Asia Broadcast Satellite (ABS) has been in the headlines a lot in recent years, as it has aggressively expanded its fleet of satellites as it looks to build a strong new pan-regional operator. This year, the operator made an interesting strategic decision in becoming one of the first, along with Satmex, to procure an “all electric” 702-SP satellite from Boeing in hopes of benefitting from the potential cost savings. Tom Choi, CEO, ABS, talks about this deal and where ABS plans to go during the next few years.

VIA SATELLITE: What attracted you to be one of the first operators to go with Boeing for an “all electric” satellite?

Choi: We took a look at the risks associated with a combination of platforms, and considered the endeavor of our future expansion. We knew that we had to quickly increase our business to become a global satellite operator with a relatively young fleet, so we had to look for a combination of a low-cost way of getting into space, as well as getting a very capable satellite platform that can accommodate a large number of transponders and antennas. This process started shortly after Permira came on board in late 2010, as they have been very supportive of our ambitious expansion plans that started with ABS-2. In early 2011, we completed a very attractive financing project for ABS-2. Moreover, given that we did so many Condosat deals in excess of $200 million, we had additional funds available for this expansion. Jim Frownfelter, the chairman of the company, led the negotiations with various satellite manufacturers and launch vehicle providers. In the end, we all bought into the combination of a Boeing 702-SP being launched on a Falcon 9. Because of the all-electric thrusters, we are able to save more than 2,000 kg of bi-prop which allows us to put more payload on the spacecraft as well as the advantage of launching two satellites on a Falcon 9. The only drawback is that we take four to five months for orbit raising. Given the risk versus reward, we felt this was a risk worth taking. The cost of the delivery of transponders into orbit was around 30 percent to 40 percent more affordable than any other alternative technology out there today.

VIA SATELLITE: With SpaceX being relatively new to the commercial industry, why would ABS take such a risk by selecting this provider to launch such an important satellite?

Choi: That argument is a valid one. That is why ABS-2 is being launched on the Ariane 5, one of the most reliable launch vehicles available. ABS-2 is double the size of the Boeing satellites and it has quadruple the capability of ABS-1. Our future is riding on this satellite and is the reason we went with traditional technology with Space Systems/Loral and Arianespace. If you are asking if going with Falcon 9 is a risk — I don’t believe so. First of all, SpaceX is supported by NASA, the preeminent space organization in the world. They have done the due diligence on the technology and have provided funding and oversight. We feel very comfortable with NASA’s support of SpaceX and strongly believe the Falcon 9 will be a reliable product. We are not going to be the first commercial launch customer of SpaceX — they have signed contracts with SES, AsiaSat, Thaicom and many others. I believe we will be the sixth or seventh commercial customer. We have provisions in the contract that allow us to change launch providers if SpaceX is not able to achieve successful launches prior to our scheduled launch dates. The launch of our satellites will be one and two years after the launch of ABS-2. Thus, should we need to change direction in terms of how we get these satellites into orbit, we will have plenty of cash flow to make that decision.

VIA SATELLITE: Are you still on the lookout for more acquisitions or building more satellites to expand your fleet?

Choi: We are always looking for smart acquisitions, which allow us to expand our business more affordably and quickly than organic growth. The challenge is that there are not many companies that are available now to acquire. The large operators are too big for us to do anything with and most of the smaller organizations are owned by governments, so this may prevent them from being sold to a foreign operator.

VIA SATELLITE: How much capacity have you sold on ABS-2? Are you currently in line with your expectations?

Choi: ABS-2 should be ready to launch within nine months. Around 25 percent of that capacity will go to Condosat customers. A quarter of that capacity is a direct replacement capacity for ABS-1. Another quarter of the capacity has been pre-committed to other customers. We anticipate a pre-fill rate in the range of 70 percent to 75 percent. We also have a couple of large deals in the pipeline, which could take that number to a higher percentage. We always wanted to achieve a fill rate of around 80 percent and move it above the 90 percent level after a year so that we can average out the transponder yield to a level that we are comfortable with.

VIA SATELLITE: Do you see any new growth markets emerging for the company?

Choi: We are seeing a lot of interest from DTH providers. We feel there is a very healthy potential pipeline of new business. Although telecom services can be substituted by terrestrial fiber, a DTH service can’t be substituted by terrestrial means. With the launch of ABS-2, we will be moving ABS-1 to 3 degrees West. That will open up the Atlantic Ocean region for geosynchronous services as well as the South American market for us. We are having on-going discussions with customers in that part of the world. The first new Boeing satellite we are launching, ABS-3A, will be going 3 degrres West to replace ABS-1 into the Atlantic Ocean. We anticipate additional Boeing satellite builds will also help us expand further into the Indian Ocean region and the Pacific Ocean region. In the Indian Ocean region, we are seeing growth in DTH, and in the Pacific Ocean region, we are seeing growth for telecom services in emerging markets.

VIA SATELLITE: Do you think there is a hosted payload opportunity for ABS?

Choi: As a Bermuda-based entity, ABS does not have the support of any local government customers. I think that the avenue of hosted payloads via local governmental customers are more or less shut off for us. We have done multiple Condosat deals on a commercial basis that are very similar to hosted payload transactions. The customers prepay for the title and ownership of their own transponders, and they have residual rights if the transponders they have need to be replaced. What we have done with commercial customers is similar to a hosted payload transaction with a government customer. In this endeavor, we have led the market in the number of transactions we have successfully signed to date.

VIA SATELLITE: What are the key challenges facing the company?

Choi: One of the activities we will be undertaking during the next 12 months will be looking for financing support from the U.S. Export-Import Bank for our growth and expansion. There is only so much you can do with your own equity and earnings and we are working with our advisors to have this financing locked into place this year. This will be a large challenge for us. We are also going to start securing pre-commitments for the expansion slots where we are building new satellites. We are going to have multiple discussions with potential anchor customers. All of that has to be lined up in the next 12 months to 24 months prior to the launch of these satellites. Our challenges will be to improve the balance sheet with lower cost capital, and secure more customers to enable our future expansion.