Eutelsat/Viasat combine forces

Satellite operators Eutelsat and ViaSat have announced that they’re joining forces. Their new strategic partnership aims to promote and develop satellite broadband across Europe.
Industry experts are predicting the possibility of the merger between the two.

ViaSat is planning a next-generation satellite, the ViaSat 3, which they estimate will be able to deliver more than 100 Mb/s, matching the top speeds on terrestrial cable suppliers. In addition, to this, the new satellite will have more capacity than every commercial satellite in orbit combined: 1Tb/s.
Two new businesses will create, one focusing on commercial wholesale while the other will focus on retail services.

“The Wholesale entity will see Eutelsat transfer its existing European broadband business into a new vehicle at book cost in exchange for a 51% stake. The assets being transferred include the giant Ka-Sat spacecraft, the ground segment, customers, distribution agreements and orbital / landing rights,” said Giles Thorne, an equity analyst at investment bank Jefferies. “WholesaleCo will, for now, provide the wholesale HTS capacity to existing distributors and the new RetailCo. ViaSat will contribute €132.5m of cash in exchange for a 49% stake.”

“RetailCo will build a DTH consumer ISP business in Europe. ViaSat will own 51% of the equity, Eutelsat the remaining 49%. It’s unclear how RetailCo will be capitalised. While much of Eutelsat and ViaSat’s product approach to consumer broadband is similar, ViaSat has executed a full retail model with a brand (Exide), customer service, direct marketing and content partnerships (ViaSat has had a product link-up with DirecTV since 2012). Much of that approach will now be replicated in Europe via RetailCo.”

“It makes sense for Eutelsat to kickstart its flagging retail growth in Ka-Sat (an issue we’ve previously raised) through the leveraging of ViaSat’s successes in the US (where it has 687k subs, compared to Eutelsat’s 190k). The rational for diluting its economics in Ka-Sat and its highly valuable orbital / landing rights, however, is not immediately clear – the RetailCo has strong logic but could quite easily have existed under the status quo – we can only assume there is an undisclosed quid pro quo around Eutelsat getting access to ViaSat-3 – our base case would be that Eutelsat participates in the financing of ViaSat-3ii, the ViaSat-3 class satellite due to be launched over MENA in early 2020. It feels almost certain now there won’t be a like-for-like replacement for Ka-Sat.”

One result of the merger means Eutelsat now controls a de facto monopoly for satellite broadband infrastructure over Europe. The Eutelsat/ViaSat broadband deal should close this year.