerships with Nilesat, the Russian Satellite Communications Company, or RSCC, and Qatar’s Supreme Council of Information and Communication Technology. Eutelsat CEO Michel de Rosen said satellite operators should be able to reach their growth targets in emerging markets with the help of local partners as long as they manage these arrangements carefully.

“The trend to form partnerships will continue as resources are not infinite and a larger satellite shared between two parties can in some cases be a better option than two smaller ones,” de Rosen said in an interview. “But partnerships are like marriage, they have some advantages but also the complexities of sharing.”

To contact the reporter on this story: Chiara Remondini in Milan at

To contact the editor responsible for this story: Kenneth Wong at

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