Canadian satellite giant Telesat is likely weighing an initial public offering (IPO) as the company gets its low Earth orbit constellation ready to compete with U.S. giants such as SpaceX’s Starlink.
The Globe and Mail recently reported that Telesat plans to announce an IPO in the fall, and go public next year, after the company finishes negotiations with its two main shareholders: Canada’s Public Sector Pension Investment Board (PSP) and Loral Space & Communications. Telesat declined comment to SpaceQ when asked about its future.
The rumours are hardly a surprise, given Loral announced in April (shortly after the novel coronavirus pandemic forced shutdowns in North America) that it plans to combine Loral and Telesat into a single public company to “maximize shareholder value.” An IPO allows shareholders to get a payout for their investment that presumably, could be plowed into new investments or – in an economic environment subject to recession – provide an infusion of cash for more immediate needs. In a statement at the time, Michael Targoff, vice-chairman of Loral’s board of directors, said Loral is in “advanced discussions” with PSP to make the move.
While Telesat declined comment to SpaceQ on the company’s future, recent comments from the company’s CEO do indicate that Telesat is pushing hard on its proposed low Earth orbit (LEO) constellation. The constellation would have 298 satellites in polar and inclined orbits; these orbits that are suited to serve northern regions of Canada, where Telesat has traditionally had a lot of pull.
Telesat has been in the geosynchronous business since 1972, when it launched the first-ever commercial domestic communications satellite in geostationary orbit. Through numerous ownership changes and five decades of satellite design advancements, Telesat has remained a major player in international satellite service despite its comparative diminutive size to competitors.
Moving into LEO would position Telesat in a space that has (compared to geosynchronous) lower latency and smaller satellites usually subject to shorter lifetimes, since the Earth’s atmosphere drags down individual members. That said, LEO has more space available than geosynchronous satellites – which orbit in highly regulated positions – and provides the opportunity to launch satellites more frequently and cheaply as older ones fail.
“As far as timing of announcements, all I would say is it’s coming,” Telesat CEO Dan Goldberg told investors in a July 30 earnings call. “We’re fully engaged with the vendor community, the financing community, vendor community, including satellites, rockets, ground terminals and the like … I would say in the coming months, you should be hearing from us on that in a position to make some definitive announcements and with respect to procurement and financing.”
Sources have told SpaceQ that Telesat and the Canadian government might be close to an agreement to use the Telesat LEO, which would be a great anchor customer that could attract other companies to jump on board. However, the slow pace of the build might be turning off certain customers.
Maxar Technologies CEO Dan Jablonsky told analysts, during the company’s Q2 2020 conference call in early August, that Maxar had “not factored the proposed Telesat LEO program into our current and multi-year outlook.” While the comment is open to interpretation, Jablonsky noted a decision on the Telesat LEO procurement has been delayed since an expected announcement in mid-2019, and the prospects of doing business with Telesat have diminished. “Every quarter it’s been the next quarter,” Jablonsky said of a procurement decision. “In its current form, we are not expecting active participation.”
Against competitors such as Amazon’s Kuiper or SpaceX’s Starlink, which will have thousands of satellites each, Telesat is pushing greater efficiency that it says will push down the cost per gigabyte of sellable capacity to lower than the competition.
Another player in this space is OneWeb, which is working through a bankruptcy and pending sale; that said, the company recently received authorization from the Federal Aviation administration to launch up to 2,000 satellites. It is looking for permission to put up to 48,000 in orbit.
“As far as how we compare with the other LEO constellations, there are sort of two that are probably most concrete,” Goldberg added in his remarks. “One is SpaceX. The other is OneWeb. There’s Kuiper, the Amazon initiative that’s out there, but I’d say it’s still a little bit less defined, or at least less is probably publicly known at this time about it.”
Goldberg pointed to other competitive advantages to Telesat’s constellation. For one, the company plans to operate exclusively in the Ka-band, which is unique compared to the competition. He said there is less spectrum available in the Ku-band, which the other companies plan to use for their users, and the competing companies in Ku-band will need to work out how to share the spectrum among them.
Furthermore, Goldberg said, the design and focus of Telesat’s constellation is distinct. Unlike SpaceX, for example, Telesat is focused on the enterprise market – particularly backhaul connectivity for mobile network operators, telecoms, and remote posts on planes and ships. Telesat also will use inter-satellite links – which is unique among the competition – along with processed payloads and phased array antennas.
The Telesat LEO constellation, Goldberg told investors, “should give us a cost advantage when we’re marketing our capacity to those key verticals that we’re focused on.” He also added that the customers know Telesat well in these verticals, since the company has been serving them for 50 years in geosynchronous orbit. “We know the customers. We know the technology. We know what they’re looking for.”
Like many space companies around the world, Telesat has seen an impact to its bottom line due to the novel coronavirus pandemic and declines in business that could be preceding a recession. Goldberg said the “most impact” from COVID-19 should happen with customers that provide broadband access to planes and ships, which are of course subject to travel restrictions that have affected businesses all over the world. The plane-and-ship business segment represents 10 percent of Telesat’s overall revenue.
“Two of those customers have declared bankruptcy since COVID hit, hence the bad debt provisions we took in Q1 and last quarter,” Goldberg said. “We’ve been doing business with customers in the mobility vertical for years now and, over the past few years, have worked with them to help them get through this really challenging period in their industry. That will provide some headwinds for us this year, and to a lesser extent in the next year as well. On the other hand, it appears that COVID is driving an uptick in demand for rural broadband connectivity, but not enough to mitigate, at least for this year, the adverse revenue effects from COVID.”
Here’s how Telesat’s financials look by the numbers. Consolidated revenue decreased by eight percent (or $37 million) to $417 million in the quarter ending June 30, compared with last year. One of Telesat’s North American direct-to-home customers cut back their service, the company said, and there was also lower revenue associated with a customer agreement’s prepaid services finishing its term.
Telesat also did not receive revenue in the latest quarter of 2020 associated with short-term services for a satellite operator that it provided in the same quarter of 2019. That said, higher equipment sales and new services increased, in part due to a competitor’s satellite failing in April 2019. Telesat did not reveal the name of the competitor in its June 30 press release, but this was likely the Boeing-built Intelsat 29e geostationary relay satellite that suddenly went dark due to an electrostatic discharge.
While Telesat’s net income did rise to $162 million (compared to $135 million in 2019) across the same quarter-by-quarter comparison in large part due to non-cash foreign exchange gains, operating expenses across the past six months were $92 million, or $14 million more than in 2019. The expense rise was largely due to the aforementioned bad debt associated with COVID-19. Professional fees, in-orbit insurance and compensation associated with Telesat’s LEO program also contributed to the rise in expenses.