Over the past two weeks, a group of SES seniors had the opportunity to meet with investors in Paris, London, Montreal, Boston and New York. I was able to join part of this tour, and the experience was greatly learningful.
Our objective was to present the SES strategy, and how we were executing it. The tour was also an opportunity to explain the market dynamics, both in terms of headwinds and tailwinds, and demonstrate the differentiated SES approach. This last point is central to the SES Management way of thinking.
For too long Commercial satellite operators have framed their business in terms of new satellites they were building and deploying over regions. This enabled stakeholders to view the business through the simple lens of connectivity, and to focus on capacity demand and supply along with the associated price points.
This may have worked for some time, but this lens is ill-suited to the multiple applications, technologies and business models that are shaping present and future markets. Failing to fathom these dynamic and highly adaptive market developments has led the public discourse in our industry to zoom in on an over-simplistic explanation of increasing capacity build-up and price competition.
There is more to our industry than this approach and explanation, and I wrote extensively about our way of thinking and our way of working in my letter to the SES shareholders back in April ’16. The discussions with investors over the past two weeks were a great opportunity to reinforce the understanding of the SES strategy and its execution.
Three tenets are at the heart of the SES way of thinking.
First, it is about globalizing everything we commit to do. Unless we can scale up an idea across the globe, and this includes all the elements of our business, then we will not pursue it. Scale matters because it plays to our core strength as a global platform (e.g. the SES fleet covers 99% of the world’s population).
Our definition of scale is expansive by design. We think in terms of products and solutions that can be scaled up globally. This leads us to think about end-to-end products and solutions where connectivity plays a central part from the start. However, connectivity is not the sole definition of our value add, but is one of the key ingredients in a solution we bring to enable a new experience and/or a new market.
Case in point is our digital media platform (SES Platform Services) that is accelerating the advent of HD video and creating better experiences for viewers around the world. When all is said and done, SES enables the broadcasting of more HD video channels than the next three competitors combined. In the same vein, we are the first satellite operator (and remain to this date the only one) to bring commercial UHD video to the masses by working closely with broadcasters to enable their capabilities into this new era.
Second, it is about focusing on the market segments we can enable and accelerate, and ultimately where we have a right-to-win. Satellite technology offers a plethora of opportunities to serve our planet and even humankind’s forays into space, but we must choose what we can do best at SES.
Our strategy is therefore focused on four market verticals: Video, Enterprise, Mobility, and Government. These are the four anchors we want to scale up globally, hence the first tenet of our thinking. This approach includes space and ground infrastructures, platforms and applications, as well as business models. Some of these elements are common across market verticals, and some are quite distinct. It effectively means that we have four differentiated playbooks in order to win in the segments we are targeting. The single lens approach of macro-level demand and supply I mentioned in my introduction is long gone.
Third, it is about dematuring what we do today in order to shape the future. This tenet is greatly aided by technology evolution. Conversely, this tenet has been misrepresented and underleveraged by our industry.
Used productively, technology evolution creates new horizons, enables new markets, and introduces future proof investment decisions. Used simplistically, technology evolution disrupts the status quo, erodes existing markets, and yields investment risks. The SES way of thinking and way of working have put us on the former path.
We see technology first and foremost as a central element to pursue new opportunities. To illustrate, the improving compression standards have enabled the democratization of quality video experiences, e.g. the launch of new platforms through linear and non-linear distributions. This development is also improving the viewing experience, e.g. the accelerating transition from SD video to HD, and more recently the advent of UHD. Because we have the right capabilities, SES is reaping the reward of compression technology evolution and this is reflected in the unsurpassed growth of our global channel count, with HD and UHD as priorities, along with our segmental revenues. All these opportunities stop us from looking backward.
Technology evolution is also enabling new markets. SES’s entrée-en-scene into high throughput beams on our geostationary satellites came relatively late (in 2014 to be exact). We used our late entry to study the new applications we could enable in a differentiated manner, and the new technologies we could acquire and deploy rapidly. This put us on a strong path to deploy the best capabilities that were customized both technically and economically for the aeronautical connectivity market in the Americas. Most of these capabilities, which will be deployed in 2017-18, have already been committed to by leading IFE & IFC players. In the meantime, they have come onto our fleet and put us in a leading position in this fast growing market.
Technology evolution when approached in the right manner can also provide the optimal path for future-proof investments. Contrary to the mainstream thinking in our industry which has advocated the pursuit of the mega high throughput satellite concept (whether in mono, duo, trio, or quattro system) based on a defined technology at a certain point in time, SES has adopted an incremental approach over the years. With the advantage of commissioning around two replacement satellites per year, SES is introducing to its steady-state missions customized payloads that are tailored to growing applications. We define this approach as hybrid infrastructure. These incremental missions are leveraging the latest technologies at marginal costs, therefore enabling more favorable business models. And, to go back to our first tenet, this model is best suited to scale up rapidly and efficiently in sync with the evolution of the target market.
When done right, the application of these tenets is enabling SES to build a system with the most robust capabilities in each of the four targeted market verticals.
In Video, our strategy is to build scale rapidly across the entire value chain to best serve broadcasters. Scale matters at the level of digital media services as well as at the level of distribution channels covering linear and non-linear infrastructures. The addition of RR Media’s digital media service to the SES portfolio in 2016 is a formidable acceleration of our efforts to build capabilities.
In Enterprise, our strategy is an adaptive evolution along the value chain from providing wholesale MHz business to putting more emphasis on managed infrastructure services and platforms. The addition of O3b to the SES portfolio in 2016 is a unique acceleration of our agenda to build capabilities. From day-1 O3b has provided to all its clients managed infrastructure, services and platforms, and has achieved unrivalled success in the Enterprise market. It is a perfect fit to our strategy. It is also a great fit to our scalable approach to technology evolution as the fleet is expanded gradually and in doing so is tapping into the latest technologies and economics.
In Mobility, our strategy envisions the full potential of this fast growing segment for top-end aeronautical and maritime connectivity, and looks to work with our clients in enabling these markets. The upcoming deployment of our tailored high throughout capabilities combined with O3b provide us with a strong launch-pad in this fast growing segment where SES and O3b have achieved unrivalled success over the past two years.
In Government, our strategy is to orchestrate capabilities to offer space resilience to key governments, starting with the US and NATO. Unlike most commercial satellite operators, SES and SES Government Services in the US have been the primary providers of end-to-end programs serving civilian and defense related communication missions over multiple years. Our leading capabilities have enabled governments to team up with SES on hosted payloads, customized procurements, and joint programs that have best served mission critical programs.
Our strategy is clearly evolving, our execution is gaining strengths, and we are making great strides. We also have much more to achieve.