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When it comes to maintaining and building its business, Telesat is patient and methodical. That’s the impression one gets in listening to CEO Dan Goldberg at events and during quarterly earnings calls.
As we wrote recently, Telesat is behind competitors such as OneWeb and SpaceX in building and launching satellites for its LEO Satellite constellation of approximately 300 satellites. However, unlike their competitors, Telesat has the support of the federal government and experience on its side.
While Telesat may have a long history, the company realized several years ago it had to adapt to the realities of the current market if it was going to compete and survive.
That market includes the explosion of video over the internet starting with YouTube, then Netflix etc. As Goldberg recently said in an interview for the Globe and Mail’s Report on Business Magazine “our technology wasn’t keeping up. Geostationary satellites are really good for broadcast signals, but for broadband delivery, they are quite expensive.”
While Telesat is currently behind some of its competitors in the LEO constellation game, another critical factor in their favour is their experience with its customers. Customers know what to expect of the company. They trust them, and some are already signing up for the new service according to Goldberg.
Telesat’s sale strategy, honed over the years, aims to sign up as many customers as they can before rolling out the service. Getting government buy-in was big, and that box has been checked.
The status of the LEO Constellation
During Telesat’s recent earnings call on February 27, 2020 for the year ended December 31, 2019, Goldberg discussed the current status of the LEO Constellation.
Goldberg said they are looking at making an announcement about suppliers “mid-year.” I was expecting that decision to be made earlier. It’s a big contract worth billions. In fact, Goldberg in answering a question on LEO Satellite spending remarked that “we have said it’s a multiple billions of dollars and in terms of the pace of the spending, we think that the overall program as I mentioned, if we were announcing suppliers mid this year.”
The plan includes having the constellation partially operational and servicing “certain markets” by the end of 2022 with full service available by the end of 2023.
Another interesting remark Goldberg made was, “and I should say, we haven’t received — we haven’t sought nor received approval from our Board to proceed at this point.” This is part of the methodical approach Goldberg uses. Get everything in proper business order, then make the decision.
As to how the project will be financed, Goldberg said “we’ve said before that our expectation is that the project will be project-financed relying upon the export credit agency market. We’ve said that roughly speaking, we think it would be financed kind of order of magnitude, one-third equity, two-thirds debt, again with the debt principally coming from the export credit agency market. And so we’ve — we started work on putting that financing in place and, you know that we’ve been generating a significant amount of cash and we moved some cash out to a restricted entity or in anticipation of funding LEO.”
Telesat is financially stable with $911 million in revenue in 2019, a $3.3 billion backlog by the end of 2019 and $597.5 million in cash and short term investments of which $495 million cash is being held in their unrestricted subsidiaries. As well, should the LEO Satellite constellation get built and an agreement is finalized with the Canadian government for services, Telesat expects the agreement would generate over $1 billion in revenue over 10 years.
Lastly, Telesat should also be the beneficiary from the auction on C-band frequencies. The draft report by the US Federal Communications Commission on February 7, 2020 “indicated that Telesat could receive as much as US$374 million from the repurposing of C-band Spectrum in the United States.”
The large DND opportunity
While much of the focus on the earnings call was on the LEO Satellite Constellation, a question did come up about growth opportunities for Telesat in their traditional fixed-satellite service (FSS) market.
Goldberg took the opportunity to talk about the Department of National Defence’s Enhanced Satellite Communications Project – Polar (ESCP-P) program. The ESCP-P program is envisioned as a two satellite constellation, two very large satellites, unlike the LEO Satellite Constellation which are small.
Goldberg said of the project “we responded to the last RFI probably roughly right around a year ago. Maybe it’s a little bit more than that now, they lose track of time, we’ve got — it requires two satellites. It’s designed to provide both narrowband and broadband communications capability to the Far North where geostationary satellites can’t see. So that’s a very large growth opportunity for Telesat that we’ve been working on and positioning ourselves on for quite some time now.”
It’s too soon to tell if Telesat pivoted to the emerging LEO satellite constellation market in time, but its stable financial position, support from government, and years of experience have them in the game.
