Global Satellite Industry Lowers Sights After Eutelsat Share Crash

The recent 30.7 per cent plunge in Eutelsat’s shares is the latest in a series of such falls to afflict Europe’s leading satellite infrastructure operators. Like the others the immediate cause was internal events, in this case a profits warning, but it also reflects a wider reassessment of prospects for the global satellite industry as it adjusts to a slightly lower orbit of expectation.

Longer term prospects remain good for both the industry and the leading individual operators, but sights have been adjusted by various factors. These include the continual expansion of fiber optic networks whose aggregate capacity is growing at a much faster rate than that of satellite.

At the same time satellite TV providers are enjoying mixed fortunes with even those doing well experiencing a shift from DTH to OTT transmission. In Europe for example DTH operator Sky is continuing to gain subscribers in the UK and Germany especially, but most of these are being generated by its OTT-only offering Now TV.

In the US Dish Network, the country’s number two satellite operator after AT&T’s DirecTV, reported 2015 full-year net income down 21 percent at $747.1 million, on the back of a significant decline in subscribers for its premium and most profitable pay TV package. Dish ended the year with 13.9 million pay TV subscribers, down 81,000 from the end of 2014 but this figure masked a much sharper decline in the DTH package. This is because the total included subscribers to Sling TV, the operator’s slimmed down $20 a month OTT package, which are not separated out from the DTH numbers. But the Sling TV base was estimated to have passed 600,000 in February 2016 by the Wall Street Journal, so the real decline in DTH subs appears to be much greater.

Although DirecTV has done better, the bigger story is that fiber is taking an ever bigger proportion of long distance and backhaul video transmission traffic serving operators in all categories and not just DTH.

Eutelsat’s crash followed the profits warning combined with a spate of negative comments from industry analysts. The consensus was that it resulted from a combination of company-specific issues and broader industry trends. However those wider trends have already been factored into the valuation of satellite shares in general and ironically some of Eutelsat’s rivals are now being tipped as good buys by analysts.

But this seems cyclical, for less than a year ago in July 2015 it was rival SES’s turn to be on the rack, if to a lesser extent, with its shares falling by 8 per cent then. On that occasion other satellite stocks were affected by sentiment contagion, so they all went down a few per cent, although then Eutelsat recovered. Such blips have characterized the industry for some years and could be seen as periodic corrections to the over optimism of an expanding field.

In fact the whole field is governed by large investments in new hardware and deployments with long ROI (Return On Investment) cycles typically at least five years, which makes it hard to gauge prospects accurately. But this does mean that the long term outlook is still quite good as the industry will recoup the large investments that have been made recently and that in some cases have led to profit warnings as costs escalate.

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