International Demand for Satellite Broadband Strong, Says Avanti CEO
Light satellite broadband competition, underperforming suburban terrestrial connectivity and a lack of rural terrestrial networks will help propel Avanti Communications as a satellite broadband provider in Europe, the Middle East, and Africa, CEO David Williams said in an interview. Investors and the U.S. and French governments recently provided financing for the company’s second satellite (CD Dec 22 p10).
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Avanti raised $138 million in three weeks from previous and new institutional investors to help pay for the satellite, Hylas 2, Williams said. The response, in the face of the global recession, highlights a strong demand for satellite broadband in countries that lack the extensive infrastructure of the U.S., together with significant faith in a company that hasn’t started offering service over its own satellites, he said.
Avanti is going after customers on the edge of more urban areas who are unimpressed with their wired broadband, along with the conventional satellite market of rural customers who can’t get terrestrial service, Williams said. “The size of the market terrestrial can support” is shrinking as earthbound companies fully penetrate densely populated areas and demand for bandwidth continues to grow, he said. “The consumer demand for bandwidth is escalating at a tremendous rate and terrestrial can’t keep up with that. Satellite takes up a lot of the slack in the supply and demand equations. … Satellite is really about to have its day.”
With an additional $274 million in satellite financing from the Export-Import Bank of the U.S. and guaranteed by Coface, investors saw Avanti as having a workable business model, making financial support relatively easy to come by, Williams said. The business is particularly attractive to investors because of the “wonderful cash flow” once the satellites are built and launched, he said: “There are lots of investors who like that profile, with a clearly defined amount of capital in the three-year construction period and then the money comes back. It makes it look like a utility, but with high capital-growth prospects rather than single- digit growth.”
Avanti sees an opportunity for at least 100 million satellite broadband installations in homes and businesses in Europe, the Middle East and Africa, based on the number of customers that receive speeds less than 2 Mbps, Williams said. The company has a business model different from that of American satellite broadband providers Hughes and WildBlue. It sells its services to telco resellers rather than directly to customers. The company has sold 14 percent of the its first satellite’s services in advance, and it recently signed a $940,000 five-year contract to expand an agreement with EDDI of Italy.
The underdeveloped markets of Africa and the Middle East offer the most growth, despite the proportion of consumers who can afford satellite broadband, Williams said. The company’s prices will vary to make them affordable in each market. “You always have that top slice of wealthy consumers” that can afford the subscription, he said. “On average you can make more money in emerging markets than in mature markets, because scale of demand overcomes lower ability to pay.”
Avanti is scheduled to launch its first satellite, Hylas 1, which can serve up to 350,000 subscribers, in Q2. Hylas 2, to be built by Orbital Sciences, is scheduled to be launched by Arianespace in 2012 and will accommodate an additional one million broadband customers, the company said.