In this episode of the Viasat podcast, host Alex Miller speaks with Evan Dixon, Vice President – Global Fixed Services at the company. Since Viasat recently acquired the remaining 51% stake in Euro Broadband Infrastructure (EBI), which includes the KA-SAT satellite, Dixon has a lot to say about what’s ahead for internet customers in Europe.
The added capacity from KA-SAT, he says, enables Viasat to offer more robust service plans in the near future. It will also serve as a runway toward the second ViaSat-3 satellite over EMEA.
The EBI deal, which concluded a joint venture between Viasat and Eutelsat, offers a strong bridge to the future, Dixon says. In addition to acquiring a business the company was already involved with, EBI gives Viasat the ability to build up ViaSat-3-like plans prior to launch. This offers a valuable look at what the future holds for better internet service plans in many parts of Europe.
Transcript
Alex Miller: Hello and welcome to the Viasat podcast. I’m Alex Miller with Corporate Communications, and we’re here today with Evan Dixon, Vice President of Global Fixed Broadband Services, to talk about Viasat’s recent purchase of its European broadband joint venture. Thanks for being on the podcast, Evan. I think it was a year ago when we did our last one. It’s great to have you back.
Evan Dixon: Thanks a lot for having me again, Alex.
Alex Miller: Let’s jump in. First, it’s exciting that we closed this deal, which now gives us our own satellite and ground network in Europe before we launch the ViaSat-3 constellation starting in 2022. Can you explain the value and rationale for why we wanted these assets?
Evan Dixon: First of all, it’s important to point out that this is a business we know very well. We have had a joint venture with Eutelsat for several years now. I personally have been on the board of this business for the past couple of years alongside Rick Baldridge and Keven Lippert from Viasat. So we’re very familiar with how the business is operated and how it’s run, which is unique when it comes to an acquisition and certainly gives us an advantage to hit the ground running. So we’re really excited about that. As for why we did this? It’s a great financial move for the company. If you just take a step back and look at it: We paid 140 million euros for the remaining 51 percent stake in the joint venture — and the business had 100 million euros in the bank. So we spent about 40 million euros in cash to get a business that we valued at a significant multiple beyond that. And this business is generating a lot of EBITDA that’s going to go immediately into our segment. It’s generating a lot of free cash flow. It’s a positive business. We can take it and integrate it into our satellite services segment, where it fits in very nicely. Secondly, this is a logical conclusion to our partnership with Eutelsat. We set out to be partners for the long term. Along the way, after some bumps, we decided to go our separate paths. We just didn’t quite agree on the direction that we’re going to go. And so this joint venture coming to an end is a logical conclusion to our partnership with them.
Alex Miller: So what are some of the other verticals that would make sense for Viasat services and technology in Europe with Viasat and then later ViaSat-3?
Evan Dixon: Viasat bought the KA-SAT satellite, which has multiple business lines on it, many of which Viasat already is a part of. So in addition to the fact that we already know the business pretty well, we actually are already utilizing the satellite quite a bit. We have residential services that are riding on KA-SAT today in Spain and Norway and Poland. Viasat also has multiple airlines that are utilizing KA-SAT capacity, including SAS and Finnair. In addition, we’ve also got a maritime business. Several boats are using KA-SAT. Our government services business utilizes much the capacity of KA-SAT as well. So acquiring the satellite is not all about acquiring revenue. It’s actually about acquiring a lowering of costs that are to come. Today, Viasat pays for those KA-SAT services, and that that cost will effectively go away, as we own the satellite ourselves. And I’d also point that this accelerates our ability to care for ViaSat-3 over EMEA [Europe, the Middle East and Africa], which is launching next year. So when I say prepare, that means we get to learn the markets. We get to establish our sales and distribution and operational foundation across the continent. And one of the things I’m most excited about is we get to start building directly those key relationships with distributors across the continent and start to share with them the Viasat vision and what is to come with the new ViaSat-3 packages.
Alex Miller: So, Evan, when we first announced the intention to purchase the remaining 51 percent of the joint venture, some media were positive and some were skeptical. What would you say to those skeptics?
Evan Dixon: First of all, I don’t think that reaction is any different from any time a public company makes an acquisition. There’s going to be some who love it and some who question it. And this was no different. But I’d say rather simply the fact that we purchased a financially healthy business that’s generating a lot of free cash flow for an outlay of 40 million euros. That alone should address the skeptics. This satellite has a lot of years left in its life and it covers what we believe is one of the most important broadband markets in the world. And we can get access to it right now. And then as I already touched on the ability for us to prepare for ViaSat-3 is incredibly valuable. There’s nothing more important when ViaSat-3, launches to make sure that ViaSat-3, ramps up with business and subscribers very quickly. And the only way to make sure that we ramp up quickly is to be ready. And we’re going to build out that preparedness over the course of the next year and hopefully put us in a good position for ViaSat-3, over year to be really successful.
Alex Miller: So the KA-SAT satellite you were just talking about covers Europe and some of the Mediterranean. Is that pretty much the extent of it?
Evan Dixon: Parts of North Africa, too. And it extends into the Middle East a bit. It covers western Russia as well, down into the Mediterranean. So it covers a rather wide geographic region.
Alex Miller: And then we’re going to be looking at some of those outer fringes of the footprint?
Evan Dixon: Yes. The business that we bought already has an extensive amount of revenue coming in from all those regions — everywhere from Turkey to Morocco to Russia to Ukraine down to the Balkans. No question, the majority of that revenue is coming from Western Europe, which has been a successful market for KA-SAT. We plan to continue that success. But we also are excited to extend some of that success into Eastern Europe, Southern Europe, North Africa and into Russia.
Alex Miller: Let’s get into the market’s appetite for broadband. What is the dominant broadband technology that people are using in Europe today?
Evan Dixon: I don’t like to talk about Europe like it’s a single market. There’s a different broadband situation going on in every single country there. But speaking generally about the continent: Fiber is rolling up quickly, similar to what we’re seeing in the United States and many parts around the world. However, you have a lot of antiquated DSL [Digital Subscriber Line] that won’t be upgraded. And when I say antiquated DSL, that’s what we would define as being a prime underserved market: Slower speeds, not capable of doing a lot of what residences are requiring today at home. The unserved market is getting smaller, but that’s OK because that’s never been an interesting market for Viasat. We’ve always been focused on the underserved market. That’s much more interesting for us because it’s a much larger market and it allows us to focus on differentiating services. And so that’s really going to be our focus.
Alex Miller: In other words, the number of places where people don’t have any access to Internet is getting pretty small, but the number of places that have poor services is still ripe for expansion?
Evan Dixon: Yes, the number of people who don’t have any service is definitely getting smaller. It’s still large. We expect to do very well in that unserved market. But long-term, our ability to be viable and have an enduring business in Europe is going to be focused on the underserved market.
Alex Miller: So we don’t want to be too broad about Europe. But in the United States, we know that video and streaming drive a really large amount of the data consumption. Is that pretty much the case in a lot of European countries?
Evan Dixon: Yes, it is. It’s all about streaming. They’re at a different point in their cycle in terms of the penetration of video streaming – but they’re not far behind the United States. The year-over-year streaming growth and the usage of broadband to do that streaming is growing exponentially in Europe. I would say they’re a year or two behind where we are in the United States in terms of their streaming adoption. And as that adoption rate increases, they’re going to need better and better connections. That’s really our opportunity at Viasat, because we’ve got a service that works fantastically with streaming. And we want to make sure that we bring that to as many parts of Europe where technology hasn’t kept up with the demand.
Alex Miller: How is the European residential market different from the U.S., and how is it similar?
Evan Dixon: I would say that it’s really healthy in terms of how large the underserved market is. However, the outcomes are where the challenges are going to be. Broadly speaking, broadband ARPUs [Average Revenue Per User] in Europe are less than they are in the United States. And really what that does is highlight the need for us to differentiate our product and service in the market. We’ve done that in the United States. Our ARPU is significantly higher than those of the broadband, the MSOs [Multiple System Operators] and the fiber companies. We’ve done that by differentiating ourselves. And we’re going to have to do the same in Europe. We have to make it so that people are willing to pay a bit more for a premium service. And in order to lure them from an antiquated DSL product over to a more expensive satellite broadband product, it’s going to take something that is attractive and differentiated from the service that they have. So you’re going to see us coming up with all sorts of pricing and packaging that differentiates us, and hopefully attracts a lot of those subscribers.
Alex Miller: We’re kind of used to that in the United States. But as we expand globally, that’s an issue you’re going to have to confront all over the place.
Evan Dixon: I think the biggest thing we see in every market, not just in Europe, is that people want to have a broadband connection that enables them to do the types of activities that are required for today. And that’s streaming, of course, during this time of the pandemic. A lot of home schooling, home online shopping and social media. People are happy with the broadband connection they have until it’s suddenly not capable of keeping up with those demands. Many times people at home don’t pay attention to the type of connection they have, or the type of speed they have, or how much data they have until something breaks. And when something breaks, that’s when they start shopping for something else. The majority of our customers come from people moving from an antiquated technology, such as DSL. And those people find out about us because their internet was no longer sufficient to do the things that they wanted to do. So they call us for a better product. We expect that will be very similar in Europe.
Alex Miller: Will we be competing with other satellite internet companies in Europe?
Evan Dixon: Yes. You have Eutelsat, which recently launched their Konnect satellite. We will be competing with that. You have some other smaller providers that primarily are providing wholesale service to a fragmented group of smaller ISPs. So it is certainly not without competition. But we like our place and how we fit in and our ability to compete there. We feel pretty good about it.
Alex Miller: Can you talk a little about what ViaSat-3-like residential service plans might look like for subscribers in Europe?
Evan Dixon: Just as we plan to do in the United States, we will release ViaSat-3 preview plans ahead of ViaSat-3’s launch. The real goal there is to show the market what is to come, and how attractive that is. We have not yet released any specifics yet, so I can’t go into detail today. But as we get closer to ViaSat-3, we will have some really exciting announcements about what those packages will look like in terms of taking both speed and data orders well beyond where they are today.
Alex Miller: So the satellite service market in Europe is pretty competitive with Eutelsat and local market ISPs, and now SpaceX is coming onto the scene. How do you plan to compete in the residential space?
Evan Dixon: It really comes down to differentiated services. In Europe specifically, satellite broadband has been commoditized. And when you have a commodity, you can really only differentiate on price — and, to a lesser extent, customer service. When you can only differentiate on price, that just ends up to be a battle about margin compression: Who’s willing to suffer with a smaller margin for the sake of volume? We’re not going to get in the mud and fight that sort of fight. We’re going to be focused on differentiating our services – making it so that there’s a clear difference between what we’re able to offer versus what other satellite broadband providers are able to offer. And that’s not just in terms of price or customer service. It’s going to be in the speed we’re able to offer, the entire customer experience, the amount of data that we’re providing, the video experience — people who want to watch 4K streaming, people who want to stream a lot at a high quality resolution. We plan to offer them a service that is truly differentiated in the marketplace.
Alex Miller: And we’ve been adding other products to our service offerings in the U.S. market. Is that something we’ll see in Europe as well?
Evan Dixon: Yes. We have an extensive product roadmap, the least of which is a product that’s going to enable much more streaming of the most popular content around the world. We’ll be announcing some of that in the coming months. We are really excited about bringing that to Europe because we know that streaming is so important to that market, and enabling people to stream a whole lot more in high-definition 4K at home is going to be incredibly valuable.
Alex Miller: Sounds like a lot of amazing stuff is coming up, especially with the launch of the satellite sometime over the next year. This has been a great conversation. We learned a lot about the market dynamics and our plans with that and how that’s going to help lay the groundwork for ViaSat-3. Thanks a lot for walking through all of this, Evan.
Evan Dixon: Absolutely. Thanks a lot for having me, Alex.