Eutelsat's Belmer: Video Still Holds Key to Successful Future
In a major exclusive from Via Satellite, Belmer shares his vision for Eutelsat and where it will go next.
The satellite industry is clearly at an inflection point as operators seek new growth opportunities in areas such as the Internet of Things (IOT) and connected transportation. For a new CEO to the satellite industry it is quite a daunting challenge. What is interesting about Eutelsat’s relatively new CEO Rodolphe Belmer is that he has a very strong background in broadcasting and video. And while he will aim to use this knowledge to benefit Eutelsat in video — still the operator’s major revenue driver — he will also aim to diversify the company's revenue streams, both geographically and in different verticals.
VIA SATELLITE: How important are other orbits for major global FSS operators? Will Eutelsat have to move beyond GEO at some point given that all your peers are looking to be in either LEO or MEO?
Belmer: We have always been clear over the last two years that we take a pragmatic approach to other orbits. Our philosophy is not based around GEO. We do believe that only GEO can generate profitable solutions and compelling customer propositions in video and broadband connectivity activities that are at the heart of Eutelsat’s business. The day we conclude that LEO constellations could be a source of profitable business, we will look at this option. But right now, we don’t think we can get the types of returns we are looking for from LEO constellations and this disciplined financial view is what guides our strategy and potential investment decisions.
VIA SATELLITE: What is Eutelsat’s broadband and data strategy?
Belmer: Video and broadband (both fixed and mobile) are the two main pillars of our business, representing respectively 64 percent and 12 percent of revenues. Data and government services each account for 12 percent of revenues. We want to invest in segments where we can have long-term sustainable differentiation and that help us maintain or develop value for our customers, and generate a strong profit for our shareholders. Going forward, we will invest mainly in broadband and video as opposed to the fixed data sector where we see no growth. In the government sector, we think the Eutelsat Quantum satellite will bring distinct differentiation.
VIA SATELLITE: Given there are so many other constellations being launched targeting these markets, is there a danger that Eutelsat could be left behind here?
Belmer: On the broadband side, I don’t think so. We are a frontrunner in broadband and have been clear that it is a major part of our return to growth strategy. Our industry is in a state of transition, and most of this is about bringing telecoms services to people who don’t have access to them and reducing this digital divide. We have a partnership with ViaSat, a distinctive strategy and are convinced that broadband to homes beyond terrestrial reach will be a significant growth driver.
VIA SATELLITE: You seemed to be more optimistic about video in Paris than others on the panel. What gives you the belief that this is still a great growth market?
Belmer: We are very confident that video will continue to be extremely resilient and show slight growth over the next decade. We know this segment very well and have carried out in-depth surveys that reinforce our view on the market over the next 10 years. Even though non-linear services such as Over-the-Top (OTT) and on-demand consumption are growing, satellite technology will be absolutely crucial for bringing massive quantities of video content to users beyond fiber networks, including on-demand. Satellite is really the only technology that can reach 100 percent of the population, and it is this reach advantage that will continue to make it an economically distinctive solution for broadcasters and pay-TV operators for the foreseeable future, including OTT players.
VIA SATELLITE: At World Satellite Business Week, you spoke of the importance of video for Eutelsat. The operator currently derives around 65 percent of its revenues from video. Do you expect this figure to change over the next five years?
Belmer: While we expect slight growth in video over the next few years, we expect broadband to grow much more significantly. The main growth drivers for video will be the acceleration of HD services across our global footprint, the arrival of Ultra-HD and new non-linear services that will enable satellite to provide the best user experience.
VIA SATELLITE: We all know about connected aircraft and connected ships, but will the connected car market also live up to the hype?
Belmer: The answer is yes. The question is when. Our view is that when cars start to become autonomous, passengers will expect connectivity in order to be able to work and connectivity to be entertained. This market will depend a lot on the deployment of autonomous cars. There are some bold ambitions around this, but we think the mass adoption of these technologies won’t happen until after 2025. But this is good news for our industry, because right now I don’t think our infrastructure could support demand. There is also a second element, which I consider a pain point of our industry, and that is the technology on the antenna side. I still don’t think we have made enough progress in this area. We need to make sure we have terminals adapted to the mass market if we’re establishing our industry as a complement to terrestrial networks to bring telecoms services where telcos can’t go. This is not the case today. Terminals are still too complicated and too costly and they consume too much power. All of this needs to be improved and streamlined. We need better price points for better mass market adoption.
VIA SATELLITE: What technology innovation do you think could make the most difference to your business going forward?
Belmer: Antennas are important, but we are also still pushing for technology breakthroughs in space segment. We want satellites to be more productive, i.e. to have a lower price per megabit, particularly for targeting mass market broadband to reduce the digital divide. This won’t happen if we don’t make significant progress in space and on the ground on the terminal front.
VIA SATELLITE: Outside of video, which markets do you think offer your operator the most potential going forward?
Belmer: In the long-term, growth potential will also come in areas like IoT and 5G. The IoT market is still nascent but, holds growth potential for our industry in the long-term. The biggest growth for us will come from bringing high-speed Internet services which are comparable to terrestrial services to areas where telcos can’t or won’t go. This is our mantra. To achieve our ambitions we need improved antennas, more productive satellites and to work much less in silos. We need to find ways to develop new partnerships with telcos. This will be absolutely crucial for the future of the satellite.
VIA SATELLITE: How are you going to invest in new satellites to cater for this demand?
Belmer: We have a two-pronged investment strategy when it comes to new satellites. Firstly, when we look at video, as it is a mature application, our main driver is to maximize the efficiency. We want to make sure we can increase cash flow generation in this segment. When we look at broadband, we want to invest in satellites which are able to bring much more capacity per country, per user and at a price that is competitive versus telco prices. This doesn’t mean we are in competition with them. We want to act as a complement to them.
VIA SATELLITE: What would you highlight is the single biggest competitive threat to Eutelsat’s business over the next few years?
Belmer: The biggest competitive threat to our business is the indirect pressure we are seeing from fiber deployment. In the past, we used to consider competition as something between rival satellite operators. But today, this is less and less the case as the strategies of major satellite operators are going in very different directions. In the video segment, competition between satellite operators is less severe as the model is built on the strength of the installed base of consumer antennas pointing to specific video hot spots.
VIA SATELLITE: You have been the CEO of Eutelsat for a little while now. What do you see as your biggest challenge to make the company successful?
Belmer: Our strategy is built on two main drivers. First, we want to bring much more financial discipline to our industry. It needs to improve on its level of return on capital employed and its levels of profitability. We, and the financial community, have been obsessed in the past by our EBITDA margins. However, all that makes sense financially is happening below the EBITDA margin line. When you look at the cashflow of our industry in recent years and the return on capital employed, I would say it has been really disappointing. Most of our competitors are cashflow negative today. They don’t cover their dividend with their cashflow. This is a concern, because our ability to produce positive cashflow is a good way to predict how we can invest in new technologies going forward and in the growth of our industry. Strong cashflow also helps reinforce the confidence of our shareholders.
Second, we need to focus on where growth is and how we can get out of a “commodity” vicious cycle and invest in areas where we have long-term value. We are sure we will find significant low-hanging growth in our industry over the next few years, but we need to focus on areas where we can build long-term differentiation and protect our long-term value, such as broadband.
VIA SATELLITE: What impact do you think Artificial Intelligence (AI) can and will have on the satellite industry?
Belmer: In my view, the impact of AI will not be significant in the short-term. Looking at the bigger picture, many applications are going from digital into the cloud. Digital intelligence is about bringing more algorithms, bandwidth consumption for objects and computers in the cloud, meaning that more bandwidth will be needed. We’re going to a world of software, a world of algorithms. All of this will consume more bandwidth.
VIA SATELLITE: Finally, has the satellite industry reached a key inflection point in your mind? Will we see more change in the next 10 years than we saw in the previous 30?
Belmer: We are at the very beginning of the inflection point. Our view is that our industry will experience stable top line revenue growth over the next few years. Significant growth will come back after 2020. But, over the next ten years, we will see dramatic changes in the structure of our industry and in the benefits we can bring to users. I am convinced that our industry will be more crucial in the telecoms space and will be increasingly instrumental in bringing telecoms services where telcos are absent. This is the transition we are involved in. We are moving from satellite based applications like video to being much more included in the telecoms eco-system. This transition will create lots of growth for our industry if we can overcome the challenges to getting there.