Turning customers into partners to overcome industry challenges

Q&A

Turning customers into partners to overcome industry challenges Q&A: Andrew Jordan, AsiaSat President & CEO Hong Kong’s AsiaSat aims to return to moderate growth next year as it emerges from a tough period for the global FSS industry with a revamped sales and marketing team, a newly created role of VP of strategy and business development, and a stronger focus on customer relationships. Andrew Jordan, AsiaSat’s president and CEO since November, talks to SatelliteFinance about how he is looking at all opportunities, including expansion through M&A, to position the company now that the ‘business as usual model’ of the last 40 years has been overturned. Jason Rainbow: What are your priorities for 2017 and what can you tell us about your strategy for the year ahead? Andrew Jordan: I started my satellite career with AsiaSat 25 years ago as a head of sales and marketing. I was absolutely delighted to come back because AsiaSat has best in class customer base, satellite fleet, Asian expertise, as well as people in terms of engineering, finance, legal. Where I think AsiaSat was less effective was on the sales and marketing side of the business. By that, I mean there were essentially three different sales teams all led by different people. My first priority was to streamline this structure to create one sales team, based on two geographical locations under an outstanding chief commercial officer. I was delighted when Barrie Woolston joined us - he has a long term background in the satellite industry, with both Arqiva and Encompass and a strong track record of successfully leading sales teams. What he brings to us is really deep knowledge of what the customers want, what drives their needs and how we can best position ourselves to satisfy their requirements. My key focus since joining, and indeed on an ongoing basis, is to make sure that the sales team is also best in class and is continuously focused on our customers providing flexible, innovative and creative solutions. As you know, there are some headwinds in this industry as a result of cyclical oversupply and the advent of HTS technology, all of which are putting pressure on price. Therefore, I think it’s really important to be as relevant as possible to customers, and to transform customer relationships from purely transactional to more partnership based. JR: And you also created a new strategy role for the company. What opportunities are you considering? AJ: When people look at business development, it’s generally a one- to two-year outlook, whereas strategy is a three- to five-year outlook.

Andrew Jordan, AsiaSat president and CEO

The keys to thriving in this market are agility, flexibility, creativity and innovation. The strategy team that’s been set up as part of such initiative is charged with identifying trends, and coming up with ways in which we can play a role in satisfying future demands generated by those trends” Strategy was previously managed by the CEO. I felt that in this climate and as a general business principle, it’s important to have somebody talented to lead the development and execution of our strategy. I’ve appointed Sabrina Cubbon to this new role because she has a comprehensive engineering and sales background, extensive company and industry knowledge to broaden our strategic initiatives to drive the company forward. I’m not going to, for obvious reasons, talk about specific strategies. Going back to what I said earlier, the keys to thriving in this market are agility, flexibility, creativity and innovation. The strategy team that’s been set up as part of such initiative is charged with identifying trends, and coming up with ways in which we can play a role in satisfying future demands generated by those trends. These include technologies and services like HTS, OTT, that people look at as both disruptors and enablers.

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Q&A

AsiaSat 9 satellite

JR: What is off the table? Is there a direction you won’t be looking to take AsiaSat in? AJ: No, nothing’s off the table. I have a completely open mind and we will consider any opportunity that will add value to the company and the way we serve our customers. JR: Regarding the AsiaSat 9 satellite that you’re looking to launch this year, what can you say about the response in the market to this asset? Where’s the demand coming from? AJ: It’s been pretty positive. First of all, AsiaSat 9 is replacing AsiaSat 4, so all of the customers on AsiaSat 4 will migrate to AsiaSat 9 when it’s launched and in service. We’ll deploy AsiaSat 4 for other services following AsiaSat 9’s successful launch. Our careful planning allows us to get an in-orbit replacement ready at least four years before the end of life of any given satellite. AsiaSat 9 will have a number of enhancements including dedicated Ku-band beams, such as the first dedicated beam customised for Myanmar. We also have designated beams for other important markets such as Indonesia. Our sales teams are actively marketing this new capacity and customer response has been favourable. JR: At one point you were considering the additional of a weather payload for AsiaSat 9, but there was an issue with the timing and it was eventually shelved. Are you still in talks with those potential partners in the weather space? Is this still a business opportunity that you’re looking at when you’re thinking about future satellites? AJ: That particular opportunity is not under discussion. However, we’re open and flexible to collaborate with all kinds of business partners, provided it makes sense from a revenue point of view and doesn’t affect what we can offer to our core customers. JR: AsiaSat said in its latest results that growth rates in several Asian countries will surpass the oversupply of capacity that we’ve heard a lot about recently. When do you see a balance being reached? What are AsiaSat’s growth projections? 8

AJ: We’re turning to hopefully more positive growth from 2018 onwards. Now, the markets are still tough, but over the past few months when I visited all of our customers, in every single meeting we found green shoots of optimism. I believe this is true for the industry, not just for AsiaSat, which is a very pleasant contrast to the general pessimism of the last 18-24 months. When will growth in particular markets surpass supply? I don’t necessarily think it will. In any given market, supply and demand is not just a function of particular conditions in each country but rather more dependent on the quality of your asset. If you’ve got a very strong video neighbourhood, that gives you an advantage. If you’ve got a fully coordinated slot and high power, that also gives you an advantage. As a result, you might increase your fill rates; whereas, some of your competitors might not. JR: Is it too soon to consider expansion satellites as you think about positioning AsiaSat for the future? Are you waiting to see how the market shakes out before you start expanding your geographical reach, for instance? AJ: No, as I said, we’re open to all opportunities, and we’ll judge them on the usual metrics of revenues, costs and growth opportunity. JR: In general terms, are you looking to expand further west? Or could you jump into a market such as Latin America? AJ: Different markets would not preclude us from looking at expansion outside Asia. One factor to consider would be how effective would we be in managing a company in those regions. We’re willing to look at opportunities though there are not many around at the moment. JR: Are these opportunities dependent on finding the right partner or could you go it alone? AJ: I think in this market, the ability to find a virgin orbital slot to achieve geographical expansion through organic growth is really quite limited. Any geographical expansion would almost inevitably be in some form of M&A.


Q&A JR: Why don’t we see many M&A deals amongst satellite operators? Why is it so difficult to close a deal – what are the challenges that need to be overcome? AJ: Well, there are a few. First of all, economics, a seller’s expectations compared to buyer’s expectations. Secondly, acquiring a company with different geographical regions does require a particular skill set in terms of being able to physically integrate and effectively manage the company. In Asia, people have been talking about consolidation for the last two decades. On paper, it’s a market ripe for consolidation with multiple satellite operators, and many of them chasing the same markets. What it usually boils down to is political considerations. Many countries in Asia do not want to give up their space ambitions. JR: Among the opportunities you’re looking at, could they potentially include an HTS payload in this environment? Is that something you would consider? AJ: Yes, we’re pretty advanced in our planning for HTS. It is true that we waited and looked at the experience that some of our competitors have had. We now feel that the technology is stable and has greater efficiency than we’ve seen in the past. JR: What advantages are there for a regional player like AsiaSat against the global satellite operators, which have been spreading into many different markets and verticals? What does a player like AsiaSat have that could give you a competitive advantage over these kinds of competitors? AJ: We’re an Asian company. We have 30 years of experience across Asia and we’ve been active in almost all countries that our satellites are serving. That gives us relationships and insights, which would be hard to replicate as a new operator coming into the market for the first time. JR: In terms of the sell-side opportunities, we’ve seen SES make great use of their satellites in inclined orbits recently. Are there any of those opportunities available for AsiaSat? AJ: Yes, we actually have an inclined orbit satellite, AsiaSat 3S, which is being used by another operator as a gap filler. Only one out of our six satellites is currently in inclined orbit. Inclined orbit satellites actually work pretty well for mobility, which we’ve identified as a really big growth driver. JR: Another recent trend we’re seeing concerns blending orbit levels. We’ve seen Intelsat team up with OneWeb, TeleSat considering a LEO Constellation, and SES taking over O3b. Is this something a regional player like AsiaSat could be interested in or is it only for the larger players that think about these kinds of plays? AJ: For the MEOs, I think O3b has actually been quite successful. It proved to be a good investment for SES and is providing good services in underserved areas like the Pacific. However, it is not serving the original “Other 3 billion” that it was intended to cover. As for the LEOs, there are two reasons why AsiaSat would not be pursuing those kinds of opportunities. First,

For the MEOs, I think O3b has actually been quite successful. It proved to be a good investment for SES and is providing good services in underserved areas like the Pacific. However, it is not serving the original “Other 3 billion” that it was intended to cover” from an orbital spectrum point of view, there isn’t room for more than one, maybe two, players, and there are plenty of people who are far more advanced in this area. Second, we actually don’t really believe in the premise that LEOs will bring the cost of capacity down and make it more affordable. When you look at a LEO constellation with slightly more than 1 terabit per second throughput across the whole constellation, the US and China for example where each covers roughly 1% of the world’s surface, the estimated capacity in those particular markets is no more than 100 gigabits per second, which is way below anything that advanced bend-pipe FSS HTS can offer. When you look at the development of FSS/HTS satellites now in the 300 gigabits per second range, and we know that companies like ViaSat are building 1 terabit per second satellites, we believe that these will be a significantly more cost-effective solution to particular data customers in terms of reducing the cost per byte, simpler ground terminals and lower operating cost for the satellite operators. JR: In terms of financing a potential new strategy, what is AsiaSat’s current attitude towards taking on new debt? Would you only consider export credit agency financing? AJ: No, not necessarily. Export credit agencies are, of course, very attractive as they offer fixed interest, compared to the current market where interest rates seem to be going in only one direction and that is up. JR: And when do you think we’ll hear more about your plans to order future satellites? Is there anything in the works, in the pipeline that we could hear from soon? AJ: Yes, we’re aiming to do something before the end of this year but I don’t want to be more specific than that. JR: Is there anything else you’d like to say about the outlook for AsiaSat? AJ: We’re cautiously optimistic. We recognise that markets are tough however we genuinely believe that where there are challenges there are also opportunities. The key is to have the right people and the right leadership to identify or create those opportunities.


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