It is a bad time to sell satellite ground segment, aka a teleport.  But it is a great time to sell a successful satellite services business with a teleport at its core.  

That paradox is the conclusion of Best Practices in Teleport Valuation, a newly published report from the World Teleport Association.  

A teleport executive with several acquisitions said, "The only way you’re going to get any real value out of a business you are trying to sell is to look at it on an EBITDA basis (earnings before interest, taxes, depreciation and amortization).  The only way you would ever sell a teleport just as a physical asset is if you had to, because there was no ongoing business.  And it would be a distress sale.”  

What makes a teleport valuable to a buyer, if not the physical assets?  It is the value of the customer contracts, less the risk of their being cancelled, plus the track record of growth – and an analyst’s opinion of the current value of that future cash.  But there is much more to the story.   

It also makes a difference to buyers who the customers are.  "Contracts with other service providers are not of much value to us,” said an executive of a company that is making acquisitions annually.  "They are likely to be competitors.  We are interested in end-customers, not intermediaries.  The exception is in the emerging economies, where we like to see contracts with local partners.  Let’s say we are looking at a teleport in Europe that services Africa through small-to-midsize resellers.  There is value in that.  In each country, we need local partners who can find business, license it, install it and maintain it.”  

Another serial acquirer put it this way: "When you plan to put assets together, they need to perform better together than they would apart.  One plus one has to equal three or four.  Otherwise, why are you doing it?  One approach is to chase savings but that really doesn’t apply well to our business.  Most facilities are pretty lean when it comes to their biggest expense, which is people.  The point of having multiple facilities is to attract business that you never could before.”  

The satellite services business also has surprises in store for anyone used to valuing more conventional telecom assets.  "What is different about buying a teleport from buying most communications businesses,” said a former teleport CEO, "is that it is also a real estate purchase.  And in real estate, the three most important things are ‘location, location, location.’  Even in our global market, the services of a teleport are dependent on where you perform them from.”   

What can the owners of a teleport-based business do to increase their return on investment?  "When entrepreneurs sell businesses,” said one broker, "they have spent their whole lives getting customers and keeping operations going.  Attending to the mundane details of documentation has never been a priority.  But it becomes a priority now.”  

Another broker summed it up: "The more you have your act together, the better your valuation is going to be.  At least have your financials ready in GAAP form (generally accepted accounting principles) and make sure you have all the due diligence materials to back them up: bank records, records of litigation, environmental records, licenses, customer and vendor contracts.  The more you have this stuff neatly packaged with a bow on it, the more people are likely to believe what you say.”  

A media executive valued a different kind of investment.  "One very valuable step that doesn’t cost much money is to put extra effort into building your image or reputation.  Show up at trade shows, join association boards, sit on panels and work to be perceived as a leader in the industry.  It is one thing to have a business that is well-run; it is another to have people perceive that your company has strong, competent management, which can make it much more attractive to buyers.”   

And what’s the biggest mistake an owner can make in putting the business up for sale?  "A lot of sellers have unrealistic expectations,” said a teleport executive.  "In our industry lately, we have seen some deals done at very high valuations in terms of EBITDA multiples – high single or even double digits.  That is for companies that are large, have good contracts and professional leadership.  Owners see that and think that their small company can be sold for the same high multiple.”  But demanding a high price can carry risks.  "The owner just wants to recoup his investment, said another executive.  "He asks for crazy numbers and sticks to them.  In the end, he gets the opposite of what he wants.  He doesn’t get his price, and a broker comes in to break up the facility and sell the pieces as used equipment at the worst possible price.”  

It is the rare satellite services business that is publicly held and reveals its inner workings.  Best Practices in Teleport Valuation is a unique glimpse behind the scenes of a private market that is setting value on satellite services companies every day. 

Throughput, measured in bits per second, has long been the Achilles' Heel of satellite communications.  The global satellite network, with its unique location in the high ground of space, can do things that no other communications technology can do as efficiently and effectively.  But it has never been able to do very much of it.   

When TV was the only "broadband" application requiring significant throughput, it didn't matter.  But with the average smartphone today consuming more than a gigabit of data per month, we are clearly not in Kansas anymore when it comes to end-user demand.   

Since the 1990s, the industry has done its best to adapt.  Advances in compression delivered step-change improvements in capacity and allowed media companies and their service providers to squeeze more and more channels into a single transponder.   Each advance made service providers fear for the future – that demand would drop as capacity increased – but after a short time, customers always absorbed the extra capacity and wanted more.   

When Internet trunking became a market, it raised the bar by requiring advanced coding and error correction to reduce latency in two-way traffic.  And now Ka-band is making its way from specialized niche application to the mainstream through the efforts of Avanti, Eutelsat, ViaSat, Arabsat and Hughes.  In the process, it seems to have unleashed a different paradigm on the industry.  

When ViaSat bragged that its ViaSat-1 spacecraft would add more bandwidth in space than the entire GEO satellite fleet, it was more than a marketing statement.  It signaled a change in the rules of the game.  The "high-throughput satellite," a term coined by NSR, went from vision to reality in a remarkably short time.  And it has triggered an "arms race" among satellite technology companies to deliver higher and higher throughput in C and Ku bands as well. Intelsat's EPIC announcement was only the most recent, if most far-reaching, of a wave of innovation in coding and network architecture.    

Why is it happening now and what will it mean for the companies that deliver services via satellite?  From now through early September, WTA will be conducting interviews with executives from technology, teleport and satellite companies for a report titled Teleports in a Gigabit World.  We will ask whether the ability to market a lower-cost service in C, Ku or Ka-band will be a positive or negative for their businesses.  Are there opportunities to gain a competitive advantage over slow adopters or become gateways for integrated high-speed networks?  If so, what new investment demands will it create and what technologies should they bet on?  In the process, how can they stay true to a successful teleport's most important rule: invest ahead – but only a little ahead – of customer demand to avoid getting stuck with unusable technology.  

Find out on September 24, when Teleports in a Gigabit World will be published online.  Like all WTA reports, it will be free to members and available for sale to non-members.

In the Seventies, there were major fears that the world was running out of stuff.   Food, metals, energy resources, you name it.  A 1972 book called The Limits to Growth portrayed a future in which population growth, industrialization, pollution, food production and resource depletion ended in tears unless we learned to curb our appetite for growth.   

In 2001, a Danish statistician and environmentalist named Bjørn Lomborg published The Skeptical Environmentalist.  He made a startlingly different case, based on numbers.  If we are running out of everything, he wrote, then why are the costs of almost everything going down?  The laws of supply and demand say that the scarcer a commodity, the higher a price it will fetch.  But in case after case he presented, the opposite had happened.   

Innovation explains the difference.  We have become much better at finding and extracting raw materials, and at making more efficient use of them.  The global supply of useful stuff keeps expanding because our ability to get at it continues to grow.  

Of course, there are limits, whether to the supply of oil and gas or to the Earth’s ability to absorb greenhouse gases.  There are always limits – but we don’t seem to be very good at forecasting them.   

Which brings me to the laws of physics.  Currently, the number one discussion on WTA’s LinkedIn Group is about bandwidth.  It started when we posted news of Newtec announcing a new speed record by helping Yahsat deliver 310 Mbps over a 36 MHz transponder.  Group members weighed in with questions and answers about the achievement, and a NovelSat executive described delivering 365 Mbps over a 72 Mhz transponder for SES, which helped the company win our Teleport Technology of the Year Award in March.         

This is important work.  Satellite technology can provide high bandwidth capacity to places that no other technology can reach as cost effectively.  It can deliver one-to-many better than anything else.  But the total bandwidth available remains bound by the laws of physics.  Every advance that lets us send more bits per hertz – from frequency re-use to adaptive coding – is of great significance.   

This discussion, however, raised an interesting question in my mind.  Practically speaking, just how seriously do we need to take those laws of physics?  We know there are limits.  Claude Shannon of Bell Labs defined the theoretical maximum information transfer rate of a communications channel, for a particular noise level, and it became known as the Shannon Limit.  His son was a childhood friend of mine and I remember Dr. Shannon as a quiet, courteous gentlemen quite absorbed in his own remarkable thinking process.  I am no more equipped to dispute his Limit now than I was at the age of ten. But I wonder.  In the manufacture of silicon chips, we read every few years that we are coming up against a theoretical limit which will prevent us from squeezing any more transistors or wiring onto that tiny square of high-quality sand.  And every few years, regular as clockwork, we find that the forecast date for reaching that theoretical limit has been pushed a few more years into the future.   

I suspect that, in the back rooms of the technology companies in our membership, there are wild-eyed visionaries conceiving the next impossible bandwidth breakthrough and making it work.  Which means that there are a lot more interesting discussions waiting to happen. 

What is the single biggest operating expense for most teleport operators?  Teleports are capital-intensive businesses, but that cash outflow appears on a different part of the ledger.

Teleport operators write their biggest operating expense checks to the vendors who sell them satellite transmission capacity, which they use to deliver end-to-end solutions to customers.  That fact makes the ability to get the best deal of prime importance to every operator, and a matter of survival to some. 

WTA has just published the first-ever guide to getting that best deal.  How to Buy Satellite Capacity is based on interviews with more than a dozen executives for operators large and small in North America, Europe and Asia.  It describes the factors that determine what teleport operators pay for capacity, how to position requirements, negotiate and – perhaps most important of all – manage the risks. 

The relationship between teleport operators and satellite operators is complex.  Satellite operators are vendors to teleport operators, and view them as an important channel to market.  Sometimes, satellite operators function as strategic partners that bring uplinking business to teleport operators.  But in other cases, satellite operates compete directly with teleport operators for managed services business.  As one of our interviewees put it, "Everybody is a partner and customer and competitor at the same time.”

How to Buy Satellite Capacity offers the experience of "old hands” at playing this complex game.  We have published it to spread essential knowledge among our teleport operator members on the best ways to manage their businesses.  We will be doing a great deal more of that through our Four Nines Project, which promotes best practices in teleport operators, technology and management for the good of teleport operators and their customers.

This industry is full of great stories, and How to Buy Satellite Capacity has its share.  My own favorite: the travails of an operator who was delivering satellite-based services into an Asian nation when a coup toppled the elected government.  Overnight, the military government outlawed satellite operations.  Why?  The army had installed a lot of fiber capacity and their marketing plan involved arresting competing telecom executives and forcing customers to use their fiber.  To help his company survive the damage, an intrepid executive for the teleport operator went into the country to collect from customers for services rendered before the coup.  During a public transit strike, he hired bodyguards and a bicycle rickshaw, collected tens of thousands of dollars in cash and caught an evening flight out of the country.

Now that’s the spirit that built the teleport industry, and will keep it competitive for years to come!

Correct me if I am wrong, but it seems to me that teleport operators have been in the news a lot lately.  GlobeCast's AP partnership at the ASEAN summit, the Harris acquisition of Schlumberger GCS, which it plans to combine with CapRock Communications, and Arqiva Broadcast & Media's 100-cinema digital distribution deal with Odeon UCI are just three recent examples.   

Teleports are a critical link in the space-terrestrial network.  But it was not so many years ago that all the news in satellite or terrestrial communications was about the major carriers or the pioneering technology providers.  Starting earlier this decade, WTA made it a priority to raise the profile of the teleport sector, because greater recognition translates directly into greater opportunity for our members.   That is one of the motives behind reports like Ka-Band and the Teleport and market research like Sizing the Teleport Market.  It is why we announce each year’s Top Operator rankings of the world’s largest and fastest-growing teleport operators.  And it is the reason we honor teleport operators, executives and technology companies at each year’s Teleport Awards for Excellence on the opening day of SATELLITE.  

So, I believe that WTA has something to do with the higher profile accorded our industry.  But when you are on a voyage, it also helps to have the wind at your back.  The teleport sector itself has become a bigger and more active player in the market.  In the past, the biggest operators of teleports were slow-moving incumbent telcos for whom satellite services were an afterthought.  Today, they are well-capitalized publicly-traded companies like Globecomm, RRsat or Telecommunications Systems Inc.  They are also subsidiaries of a diverse collection of companies committed to growth.  Think of GlobeCast, Harris, and Arqiva, of course, but also Singapore Technologies, GE and Emirates Telecom.   These companies and their teleport units are making things happen around the world.   

And as they make things happen, the value of the WTA network is rising.  Teleport operators of every size have a growing opportunity to "punch above their weight” by networking through WTA, contributing to research and programs, participating in events and joining our committees.  Small companies that think of themselves as filling a narrow niche can scale up their ambitions by tying into this global network of strategic partners and innovative technologists.  Big companies are increasingly using WTA to speak with one voice for a teleport sector that faces greater competition every day.  You can do it on your own using our online tools or by asking our staff for help.  We can guide you to the right colleagues, the right resources and the right connections to accomplish your goals – however large your operation, wherever you may be in the world.