The satellite industry has seen significant consolidation this year. In the Middle East, the most eye-catching deal was Yahsat acquiring Thuraya — adding an interesting piece to the puzzle. We decide to take a closer look behind one of the biggest deals of the year, thus far.
Yahsat’s deal to acquire Thuraya is further evidence of satellite operators with a Geostationary Orbit (GEO) heritage looking to other bands to provide services. Yahsat Chief Executive Officer (CEO) Masood Mahmood sat down Via Satellite to talk about the intricacies of this deal, and why it made strategic sense for Yahsat.
Mahmood says that Yahsat is seeing a strong demand for data services, but highly mobile solutions would give more resilience in the long-term. “You can talk about fiber and terrestrial taking on mobility in the future, but that could be 10 to 15 years down the road in Africa,” he says. “But, highly reliable, compact mobile solutions will have a place, particularly when you look at Internet of Things (IOT), smart metering, etc.”
Yahsat has carved out a strong business when serving the United Arab Emirates (UAE) government and the armed forces. He admits that the government solutions need highly reliable mobile connections and communications. “Yahsat’s mission is to try and find how we can serve our customers better. We realized that by adding this to our portfolio, this makes us more attractive,” he adds.
However, while the deal makes sense on a strategic level, Thuraya has not been without its issues over the last few years, with a high turnover in management, as well as a lack of coherence over its long-term strategy. In short, the company was struggling, and desperately needed new life. Mahmood does not criticize previous management teams, but says that Thuraya was, perhaps, unlucky in Asia. He says there could have been other things that impacted the business in terms of the diverse and large number of shareholders they had. With Thuraya now being majority owned by a single shareholder, he believes this will give the business another boost. “Granted we are a Fixed Satellite Service (FSS) operator, but the lines are getting blurred and we have had mobility products through our government business. While it is not entirely the same, I agree with you that there was some sort of barrier preventing Thuraya frp, realizing its potential. I believe it was less internal, and more market and shareholder composition related,” he adds.
Capital Expenditure
Now that Thuraya has the financial power of Yahsat and Mubadala on board, how will this impact its procurement strategy for new satellites? Thuraya will look to replace its Thuraya-2 and Thuraya-3 satellites. But, it may not go beyond that at this stage. “We believe there is enough business for us to try and tackle those regions with our existing and potential replacement satellites,” Mahmood says. “It is not an immediate priority to think about a global constellation at this point in time, but the priority now is to think about making the existing regions work and giving them the assets they require to provide a reliable service, and the boost they need to make them work, even if that requires a replacement satellite.”
In the immediate future, it will be a 50/50 split between Yahsat and Thuraya, in terms of capital expenditure. Thanks to its recent Joint Venture (JV) with Hughes, Yahsat will need to bring capacity to the market over the next few years, so this will require Yahsat to invest in new satellites. “Our focus will be to maintain the current services we have with Thuraya customers. Thuraya has a full leadership team in place. They have a new board. They are forming a strategy. They want to maintain the current customer base and ensure service continuity. They have an aging satellite, so this may well mean investing in a new satellite soon,” he says.
Thuraya's Perspective
Ali Al Hashemi is the new CEO of Thuraya and the executive who will be responsible for turning around the fortunes of the company. With new satellites on the horizon, Al Hashemi says the biggest challenge he faces is time, as he looks to implement these capital expenditure plans. “ We are having to work quickly so we can have a complete Request for Proposal (RFP), in terms of how we are going to update the system for the next 20 years. I want the answers today. But, unfortunately it will take time to develop all of these answers. We have to do strong technical due diligence to do all the enhancements and infrastructure updates.”
He cited an example of where the company has to work smart in order to provide for customers. “Let’s say we develop a tactical radio for the military — the due diligence that goes into that includes looking into encryption methods, how many channels, how it interacts, and what data centers to use. The sooner we finish this business model, the sooner we can sell other tactical radios to other entities in the region. The same example with Internet of Things (IOT) sensors, search and rescue sensors, etc. The faster we can come up with a solution, the easier it will be to turn it around. This is the major challenge.”
In terms of his perspective on the RFIs, he adds, “We have already issued RFIs for two new programs — Thuraya-4 and Thuraya-5 as we seek to replace the two current satellites (Thuraya-2 and Thuraya-3). We aim to strengthen our business in Asia with the right partnerships, we will be creating a lot of value through the dual capabilities. We will invest a lot in the military infrastructure and I will take this investment to the commercial world. We will have the next IOT and Machine-to-Machine (M2M) sensors for sure. We will have things in the region that others will not be able to offer easily. We will be regionally focused in terms of manpower and equipment.”
Becoming an IOT Company
The company will also look to play more in the IOT space. While it will always lean heavily towards government contracts, the company will look to transform itself more into an IOT company, catering to different verticals and market segments. The company wants to move closer to the infrastructure provider model. “Changing the end user for a device and airtime is one thing, but what about a charitable entity that wants to send shipments? It is likely to be valuable to know your shipment whereabouts, so we are likely to charge for that infrastructure to monitor that equipment. So, we could charge a monthly subscription fee, meaning we’d be an infrastructure provider,” he says.
Al Hashemi has been working in Yahsat government solutions for the last five years. He says that it is key for Thuraya to go to the military in the UAE (as well as others), and provide them with a product that caters to their needs. “For example, they could tell me they need an online line of sight system with anti-jamming capabilities, etc. I design the system and then build the infrastructure and start to charging them according to the infrastructure. It is a tailored solution. What we will have inside Thuraya is the traditional business, as well as tailored and infrastructure solutions, which will look like an IOT solution. That is the enhancement we are bringing to Thuraya.”
With Yahsat fully on board, I ask Al Hashemi whether the Thuraya brand will ultimately survive. His answer is emphatic. He says, “We have to maintain the Thuraya brand. Masood and I have spoken about this a lot. We believe that the Thuraya brand is very strong globally. It has been in operation for 20 years. I am very proud of this brand. I remember as a child when my father took me on trips to the desert, we used a Thuraya phone. We are emotionally related to it as Emiratis. We are very proud of this brand.”
Yahsat in LEO?
For Yahsat, being able to offer different types of solutions, particularly to government customers is important, but what will it do outside of Geostationary Orbit (GEO) over the next few years? Mahmood says Non-Geostationary Orbit (NGSO) will bring some benefits. “We are conscious that these programs are a major undertaking, especially when we talk about Low Earth Orbit (LEO) constellations. A Medium Earth Orbit (MEO) constellation is also not a small undertaking. A company like Yahsat would have to think twice about whether to invest in NGSO. We know that the rhetoric is very different to what it was 2-3 years ago, so we cannot ignore it,” he says.
So, is LEO in Yahsat’s future? Mahmood says Yahsat will have to keep its eyes and ears open. “If we ever decide to do it, we will have to do it with a partner because of the size of investment. The other thing today is we are building resilience today by having deep distribution capabilities on the ground, so regardless of which infrastructure we use, we have capabilities on the ground. If you ask me specifically whether I see NGSO in our future, while I cannot exclude it, I can’t say we are working on anything specific or concrete today,” he says.
Dealflow
For Yahsat, it has been transformative 2018. The deal with Thuraya has been an undoubted highpoint, but there have been other significant developments in the Yahsat story this year. In September, Yahsat and Hughes entered into a joint venture to provide commercial Ka-band satellite broadband services across Africa, the Middle East, and southwest Asia. Hughes will purchase a minority interest in the venture. The new venture will continue to provide unserved and underserved communities with reliable, high-speed Internet services operating over Yahsat's Al Yah 2 (AY2) and Al Yah 3 (AY3) Ka-band satellites, and leveraging the capabilities of the Hughes Jupiter System, designed and optimized for large-scale High-Throughput Satellites (HTS).
I ask Mahmood if there are any other deals in the pipeline. He laughs and says it is now about execution after these two significant deals. He says, “I think execution of these new seeds will get us more missions, more projects, and into new areas. With Thuraya, we need to work on the next mission, and with Hughes we also need to work on the next wave of capacity and ground segment capabilities we bring to market. We have established a leading position in Africa and the Middle East when it comes to broadband. This is the time to really anchor our presence in these markets. I would not say it is a mission accomplished just yet. We have just acquired Thuraya. It is about execution now. It is not trivial execution. This will keep us all busy over the next three years. After that, we will have to assess of how far we have progressed and what next opportunity makes sense for us.”
More Partnerships?
Yahsat is in a good place right now. The company is growing and its recent deals could project to a strong future. Keeping its momentum will be critical going forward. Mahmood also hints at further partnerships for the company. “People were sceptical when we launched YahClick, but we proved that we could create value,” he adds. “And eventually a larger global player saw value in that, and therefore, we have teamed up with a bigger global player to go to the next level (i.e., Hughes). It is an example of the model we can utilize for our future growth ambitions. We want to build the market, and then use the partnership model to expand further. Partnerships will be key for our future. The Hughes one is an example of the partnership model we could use in the future.” VS