Gilat navigates path through capacity crunch

Gilat Satellite Networks came through 2009 with decreased revenue of US$228.1m, but managed to increase its EBITDA. However, net income rose to US$1.9m compared to a net loss of US$1.1m for 2008.
To learn more about how Gilat has coped with a crunch in…

Gilat Satellite Networks came through 2009 with decreased revenue of US$228.1m, but managed to increase its EBITDA. However, net income rose to US$1.9m compared to a net loss of US$1.1m for 2008.

To learn more about how Gilat has coped with a crunch in the economy and available satellite capacity, SatelliteFinance spoke to Erez Antebi, CEO of Gilat Network Systems and Spacenet Rural Communications, two of the group’s largest units.

The interview was conducted less than a week before the company announced that Mr Antebi has decided to leave the company to seek other opportunities.

He spoke plainly about the problems Gilat has faced over the last 12 months. “2009 was a tough year,” he said. “We felt that many customers were holding back on capital expenditure, not necessarily cancelling programs but delaying them.

“Another problem was a shortage of space segment, which is good for the satellite operators who are making a lot of money, but that means there are programs that people were willing to invest in, but couldn’t find the space segment with which to deploy. That caused some reduction in revenue.”

Antebi said that the lack of available Ku-band capacity had been a problem in Africa, India, Latin America and Russia, a lament that has been echoed by other service providers and VSAT companies operating in those regions.

Gilat anticipates that while there will be only a minor improvement to this situation this year, 2011 will see a definite rise in available market capacity.

Antebi cited Latin America as Gilat’s strongest growth market geographically, while the growth in its application business was driven by simple broadband access in underserved locations.

As a major VSAT and service provider, Gilat has sat back and watched its rivals Hughes and ViaSat make major commitments to build their own satellites to provide consumer broadband in the US. Gilat has been adamant that it has no ambition to join this market, and Antebi reiterated the reasoning behind this stance.

He said: “I think it would be extremely challenging to repeat the consumer business that’s in the US outside of the US. Even in the US itself, if you look at the overall investment that has gone into building the consumer business, even there it’s going to be doubtful that all the investors will get their money back, not to mention turn a profit.

“At the end of the day it’s our responsibility to create value for our shareholders and you don’t do that by building an asset and writing it off.”

While Gilat does not have great confidence in the consumer model, it acknowledges that Ka-band technology has a role to play in the future of the industry.

“Once you strip out all the hype, Ka-band is a natural progression from Ku,” said Antebi. “Spectrum has become so scarce that there simply isn’t enough room in the sky for additional Ku.

“There’s nothing magical about Ka-band. We’ll wait and see who decides to launch Ka capacity and how they design their satellite. I think they would be wise not to try and copy the US consumer-only internet access model and try to build a satellite with a lot more uses.”

Gilat will focus instead on its own technological development. The company invests around US$20m on R&D each year, which comes straight out of its available cash flow.

Some of the new applications it is developing include NetEdge, a new topology based on its existing SkyEdge 2 VSAT platform. The company is also working on a new platform that will aid in its expansion into the military sector, which was boosted by its recent acquisition of Raysat Antenna Systems (See Ground Segment).