Eutelsat is investing big in Ka-band capacity over Europe. The satellite operator announced KONNECT VHTS today, a 500 gigabit/second satellite to be built by Thales Alenia Space and which is expected to enter service in 2021. In addition to announcing the new satellite Eutelsat announced multi-year capacity deals with Orange and Thales, key connectivity providers in the region.
We are delighted to sign this agreement with global partners, Orange and Thales, which confirms the place of satellite-based solutions in the drive for enhanced high-speed internet coverage. As a core complement to terrestrial broadband networks, high-speed broadband will be a critical driver of Eutelsat’s growth from 2020 onwards. Over the next decade, VHTS satellites will bring enough capacity to serve high speed internet and in-flight connectivity markets at scale, offering fiber-like services both in terms of price and speed. – Rodolphe Belmer, CEO of Eutelsat
Orange will use KONNECT VHTS to augment capacity in its terrestrial connectivity business across Europe. The increased bandwidth will allow the company to offer faster service to more customers at a lower price. Thales will use its initial capacity purchase to “serve fixed and mobile connectivity markets as well as supporting our government customers for coverage of connectivity solutions across Europe” according to CEO Patrice Caine.
Big blow to Viasat partnership
The decision to launch KONNECT VHTS on its own terminates Eutelsat’s partnership with Viasat for the ViaSat-3 satellite constellation. The constellation was to be three satellites providing 1 terabit/second each of capacity and a global coverage footprint. For the past couple years the eventual high capacity, global footprint has been a critical part of Viasat’s marketing pitch. Even without a partner to help develop and fund the third satellite covering Asia and the Pacific the company was (perhaps overly) optimistic on delivering that constellation in the early part of the next decade, bringing true high-speed global coverage in the Ka-band.
The investment in KONNECT VHTS replaces the project of a joint investment with ViaSat in a ViaSat 3 satellite for Europe, Africa and the Middle East.
The financial and technical cooperation on the ViaSat-3 satellite was a significant deal. It also represents only part of the two companies’ cooperation. A joint venture for European services between the two was announced in February 2016 and closed in March 2017; it was initially expected to close in Q2 ’17. Perhaps the delays in closing should have served as a warning of challenges the partnership would face.
The JV included retail and wholesale components, both of which appear threatened by this announcement. In a statement Viasat President & COO Rick Baldridge points out that the existing JV remains in place,
The joint venture, which has been in operation for more than one year, will continue to be governed under the existing agreements. Viasat’s joint ownership of the KA-SAT satellite is currently serving Viasat’s commercial aviation and government customers as well as direct-to-home residential subscribers throughout Europe.
On the retail services side Viasat led the pair (51% ownership) and expected to use its direct-to-home ISP expertise to grow the market in Europe, taking advantage of Eutelsat’s KA-SAT capacity and infrastructure. The existing customer base remains supported by the KA-SAT capacity but future growth is now threatened. It would appear that Eutelsat and Orange are making other plans for once KONNECT is in service.
The wholesale services half of the joint venture, 51% owned by Eutelsat, never formally committed to ViaSat-3. It was described as one of the options available to the partnership, with the pair committed to also “study other options to add growth capacity in the nearer and long term.”
With ViaSat-3 now out of the JV plans it is hard to see circumstances that would justify Viasat increasing investment in the JV, unless it is willing to give up on its global constellation dreams. And it is decidedly not doing that.
Viasat remains excited about its ViaSat-3 program for EMEA, which is well underway and on track, and the Company believes there is significant interest in the program from prospective regional partners. As there was no binding agreement with Eutelsat for the ViaSat-3 EMEA satellite, Viasat’s capital plan is not dependent on Eutelsat’s participation to proceed with the ViaSat-3 program. – Viasat President & COO Rick Baldridge
Viasat’s plan focused on regional partnerships to help fund the build and launch of the EMEA and Asia-Pac satellites. Baldrige is optimistic that another partner will step in to fill the gap. With an expected 2020 launch timing matters a lot in those negotiations.
Again, existing customer needs are met through the KA-SAT capacity but growth into the next decade appears questionable.
A Thales coup?
The break-up between Thales and Viasat was not a pretty scene. Professional, of course, but there is no love lost between the two companies. Since then Thales announced a significant push into connectivity with a Ka-band solution powered by Hughes and SES. That FlytLIVE solution is expected to enter service with Air Canada on the 737 MAX in the relatively near future, though neither party has yet confirmed the relationship. The additional capacity on KONNECT VHTS would allow Thales to grow into the European market as well.
The release suggests that Thales will use its capacity for “supporting our government customers for coverage of connectivity solutions across Europe,” but there will be plenty of bandwidth available for inflight connectivity needs as well.
Very interesting that Thales appears to be doubling down on IFC, adding this to their SES-17 and Jupiter commitments. What's the betting this also uses the same Hughes ground segment? That would be a body blow for ViaSat
— Tim Farrar (@TMFAssociates) April 5, 2018
With the KONNECT VHTS launch timed to coincide with SES-17, on which Thales also has a significant Ka-band capacity commitment, the company could combine the two satellites’ coverage to offer service covering the full Europe-Americas segment. That is a massive part of the aviation market and one of the more mature (i.e. in demand and potentially profitable) inflight connectivity markets. Viasat depends on ViaSat-2 and its KA-SAT bandwidth to offer similar coverage to airlines and can do so today rather than 3 years hence. Still, demand continues to grow. It is unclear that KA-SAT will be enough to support future needs and terms to access the KONNECT VHTS satellite are unlikely to be as favorable as those the launch partner and anchor tenant Thales secured.
Of course, the new satellites are still years away and many airlines are committing to vendors and service today rather than in 2021 or beyond. But airlines are known to switch suppliers when the economics shift and sufficient, albeit not global, Ka-band coverage could be appealing a few years down the line.
It is also worth noting that Baldrige’s language in describing the existing JV surviving to support existing needs sounds an awful lot like the comments Thales and Viasat made previously around their aviation customers in North America.