Spectrum proceeds and key markets to lead satellite operator return to growth
NSR’s Satellite Industry Financial Analysis, 11th Edition report, has launched, projects the global satcom industry contracted by 2.3 percent in FY2020 to US$13.4 billion. While continuing sector trends such as a weakening DTH sector and COVID-19 impacts on aeronautical and maritime markets drove declines, enhanced revenue from spectrum leases, consumer broadband, backhaul and government services point to growth potential on the horizon.
“Overall, the industry is set for turnaround of declining top lines, driven by growth opportunities in key markets and spectrum proceeds,” notes report author Joseph Ibeh. “Top-line growth will be funded mainly from C-band spectrum proceeds in the US, with potential in Canada and other jurisdictions; however, EBITDA margins and the bottom line continue to face significant pressure in the short to mid-term.”
EBITDA margins remain challenged as GEO operators move from capacity infrastructure business to more managed service offerings and retail service models. Weakening backlog and years of backlog to annual revenues reflect the shortfall in new contracts. Non-renewals in the typically long-term video market and the shortening of contract duration in growing connectivity markets also reflect the changing paradigm. Overall, pressure on Return on Capital Employed (ROCE) persists as EBIT continues to weaken.
With competitive threats from heavily funded LEO mega-constellation operators on the horizon, change is inevitable. The pulse of the industry has shifted to redefining market strategies with the need to optimize upstream economies and locking in distribution at the center of executive discussions. Recent M&A activities and bankruptcies show that middlemen service providers are caught up in the drive to secure distribution.
Ibeh added, “Satcom growth opportunities will increase post industry consolidation as upstream innovation, downstream economies of scale, and LEO supply unlocks new possibilities. With strong potential in mainstream telecoms, cloud computing, security and government demand, long-term opportunity is expanding.”