The global satellite landscape is full of new companies aiming to carve out a niche for themselves in an increasingly competitive business. In the FSS sector, newcomers to the business are relatively scarce, with most of the operators being established for quite some time. In Europe, Avanti Communications is trying to upset the traditional order not only on the European satellite landscape but globally. Its plans really started to come into fruition late last year when its first satellite, Hylas-1, was successfully launched by Arianespace. The satellite, which is located at 33 degrees West, has a flexible payload that enables Avanti to change the bandwidth of its eight Ka-band beams while in orbit to maximize satellite efficiency.

Avanti CEO David Williams has plans for many more satellites during the next few years beginning with Hylas-2, which Avanti aims to launch in 2012. Deploying 24 fixed beams and one steerable beam, the satellite aims to provide strong coverage across Europe, the Middle East and Africa. Williams talks about the task at hand, procurement plans beyond Hylas-2, and the overall vision for Avanti Communications in the next 10 years.

 

VIA SATELLITE: How much capacity have you sold on Hylas-1? When do you hope to have filled the satellite?

Williams: It is our intention to fill the Hylas-1 satellite within three years of the satellite going into service. We always had a target peak utilization rate under contract by the day of service launch of 25 percent and, when we launched service in April, we had actually achieved a peak utilization rate of capacity under contract of 35 percent. So, this gives me reasonable confidence that we will fill Hylas-1 within the three-year target we have given ourselves.

VIA SATELLITE: At the time of launch you said that you were conducting an RFP to procure at least one satellite. Can you give an update on this?

Williams: We are ready to go in terms of design and engineering. We have told our investors that we will not procure the next satellite until it can be financed through customer commitments. We are quite protective of our shareholders returns, and the best way to finance that satellite is to sell a large amount of capacity to customers and use that to procure low-cost debt finance. We are making very good headway on that. It is very important we finance this prudently and efficiently, and not aggressively. During the last few months, we have made some pretty good progress. We are constantly evaluating the opportunities for Ka-band satellites in new geographies.

New satellite procurements have to be driven by the market. We don’t want to do lots of big speculative projects; it has to be driven by market take-up. The situation we have is that we already have one satellite that is showing real world results and one going up shortly. Customers in new geographies will want to have a look themselves at what Ka-band satellites can do and we can now show them this. This is helping us encourage new customers in new geographies to make commitments on which we can then procure new satellites. A significant part of management time is spent pursuing those projects.

 

VIA SATELLITE: How much Hylas-2 capacity do you hope to have sold by launch?

Williams: We are bang on target with Hylas-2. It will launch in the first half of 2012. We are not going to set a target in terms of how much capacity we will have sold by launch. The pricing we have achieved on pre-sales capacity for Hylas-2 in the last six months is entirely satisfactory. If we continue to achieve that pricing or better it will continue to fill-up. If customers want pricing discounts in order to purchase capacity pre-launch, we will say no. It really depends on what the market does. Right now, we are achieving prices in line with our business model. If that continues to be the case we will hopefully fill up a large part of the capacity. But, it all comes down to price.

 

VIA SATELLITE: How easy or difficult will it be to get new financing to procure new satellites?

Williams: It is not difficult at all to get financing. We have been offered debt financing in three different markets: ECA financing; high-yield financing; and private placement debt finance. There are plenty of debt investors who like the Avanti story. They like the security of the fact that we have satellites in orbit. I greatly prefer debt financing to equity financing, so debt financing is our focus.

 

VIA SATELLITE: Last year, you noted that Ka-band would come of age in the next 12 months. Do you believe that prophecy come true?

Williams: I think it has. We have completed the migration of our Ku-band customers to Ka-band. There is a population of well over 5,000 users in the United Kingdom using Avanti’s Ka-band satellite. We are now helping our more than 70 service providers all over Europe to migrate their Ku-band services to Ka-band, and we are experiencing good momentum in sales cycles. I said last year that I felt the largest telecoms companies in Europe would only really begin their sales cycles once they had seen real world evidence of the performance of Ka-band satellites. Since we initiated services in April, we have been able to do that. The link budgets we have been able to demonstrate have been excellent. There is good spectral efficiency, really high throughput and therefore the test results we have been able to give those really large telecoms operators are pleasing. That has allowed us to proceed in more detailed negotiations. So I would expect an increasing newsflow regarding our industry around the world. Large telecoms companies are beginning to use Ka-band satellite systems in volume and I think plenty of that newsflow will happen in the next six-month period.

 

VIA SATELLITE: Which launch service providers are you considering?

Williams: We don’t wish to take unusual risks with our launch program so we are likely to continue with established launch service agencies.

 

VIA SATELLITE: Will Hylas-2 allow Avanti to target any new markets?

Williams: We are fairly certain on where our money is coming from in the next five years. Consumer broadband is not only a vast market throughout Europe, the Middle East and Africa, but also throughout other emerging markets and geographies. The unmet demand for broadband services already exceeds the planned supply for Ka-band. That will remain a great market for the foreseeable future. The enterprise VSAT market is well established, but it is still experiencing growth from the new service quality and price efficiencies of Ka-band. We are certainly seeing evidence that companies that have used enterprise VSAT before are considering doing more of it because it is now cheaper, so it is a market that will grow.

There is no doubt there is strong military demand. We have seen that in terms of public procurement announcements, particularly from the U.S. Department of Defense. Avanti is seeing a lot of interest from its military services around the world. That will be a very big market for us. I also think we are quite close to cracking cellular backhaul in a large way. The most interesting markets here are probably in Africa, but there are others. I think we are starting to see opportunities in content distribution beyond those four markets. There are a variety of industries where quasi-unicast IP distribution of content starts to look interesting in Ka-band. Whether it is involving mobile networks, digital cinema networks or out of home advertising networks, there are opportunities in moving content around and Ka-band can do this more efficiently than other forms of satellite technology. But mainly we are still pretty focused on those four markets I mentioned earlier.

 

VIA SATELLITE: Can you expand on where you see the military market opportunities for Avanti, both in the United States and beyond?

Williams: It appears that all military organizations are experiencing significant growth in demand for flexible and low-cost satellite capacity, driven in part by the growth in the use of video data. UAVs form part of that picture but there are other applications. Avanti is designing flexible Ka-band capacity, which covers most of the landmasses where NATO organizations are likely to have an interest, and intends to make this capacity available in a flexible manner designed to meet the cost-effectiveness objectives of modern military organizations.

 

VIA SATELLITE: How do see consumer broadband playing out in Europe?

Williams: There seems to be a consensus from satellite operators, the European Union, British and other governments that there is somewhere between 20 million and 30 million homes in Europe that will need satellite broadband. Ku-band can’t compete with Ka-band. At the moment, there are three Ka-band satellites over Europe, two for Avanti and one for Eutelsat. They can only supply a peak of two million subscribers so the demand for capacity is huge, therefore, I don’t think you will see significant price competition in the market. We are seeing satellites being put up in an orderly way, and more satellites being procured to serve the rest of the demand.

 

VIA SATELLITE: What did you make of Inmarsat’s Global Xpress announcement? Will they compete in any way with Avanti?

Williams: I don’t think so. They have a fantastic franchise in terms of their maritime and aeronautical services that I would regard as impregnable. I would never look to compete with them there. I think they have that market absolutely locked-up. They also have an absolutely first rate management team. When they announced Global Xpress, I was pleased, because it was a validation of the technology by another leading and sophisticated operator. But they made it clear that their focus is providing higher speed services that their previous frequencies cannot accommodate to their existing customer base. I don’t see much overlap in terms of what our two companies will do.

 

VIA SATELLITE: What are your views on in-orbit satellite servicing?

Williams: I remember in the 1990s when I was a banker and seeing people bring recovery style business plans. It is fun to see the progress being made here. I don’t really know much about the technology involved in the project. We have not sought out information on it. If there is a project there that works, then it could extend the usable life of satellites for us. This would result in reduced capital expenditure in the future, which would help all of us in terms of discounted cash flows. I would say that I am reasonably happy that some progress is being made with that, but I hope progress is real world rather than paper-based.

 

VIA SATELLITE: What is the long-term vision for Avanti now?

Williams: I really have to take my shareholders with me on this vision. As a public markets company, we have a lot of shareholders who don’t have significant prior exposure to satellite companies. Therefore, we need to do the job of communicating the notion that the satellite business can build very significantly to multiple orders of magnitude and have value creation during a long period of years. This is not a business that just becomes an overnight success. Yes, we have one satellite in the sky, and one launching soon, but we have been going at this for 10 years now. I would say in the next 10 years, there is a very good chance that Avanti could deploy at least half a dozen additional satellites. If we do that successfully, there is no reason why Avanti cannot become one of the most significant public companies in London.

We hope public shareholders will have a good experience with Avanti in the next few years and we are very blessed that in our top 10-20 shareholders, there are fantastic institutions that are in this for the long-term and that have a 10-15 year view. We have the protection of some long-term shareholders; we have spectrum resources that can sustain large plans; we have a youthful management team; and we have a workforce that I think has the energy to continue at the current frenetic pace for another 10 years or so. I have just turned 42, so I think I have another 10 years working at the same pace I am doing at the moment. I think in that timeframe, we can produce a satellite operator that has truly a global scale, and will create vast value for our shareholders.

 

VIA SATELLITE: Is there a chance that Avanti will be acquired before this 10-year vision bears fruit?

Williams: We have great orbital positions that allow us cover Europe, the Middle East, Africa and the Americas. We have the support from our shareholders to continue with the vision of deploying satellites into those regions. So we are absolutely focused on a business plan in the next 10 years that will use efficient non-dilutive debt capital to finance more satellites, fill them up at good prices and then start producing dividends. That is what we are focused on. The market will do what it will on the back of our success.