Intelsat’s president/CEO Dave McGlade told analysts that as well as suffering a downturn in government and military business because of the USA’s tough “sequestration” expenditure rules (revenues down 10 per cent), it was also seeing growing bed debt problems. Increased competition from other satellite operators was also affecting business generally but especially in contracts from Africa.
One customer alleged to be failing to pay its bills is Iran’s state-broadcaster and in particular the banned Press TV channel. Intelsat, following moves by Eutelsat, SES, AsiaSat and others, removed Press TV from its distribution coverage during the quarter. “[It] was a situation where we’re providing a service that we had a license to provide and the US government required us to take it down and that caused us $2-$2.5 million of bad debt expense during the course the quarter,” said Intelsat’s CFO Mike McDonnell. McDonnell told analysts that sales-related expenses increased 20 per cent to $56 million, and added were also not helped by a “bad debt expense increase of $11 million related to collection challenges with certain customers primarily within the Africa and Middle East region.”
McGlade said that fibre connectivity in Africa was improving, and thus damaging the need for satellite services although he stressed that this was largely offset by an improvement in demand for new services in Europe, Asia and Latin America. But returning to Africa, he added: “The second trend is increased supply from traditional satellite operators that have more recently entered the region. The interactive growth profile in the continent from which we benefited in past years has drawn other satellite operators that in many cases like the scale and resilience of the services we provide in the region. These operators compensate for this smaller position by using price to gain market share with the customer set that for certain applications is very price conscious. These trends are having a more volatile impact on the lower end of the market where some of our service provider customers have struggled to adopt a viable cost structure. That puts pressure on our bad debt expense in the third quarter.”
In fact, Intelsat’s media-related business showed strong growth during Q3 (4 per cent). “In Q3 Discovery contracted for new and renewed transponder services on the Intelsat 19 satellite expanding the distribution of its programming in the region located at 166 degrees East Intelsat 19 reaching more than 37 million Pay-TV subscribers.”
McDonnell explained that Intelsat’s historical bad debt has normally been miniscule (at 0.015 of 1 per cent) but the Q3 experience was not normal. “We also had one situation where although we are – we’re fully licensed, we were required to take down some services in the Middle East which contributed to about 25 per cent of the bad debt expense that we saw in the quarter.”
McGlade also talked extensively of how he saw the potential of future Merger & Acquisitions panning out, saying: “On the M&A front, we remain focused on being disciplined and looking at these opportunities. However if a company sits well within our coverage footprint and it could add to our capacity for key regions that we think are useful for certain customer applications where we see growth like mobility, like DTH and other media services we certainly could have an interest.”