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SES points to Facebook deal as example of redefined enterprise market strategy

Karim Michel Sabbagh President & CEO, SES. Credit: SpaceNews/Kate Patterson.

WASHINGTON — Global satellite fleet operator SES expects to turn around its enterprise connectivity business by focusing on more deals like the one it signed with Facebook last year.

SES’s enterprise division — the largest part of the Luxembourg company’s business after broadcast —  provides services such as satellite connectivity for internet service providers, backhaul of cellular data, and link to remote sites. Sales were down last year, falling 13 percent to 252 million euros ($267 million).

The disappointing performance was a blemish on an otherwise solid 2016 for SES. Total revenue rose 2.7 percent to $2.188 billion — dead even with the full-year revenue that rival Intelsat reported Feb. 28. SES’s net profit surpassed $1 billion, a nearly 57-percent increase the company largely owes to last year’s acquisition of O3b, which operates a constellation of communications satellites in medium Earth orbit.

As SES seeks to grow its enterprise business, which fell to 12 percent of total revenue, down from 17 percent two years before, SES President and CEO Karim Sabbagh plans to hone the company’s focus on “Tier 1” customers like Facebook and Telkom Indonesia that need point-to-multipoint connectivity, often with customized network solutions. At the same time, SES would shift away from “Tier 2” market, where customers such as banks and retailers desire wholesale or point-to-point connectivity but have proven less profitable.

“We were able to demonstrate the new positioning during the course of 2016, delivering managed services in some of the most challenging geographies and with some of the most demanding clients. Facebook is a case and point where we’ve developed an end-to-end network, terrestrial, over our satellite network, and all the ancillary including the management of the data centers,” Sabbagh said during a Feb. 24 earnings call with investors. “That will continue to be our focus going forward.”

Facebook contracted with SES in April 2016 to provide internet connectivity in sub-Saharan Africa for Express Wifi — a Facebook service aimed at bringing internet access to underserved regions through local service providers and entrepreneurs. So far, Express Wifi is only active in India, but Facebook is preparing other regions, notably Africa, for the service. SES is supplying capacity on three satellites — Astra-2G, -3B and -4A — for Express Wifi, along with a customized service that uses a VSAT ground segment architecture from Gilat Satellite Networks.

Facebook friends

SES’s role in bringing Wi-Fi to Africa with Facebook was arguably overshadowed by the hype surrounding Facebook’s first satellite investment in capacity on Spacecom’s Amos-6 satellite through a contract with Eutelsat. When that satellite perished in a SpaceX Falcon 9 explosion in September, Facebook Founder and CEO Mark Zuckerberg said he was “deeply disappointed” at the loss, and referenced Facebook’s investment in “other technologies like Aquila,” a drone connectivity project, but gave no mention of his company’s capacity on three other satellites.

Sabbagh said SES helped Facebook deploy a terrestrial network along with providing space segment resources to ensure last mile connections. SES also helped define service-level agreements, efforts Sabbagh said are bearing fruit. “That service has been ramping up over the period when we started serving them,” he said.

SES has been pruning its enterprise business for the past year and a half to make it a more profitable pursuit. Sabbagh said the company has reshaped this business by gradually disengaging the Tier 2 market, and focusing specifically on either serving enterprises that have deployed large regional networks, or working very selectively with integrators with whom SES can “have a seat at the table, working with them and their clients, and making sure that we understand how we are enabling their business.”

SES CFO Padraig McCarthy said enterprise revenues improved during the second half of 2016.

O3b

Sabbagh also pointed to O3b as an accelerator for all the company’s data services — enterprise, mobility and government. He said SES intends to design future spacecraft for data-centric services with O3b in a way that couldn’t be done prior to fully acquiring the operator last year with its constellation of 12 Ka-band high throughput satellites.

“[A] promising synergy that we are seeing now is our ability to think through the deployment of the future fleet, particularly the fleet that will serve the data-centric market in a manner where, as opposed to replacing existing GEO programs, we can sort of move straight into a MEO generation,” he said.

O3b has eight more satellites on order from Thales Alenia Space to increase its constellation size to 20 by 2018.

SES revenues for government, which also represents about 12 percent of revenues, were down 6.2 percent, not factoring in currency variations year-over-year to $256 million. Mobility on the other hand, grew 95.4 percent to $141.5 million. Growth in aeronautical and maritime connectivity have boosted mobility to 6 percent of total revenue as they became lucrative to SES over the past two to three years.

Broadcast video, representing 68 percent of SES revenues for 2016, grew 4.7 percent to $1.48 billion. Sabbagh said the growth of high definition television in emerging markets as well as Europe is driving revenues, as HD broadcasts require more capacity than standard definition. Ultra-HD, which requires even more capacity, is also starting to take root.

Sabbagh said nearly one in three channels on SES satellites today are in HD, and the operator now counts 21 commercial ultra-HD channels on its fleet. Echoing comments Eutelsat CEO Rodolphe Belmer made in early February, Sabbagh dismissed the notion that British broadcaster Sky’s promotion of a satellite-free Over-The-Top (OTT) television was a bad omen for satellite television. Sky’s decision to roll out an OTT product in areas not reached by satellite broadcasts is “complementary,” he said, and supports SES “thesis of a hybrid environment.” Sabbagh said his confidence in satellite broadcasts rests in the efficiency of satellite as the most cost effective method of delivering content with a sustained quality.

SES’s customer backlog grew by 10 percent, reaching a new high of 8.1 billion euro, or $8.6 billion.

SpaceNews.com

Source: Space News

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SES points to Facebook deal as example of redefined enterprise market strategy

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