Via Satellite: ABS’ CEO Outlines CapEx Visions
Jim Frownfelter is the new CEO of ABS, and took over from Jim Simpson. He comes at a time of great flux. ABS has deployed three large satellites over the last five years, and the priority will be to monetize them. In an exclusive interview to Via Satellite, he says ABS’ immediate focus is to fill these satellites to capacity before it invests in new satellites or new satellite projects. “At our current growth rates, I expect we will start evaluating new satellite projects around 2021. In terms of the fill rates, it depends on the satellites, but we are about 50 to 70 percent filled on those satellites,” he says. “I would say this is where we expected to be. If you look at a generic business model for greenfield satellites, which effectively all three of these satellites are, it takes about 5 years to fill to capacity. Some of these satellites (ABS-2A) were only placed into orbit two and a half years ago, so the fill rates are approximately on track with what you would expect for a greenfield satellite deployment.”
However, while it may look to investments in around 2021, these will not be in Low-Earth Orbit (LEO) satellites. When Frownfelter was asked about this, he was unequivocal. He says, “ABS is not interested in investing in LEO constellations. We are going to stay the course, make prudent financial investments to smartly grow our Geostationary Orbit (GEO) business. While a small few of these constellations may survive because of their particularly circumstances, I expect most of them will encounter challenges. The traditional GEO satellite operators will once again be viewed as the stable, successful, stalwarts of the industry.”
Frownfelter, who has a long history in this sector having worked for the likes of PanAmSat many moons ago, believes history could definitely repeat itself here. He points to the fact, that back in the early 2000s, there was a similar cycle to what we are seeing now. He adds that there were a number of new entrants coming into this space where deploying new constellations and satellite initiatives. These were based on “shaky business plans and exaggerated projections,” he says. “If you remember, there were a number of companies like SkyBridge, ICO, Iridium, OrbComm, Globalstar, OrbImage, etc. — I could go on and on. It was exactly the same sentiment then that GEO satellites were dinosaurs that was being rumored in the industry. What of course happened is that all of those businesses went bankrupt and the companies that survived were those GEO satellite operators which focused on financial fundamentals and stayed the course,” he adds.
Frownfelter believes history is on the verge of repeating itself here. “In certain circumstances these LEO constellations are being deployed, not because they expect to make money from their satellite operations, but to achieve some other objective and make their profits through some other business that the LEO constellation supports. In this case, those constellations may survive. But, those LEO constellations that are being deployed and being projected as generating huge amounts of cashflow just from the LEO business and selling into more specific Business-to-Business (B2B) and Business-to-Consumer (B2C) applications, I expect most of those will not survive,” he says.
While he is not positive about the prospects of some of these LEO operators, charting a successful course for ABS will be a challenge. The company has been the source of a lot of industry gossip over the last few years, but despite the rumors, there has been no change of ownership. Frownfelter comments on whether or not ABS still has the “For Sale” sign up. He says, “ABS ran a process back in 2016, and at that time, had a number of interested buyers, but we decided not to move forward with that process because of differing value expectations. The interested buyers were not willing to pay for the future revenue potential of the newly launched satellites, which at that time had relatively low fill rates because they had just been launched. So, the company focus over the last year, has been about filling these satellites, increasing cashflow, and executing on the value potential of our assets. We are not in an active sales role today. We are not engaged in a process. That is something that is not a high priority. Our priority is to increase cashflow, fill these satellites, generate ongoing financial stability for the business, and increase the value of the company for potential buyers in the future.”
As the new CEO, building revenues in markets where bandwidth prices have been eroded significantly, is a challenge not just for ABS and Frownfelter, but the industry in general. Frownfelter says the major challenge in the industry really comes down to a lack of pricing discipline. “The competition has launched satellite projects with failed business plans. They are fighting to improve utilization, and as a result, are dumping capacity into multiple markets. The result is that they are cannibalizing their own businesses and negatively impacting the industry as a whole. So, our challenge is to remain fiscally diligent, execute our yield management strategy and drive profitable growth for our business,” he says.
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