U.S. Markets close in 4 hrs 48 mins

Edited Transcript of I earnings conference call or presentation 29-Oct-19 12:30pm GMT

Q3 2019 Intelsat SA Earnings Call

LUXEMBOURG Oct 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Intelsat SA earnings conference call or presentation Tuesday, October 29, 2019 at 12:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* David M. Tolley

Intelsat S.A. - Executive VP & CFO

* Dianne VanBeber

Intelsat S.A. - VP of IR & Corporate Communications

* Stephen Spengler

Intelsat S.A. - CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Anthony Francis Klarman

Deutsche Bank AG, Research Division - MD and Global Head of High Yield Research

* Arun A. Seshadri

Crédit Suisse AG, Research Division - Analyst

* Christopher David Quilty

Quilty Analytics, Inc., Research Division - Founder & Partner

* Giles Thorne

Jefferies LLC, Research Division - Equity Analyst

* James Maxwell Ratcliffe

Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst

* Jason K. Kim

Goldman Sachs Group Inc., Research Division - Senior Analyst

* Lance William Vitanza

Cowen and Company, LLC, Research Division - MD & Cross-Cap Structure Analyst

* Michael Vincent Pace

JP Morgan Chase & Co, Research Division - MD and Senior Research Analyst

* Nicholas Michael Edward Dempsey

Barclays Bank PLC, Research Division - Research Analyst

* Philip A. Cusick

JP Morgan Chase & Co, Research Division - MD and Senior Analyst

* Richard Hamilton Prentiss

Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research

* Vivek Stalam

New Street Research LLP - Communications Services Associate

* Walter Piecyk

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Welcome to the Intelsat's 2019 Third Quarter Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference to your speaker today, Dianne VanBeber, Vice President of Investor Relations. Please go ahead, madame.

--------------------------------------------------------------------------------

Dianne VanBeber, Intelsat S.A. - VP of IR & Corporate Communications [2]

--------------------------------------------------------------------------------

Welcome, everyone, and thank you for joining Intelsat's Third Quarter 2019 Earnings Conference Call. Earlier this morning, we issued our earnings release and published a quarterly commentary, both of which are available at intelsat.com. The quarterly commentary supplements our release and 6-K filing and provides information and context that you need to analyze our results in advanced of the earnings call.

During today's call, we will discuss adjusted EBITDA and other financial metrics not prepared in accordance with U.S. generally accepted accounting principles, including EBITDA, related margins and free cash flow from operations. We provide reconciliations of these metrics to the most directly comparable U.S. GAAP measures in the earnings release and on our website. Later today, we expect to file our quarterly report on Form 6-K with the SEC. You can find the link to the filing on our website.

Additionally, our conversation today will include forward-looking statements that reflect our current expectations for future industry conditions as well as our business strategy, market trends and positioning and expected future financial performance. These forward-looking statements are subject to risks and uncertainties, many of which are outside of our control. Please refer to the Safe Harbor statement included in our quarterly report on Form 6-K for the quarter, ended September 30, 2019, once filed, and our other SEC filings for information about some of the factors that could cause our actual results to differ materially from our expectations.

Finally, please be aware that our conference call today is open to the investment community and media, with the media invited to participate in listen-only mode. Members of the media are not authorized to quote, either directly or in substance, any participant in the call who is not a representative of Intelsat. Our call today is hosted by our CEO, Steve Spengler; and our Executive Vice President and CFO, David Tolley. Following opening remarks by Steve, we will open the call for questions. Steve?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [3]

--------------------------------------------------------------------------------

Thanks, Dianne. Our third quarter results reflect inline performance and on track execution with respect to our 2019 plan. Since our last call, we successfully launched the Intelsat 39 satellite, placing it into service 2 weeks ago. The satellites' footprint spans Europe, Africa and Asia, and our business plan benefits from a long-term commitment from the Ministry of Transport and Communications of Myanmar. Further, we've incorporated some of the Intelsat 39 beams into our Flex network, adding resiliency and throughput to our managed service platform in these high-demand regions. Across the business, we are improving the stability of our core business.

To briefly highlight Intelsat's financial performance, in the third quarter, we generated revenue of $507 million, a decline of $30 million or 6% as compared to the prior year period. Adjusted EBITDA was $356 million or 70% of revenue, a decline of 14% as compared to the prior year period. In addition to the revenue trend, the largest contributor to the adjusted EBITDA result was the increase in direct costs related primarily to 2 satellites launched earlier this year. Also contributing to the increase in direct cost was the purchase of off-network capacity to support Intelsat 29E traffic restoration. Further, third quarter adjusted EBITDA reflects a bad debt charge of $7 million, the majority of which was related to 1 media distribution customer in Eastern Europe. Substantially, all of the commercial impacts of the April 2019 failure of Intelsat 29e are now known. We are comfortable that we've adequately forecasted the remainder. So today, we affirm our 2019 guidance in all respects, with expected performance in the upper half of the range for both revenue and adjusted EBITDA.

Before we move to Q&A, just a few words of the C-Band Alliance proposal to the Federal Communications Commission. Our FCC proposal outlines a market-based framework for clearing a portion of C-Band spectrum in as little as 18 months following a receipt of a final order from the FCC. We are acutely focused on the 4 goals of this proceeding as outlined by the FCC Chairman. They are: one, clear significant amount of spectrum; two, protect existing users; three, accomplish the clearing quickly; and four, generate revenue for the United States federal government. Yesterday's filing announcing our ability to clear 300-megahertz of spectrum, inclusive of a 20-megahertz guard band, demonstrates our significant progress to address the first 2 goals. We collaborated with our C-band customers to design updated compression-centric television distribution networks. This allows us to clear additional spectrum, while ensuring the quality and continuity of critical television distribution requirements of our customers. This filing demonstrates conclusively to all interested parties that we provided an unmatched solution to the core question of the NPRM, that is clearing the necessary amount of C-band spectrum to allow the U.S. to lead in the era of 5G innovation, while also protecting the incumbent users in the band. The third goal, speed, is the defining feature of our proposal. Our market-based approach accelerates the key milestone required to embark on the clearing process, the funding of new satellites to supplement capacity for the CONUS video neighborhoods.

The CBA companies' expertise in complex networking environments and our ability to implement the most efficient staging of the transition steps, provides an advantage for speed of implementation. Speed contributes directly to our addressing the fourth goal, generating revenue for the U.S. government. Our proposal generates billions of dollars in direct and indirect revenue for the U.S. government. The sooner U.S. service providers have access to cleared spectrum, the sooner the wheel of 5G innovation will begin to turn. Accelerating 5G will speed the creation of economic growth in hundreds of thousands of high-technology jobs. Moreover, we are on the record with our commitment to make a direct contribution to the U.S. Treasury as a result of an FCC order, which incorporates the C-band Alliance proposal. We are confident that our proposal generates the greatest value for the U.S. government in terms of both public interest and economic benefit and is the right path for enabling 5G leadership for the United States. Based upon comments made by the FCC, it appears the decision could be made in 2019. The FCC controls the timing of the order. Whenever the order is issued, we will be ready to implement our proposal quickly and efficiently.

Let's move to Q&A so we can discuss this topic and address your questions on the business.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from Philip Cusick with JPMorgan.

--------------------------------------------------------------------------------

Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [2]

--------------------------------------------------------------------------------

So great news on the updated proposal to make 300 megahertz of spectrum available. Any color on how that evolved given that it was always about to be more complex in the original plan? And was there a change in conversations with C-band end users that they're now more willing to transition to compression technologies?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [3]

--------------------------------------------------------------------------------

Sure. Thanks. Thanks, Bill. Yes. We have obviously been very closely engaged with our customers and users of our C-band spectrum and services on this particular issue. We couldn't reach the conclusion of clearing 300 megahertz without that close engagement. We know these networks very well. We know the plans that these customers have, and we sat down with all the major media and distribution companies to talk about their long-term distribution plans, how compression is currently being used in the network and how it could be used in the future.

We did see a lot of receptivity to moving to HEVC compression, which is an important step to make the network more efficient to clear more spectrum. And so by working with each one of these major customers on their longer-term plans, we were able to conclude that it was possible to clear more spectrum. And as we said all along, it is a complicated effort to do this. It's a major change to these customers' networks or requires an equipment change at both the uplinks as well as the downlinks in the change of their operations. And so we gave our commitment that we would work closely with them through this entire process of migrating our network to higher order compression and more efficient transmissions.

--------------------------------------------------------------------------------

Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [4]

--------------------------------------------------------------------------------

I see it only still takes 8 satellites. Why not more? And can you help us range the high end versus the low end of clearing costs?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [5]

--------------------------------------------------------------------------------

Sure. Our current view is that it will take 8 satellites. It may take more as we finalize our plans, but not materially more, perhaps 1 more. And the clearing cost for the 300 megahertz, obviously, has increased from what we've stated before. And so we're looking at a range of $2.5 billion to $3.5 billion in total costs, which includes all of the equipment that we would have to implement, the satellites, the implementation of filters and all the labor required to achieve all those goals.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

And our next question comes from Jason Kim with Goldman Sachs.

--------------------------------------------------------------------------------

Jason K. Kim, Goldman Sachs Group Inc., Research Division - Senior Analyst [7]

--------------------------------------------------------------------------------

So Eutelsat is still not officially part of the CBA at this point, and what does your updated plan contemplate in terms of cooperation from them?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [8]

--------------------------------------------------------------------------------

Well, first of all, we're moving forward. We don't see the fact that Eutelsat is not in the CBA as an impediment to the timing or the completion of our work with the various stakeholders in the FCC. So we are driving forward in this process in making very good progress. Of course, we would welcome them to participate in the CBA going forward. But ultimately, that's going to be their decision whether to rejoin.

--------------------------------------------------------------------------------

Jason K. Kim, Goldman Sachs Group Inc., Research Division - Senior Analyst [9]

--------------------------------------------------------------------------------

Understood. And it's good to see that the additional spectrum can be freed up in the timeframe, in the same timeframe you have outlined earlier, and actually more spectrum freed up for the first tranche versus what the CBA outlined before. My question is when we think about the second tranche in your new proposal for 180 megahertz, would that be available all at the same time? Or will there be some differences within that block as well?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [10]

--------------------------------------------------------------------------------

Our current view is that it would be available virtually at the same time. The second tranche necessitates the implementation of the additional satellites and full operational satellites and regrooming of the customers' traffic. So there's a lot of work to be done. So it's envisioned to be available at that 36-month point.

--------------------------------------------------------------------------------

Jason K. Kim, Goldman Sachs Group Inc., Research Division - Senior Analyst [11]

--------------------------------------------------------------------------------

Got it. And just quickly on bad debt expense. So the $7 million, the fact that you highlight it for the quarter, and then the $60 million of reduction in backlog this quarter, it seems like it's attributed to a single customer in Europe. For that, is that a quarterly revenue and EBITDA impact from this customer, the $7 million? Were that a year-to-date number that you're taking a charge against? And in terms of the backlog impact, what was the length of the contract that you wrote down?

--------------------------------------------------------------------------------

David M. Tolley, Intelsat S.A. - Executive VP & CFO [12]

--------------------------------------------------------------------------------

The incremental bad debt expense in the quarter was really a -- related to one customer in this quarter. It wasn't really year-to-date number. We finally had to make a judgment about the probability of collecting our receivables from this customer, and so we took that charge this quarter. And then the change in backlog was driven across our book of business. That's not just related to one customer and is the result of some debookings as well as some lower pricing from renegotiated contracts year-to-date.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

Our next question comes from Lance Vitanza with Cowen.

--------------------------------------------------------------------------------

Lance William Vitanza, Cowen and Company, LLC, Research Division - MD & Cross-Cap Structure Analyst [14]

--------------------------------------------------------------------------------

Question on Network Services. You mentioned in the commentary that there were some nonrenewals in Latin America. Could you provide some more color on that? And I'm really specifically wondering, are these customers just sort of going to traditional fiber solutions or is there a new technology? And what extent is softness in their own end-markets accelerating the pace of the nonrenewals?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [15]

--------------------------------------------------------------------------------

Sure. Thanks, Lance. Latin America in general is a softer market than other regions of the world. Demand is kind of flattish, and so we are seeing the impact of some weak economies in that region. As a result, we've seen customers in the network side consolidating some of their capacity and services with us. They're not going away, but they may be renewing less as they renew. So that's been a factor. There hasn't been any more migration to fiber other things than normal, so there's nothing trending in that direction that's out of the norm. And I would also say that there are several customers in Latin America that belong to a larger telecom group that have their own satellites. And so some of the services have migrated back to those captive satellites within those telecom groups. So that has been a factor in the quarter as well.

--------------------------------------------------------------------------------

Lance William Vitanza, Cowen and Company, LLC, Research Division - MD & Cross-Cap Structure Analyst [16]

--------------------------------------------------------------------------------

Great. And then just maybe a follow-up on the Epic side. In terms of commercial aviation, the airlines seem to be gravitating towards free WiFi for virtually all passengers. Now not all airlines are using 2Ku, but a lot of them are. Could you talk about your ability to service the prospective demand in a free WiFi world given your current constellation? At what point would you envision adding potentially additional Epic capacity? And might failure to add capacity, push airlines toward Ka?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [17]

--------------------------------------------------------------------------------

Sure. So I think you have the basic concept right, in the sense that as airlines move to free WiFi, the demand is expected to increase. And the requirements for additional network capabilities through our service provider partners and from us, increases. So we are aware of that and, of course, are talking to our distribution partners and service provider partners on those topics. As we talked in the past, we have the ability to move satellites into the North American region to support some of these applications, and we are doing that post the Intelsat 29e failure. But that is not necessarily enough, it's going to help us plug some holes and build some additional capabilities. But longer-term, we have stated that we are going to have a follow-on or a replacement type satellite for Intelsat 29e that would provide some substantial Intelsat Epic class capacity into the North American regions. So yes, we would envision making the right investments to make sure that our customers are able to meet that ultimate demand when free WiFi becomes a reality.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

Our next question comes for Anthony Klarman with Deutsche Bank.

--------------------------------------------------------------------------------

Anthony Francis Klarman, Deutsche Bank AG, Research Division - MD and Global Head of High Yield Research [19]

--------------------------------------------------------------------------------

A question on the media side. The quarterly commentary talks about an early termination fee that you received in the quarter of about $4 million, which would bring I guess the number down to around $219 million. And then I guess, I'm wondering if the lower revenue for the high risk customer that you have, is that also backed out of that number, such that you're recognizing that now on a cash basis? You only recognize that when it comes in? Or are you still accruing revenue for that customer that is unpaid?

--------------------------------------------------------------------------------

David M. Tolley, Intelsat S.A. - Executive VP & CFO [20]

--------------------------------------------------------------------------------

So the termination fees that's noted in the quarterly commentary is correct. So if you were to back out that termination fee, revenue would have been $219 million, so your math is correct. And then with the bad debt expense that we took in the quarter related to the European media customer, we are continuing to recognize some revenues from that customer that are consistent with our current cash collections from that customer. They are still paying, they're not just paying at the full rate that was specified in the contract. And we believe they will continue to do so. So those revenues are continued to be recognized, and we haven't given up on collecting what they owe us, we just took the accrual.

--------------------------------------------------------------------------------

Anthony Francis Klarman, Deutsche Bank AG, Research Division - MD and Global Head of High Yield Research [21]

--------------------------------------------------------------------------------

And then maybe David, while we're on that topic, how do you think about your FX kind of exposure in a world of an appreciating dollar against other currencies? Obviously, the cost of Intelsat services to some of these smaller customers gets more expensive. Have you thought about how you'll think about sort of the provisioning for bad debt? And should we start using these higher bad debt run rates as kind of the new norm given the dollar's appreciation against a lot of global currencies?

--------------------------------------------------------------------------------

David M. Tolley, Intelsat S.A. - Executive VP & CFO [22]

--------------------------------------------------------------------------------

I honestly don't think so. This has been for the longest time, primarily a U.S. dollar-denominated business as you know. We make some accommodations for customers when we think it's in our financial interest to do that, but it's not a primary driver of our business, and our exposure is relatively limited. And finally, if you look at the company historically, over time, through cycles, bad debt expense has been less than 1% of the top line. And if you look at our allowances today, we've got almost 2% of the run rate top line in those allowances, so we feel that we're pretty fully reserved, even given the fluctuating exchange rate environment that you're referring to.

--------------------------------------------------------------------------------

Anthony Francis Klarman, Deutsche Bank AG, Research Division - MD and Global Head of High Yield Research [23]

--------------------------------------------------------------------------------

And maybe Steve, if I could ask on C-band, I guess I'm wondering what the response was like from your customers when you went back to them to try to coach them on the needs and the wants to move through 300. And sort of what the big impediments were in their mind? And I guess, just a sort of maybe lead the witness a little bit, I guess I'm wondering if you establish proof-of-concept with your transition spending that you adequately or create a suitable replacement for the C-Band services from them, is there any reason why there would not be more spectrum that's able to be freed up over time once you're able to actually demonstrate that you can do what you say you're going to do on the 300?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [24]

--------------------------------------------------------------------------------

Well, let me just answer the bottom -- the last part of your question first. We really worked hard with our customers to determine what is the maximum amount of spectrum we can clear, leveraging all the available technology on the marketplace, while still protecting and retaining all those services and all that revenue on our side. And we felt we went to the max when we talked -- when we get to 300. And so we think that that's a place where we're comfortable that our customers are, let's say, comfortable. But going beyond that would be very, very difficult and don't see that occurring anytime soon.

We have, like I said, we've been engaged with these customers for decades. We know their networks really well. We've engaged with them through this whole process very closely. And I think the customer community, the media companies, broadcasters, content owners, they track what is trending in Washington, just as we do. And so I think they recognize that there is a very strong interest at the FCC and on Capitol Hill to clear as much spectrum as possible, and that there are alternative proposals out there that was -- we're going to accomplish some of those goals if they were feasible. So I think they recognized the public need and the priorities of the FCC just as we did. So then it was a matter of sitting down with them and figuring out what is possible in working customer-by-customer, service-by-service to determine how do we get to a higher clearing amount, and that's the outcome of the process.

--------------------------------------------------------------------------------

Anthony Francis Klarman, Deutsche Bank AG, Research Division - MD and Global Head of High Yield Research [25]

--------------------------------------------------------------------------------

And if I could maybe tag one more on. You had previously published a band plan and a proposed auction format with -- I think, Auctionomics, and I'm wondering how that changes now that you've moved to 300 and really, what are the major differences, if any, between sort of the first 100 and the next 200 to comps aside from just actual megahertz availability? Are there any kind of distinguishing features in terms of where they sit in the band or how the band plan my change as you've gone from 200 to 300?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [26]

--------------------------------------------------------------------------------

Well, we are just on the band plan and the -- let's call it the auction process. We're still engaged across, let's say, the community of carriers and interested parties regarding how that can be optimally designed in a way that's fair, that's transparent, that meets the needs of large carriers, small carriers and various interest. So that dialogue is continuing today.

And so we will get to a point where we find a common ground that everybody will be comfortable with and would be able to move forward with. I'm pretty confident of that. I would also add that in terms of what the spectrum looks like, as noted in our release yesterday, we've gone from 60 megahertz to 100 megahertz in the first 18 months. We have expanded overall by 100 megahertz more than the previous version in terms of cleared spectrum.

And so like a typical auction process, there will be the auction transactions and then there will be the assignment phase of an auction, where spectrum will be reallocated to make sure that the various parties will have contiguous blocks and are able to operate in the right kinds of environments that they require to deploy 5G. Just as an additional point, just to be clear, on that first 100 megahertz that is specifically for the top 46 PEAs in the country. So it's designed to get early spectrum out in the places of high population density to allow interested parties to start deployment as fast as possible.

--------------------------------------------------------------------------------

Anthony Francis Klarman, Deutsche Bank AG, Research Division - MD and Global Head of High Yield Research [27]

--------------------------------------------------------------------------------

And presumably, the following 200 will also be in those 46, so you'll add spectrum depth into those markets?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [28]

--------------------------------------------------------------------------------

That's correct. That's correct.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

Our next question comes Giles Thorne with Jefferies.

--------------------------------------------------------------------------------

Giles Thorne, Jefferies LLC, Research Division - Equity Analyst [30]

--------------------------------------------------------------------------------

I have 3 questions please. First one, I just wanted to explore the relationship as you see it and as it's been informed by your engagement with potentially interested parties in the spectrum. The relationship between aggregate spectrum being cleared and auctioned, and then aggregate proceeds. I don't think any of us believe that there will be a one-to-one relationship between the 2, but it'll be interested to get your comment on how the increase in spectrum is going to increase your aggregate proceed, if at all? Second one was much shorter, do you think the FCC's going to let you set your own reserve price? Or is it something that's going to be put up on you? And then the last one is coming back to the question of Eutelsat. You've been very consistent in your view that Eutelsat's behavior doesn't impinge upon your timing or your ability to deliver what you -- or what does CBA has said it will deliver. Eutelsat conversely thinks the opposite. They think they do have a holdout. So I know it's your views, but can you help me try and bridge the difference between your views? Why do they think they do have a holdout?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [31]

--------------------------------------------------------------------------------

David, could you take the first 2, please?

--------------------------------------------------------------------------------

David M. Tolley, Intelsat S.A. - Executive VP & CFO [32]

--------------------------------------------------------------------------------

Sure. Of course. Thank you, Steve. Giles, on the aggregate spectrum and proceeds, if I understand your question correctly, we do believe that the total proceeds of the auction will be higher in a 300-megahertz world as opposed to a 200-megahertz world. We see incremental marginal value to the spectrum from the buyer community. It is very difficult today to tell how much incremental value exists, but we believe the total proceeds will be higher. On reserved price, we really don't have any comment on that at this time, it's an issue that we're still working through so we will learn more later. And regarding Eutelsat, I'll let Steve take that question.

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [33]

--------------------------------------------------------------------------------

Yes. In terms of Eutelsat, I think if you look at the record and the filings around the legal authority of the FCC, and that was on the record, I don't know, a month or so ago, I think most parties believe that the FCC have the ability to address any holdout issues. And so we believe, we were comfortable with the fact that the FCC has authority to move forward when service is in the benefit of the public interest. So they've done that in the past, and we think they would have ways to deal with that in the future. At the same time, we have said that other members or other parties are welcome to join the CBA on a fair and nondiscriminatory basis, and we would address their needs accordingly. So to reiterate what we talked about before, they're welcome back in. And I think Eutelsat has to weigh what is the impact of a potential FCC order, under which they would potentially lose primary status in a portion of the spectrum. And that's something that they would have to take into consideration.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

Our next question comes from Mike Pace with JPMorgan.

--------------------------------------------------------------------------------

Michael Vincent Pace, JP Morgan Chase & Co, Research Division - MD and Senior Research Analyst [35]

--------------------------------------------------------------------------------

Couple on the business and then one on C-band. I guess what the government business -- I'm curious how much repricing risk from older legacy contracts are still in the system? And then on the flip side of that, it just feels to me that the language that you've used in your quarterly reports on the government business has been a little more positive over the last year or so, so I'm curious on the growth prospects there. That's number one. Number two, on your North American C-band business currently, I guess as part of the discussions that you've been having with your media customers, going from 200 to 300, and as part of that, upgrading them to new digital compression technology, free of cost to them, is there another sign of that meaning that they'll ultimately be paying you less money for the same business that they currently have? And then I'll just have my C-band follow-up afterwards.

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [36]

--------------------------------------------------------------------------------

Yes. Mike, on the second question, it is possible that they're going to be some different commercial terms as the services get compressed. So that is correct, but we would handle that in the course of normal commercial negotiations with our customers. To your first question about government, I think what we've seen is more stability in the government business. There is not a lot of new orders coming through. And of course, we're under a continuing resolution right now, so there are no new starts to projects and programs at the moment. So that's not helping matters at all. But we do see it opportunity in the government area, especially around managed services and especially for mobility. Ground mobility, in particular, where we've launched the Flex grounds service for our government customers, where it is very well-suited for communications on the pause or communications on the move. And we've obviously embarked on a government aeronautical service for our customers as well. So that's where we see the growth opportunity.

But having said that, it's generally a stable business, there's not a lot of new starts at the moment. Regarding your question about renewals and pricing, we're seeing renewal pricing right now as relatively stable in the current periods. And that is obviously a benefit of the elimination of the LPTA [means] of contracting, and I would say very modest declines for new business. And that's probably a direct relationship to the fact that there's just not a lot of new business and competition from what's out there.

--------------------------------------------------------------------------------

Dianne VanBeber, Intelsat S.A. - VP of IR & Corporate Communications [37]

--------------------------------------------------------------------------------

And as compared to a couple of years ago, I think it's a lot smaller percentage of [what's coming up] for renewal as compared to what we experience in 2019.

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [38]

--------------------------------------------------------------------------------

In 2020, absolutely.

--------------------------------------------------------------------------------

Dianne VanBeber, Intelsat S.A. - VP of IR & Corporate Communications [39]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [40]

--------------------------------------------------------------------------------

I'm sorry, in 2019. Yes.

--------------------------------------------------------------------------------

Dianne VanBeber, Intelsat S.A. - VP of IR & Corporate Communications [41]

--------------------------------------------------------------------------------

And he might -- just to put it -- to go back to your CBM question real quick, to remind you because I know you're trying to size that. The continental U.S. media distribution is about 6% of total company revenue and only about 85% of that or 85% is the CBM portion and, of course, you would just be compressing part of that traffic. So hopefully, that helps you kind of size that other side of that coin.

--------------------------------------------------------------------------------

Michael Vincent Pace, JP Morgan Chase & Co, Research Division - MD and Senior Research Analyst [42]

--------------------------------------------------------------------------------

It does. And then Steve, just on C-band. I realized this is a difficult one, but I'll just ask you direct. Have you had any discussions or has the CBA had any discussions with the FCC regarding the U.S. Treasury contribution? And if yes, I'm curious, thoughts versus what the CBA's expectations has been? And if not, why not have those discussions taking place yet?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [43]

--------------------------------------------------------------------------------

The CBA has had discussions on the contribution to the U.S. Treasury in a number of places within the U.S. government. I don't want to comment on anything specific, except to say those conversations have been constructive. And we don't see that as an impediment to bringing this overall order in for a landing that's acceptable to the CBA.

--------------------------------------------------------------------------------

Michael Vincent Pace, JP Morgan Chase & Co, Research Division - MD and Senior Research Analyst [44]

--------------------------------------------------------------------------------

And then just a follow-up there. Would you expect a U.S. contribution to be embedded into an FCC order for C-band? Or is that something that could happen post-order and maybe just wind up having to get negotiated between that in auction or proceeds or something like that?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [45]

--------------------------------------------------------------------------------

Yes. I'm not so sure if it'll be embedded in an order, but we would expect it to be defined at the time of the order. Let's just put it that way. That's what our expectation is.

--------------------------------------------------------------------------------

Operator [46]

--------------------------------------------------------------------------------

Our next question comes from James Ratcliffe with Evercore ISI.

--------------------------------------------------------------------------------

James Maxwell Ratcliffe, Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst [47]

--------------------------------------------------------------------------------

There's been discussion about -- as there always is, potential for litigation around the C-band process. And assuming if you do get FCC approval, how comfortable are you with moving forward on satellite orders and investment in the transition, while that litigation goes on and that have to be resolved before you could start putting the shovels in the ground, so to speak?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [48]

--------------------------------------------------------------------------------

There is a -- normally, after an FCC order, there is a "stay period", when aggrieved parties may claim irreparable harm to stop the order. That is a very high bar. It is very rare that, that is successful. So that is, I believe, a 30-plus -- some additional days, so somewhere between 30 and 60 days, the stay period. But that does not mean that there couldn't be other litigation occurring at -- in that timeframe or after that timeframe. But having said that, we are very confident that the elements of our proposal are consistent with the FCC's authority under numerous applicable laws. We have put that on the record, and that has been shared with the FCC publicly. It is a fact that the FCC has brought authority to develop policies that contribute to the public interest, and they have the ability and focus to write an order that will allow them to minimize that litigation risk. So we believe that they know exactly how to handle these situations. They know what their authority is. And they will write the order accordingly. But absent of stay, we will proceed with the project.

--------------------------------------------------------------------------------

James Maxwell Ratcliffe, Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst [49]

--------------------------------------------------------------------------------

And what's the long pole in the tent in terms of making the spectrum available? Is it actually going out and putting on filters or is it ordering and deploying satellites?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [50]

--------------------------------------------------------------------------------

For the 36-month time period, we have to get these satellites built and launched and operational. So that's a critical path, no question. For the first 18-month clearing, we have to get filters out to quite a few or station downlinks, so those are the main elements of the project.

--------------------------------------------------------------------------------

Operator [51]

--------------------------------------------------------------------------------

Our next question comes from the Nick Dempsey with Barclays.

--------------------------------------------------------------------------------

Nicholas Michael Edward Dempsey, Barclays Bank PLC, Research Division - Research Analyst [52]

--------------------------------------------------------------------------------

So first of all, the WRC-19 is just kicking off. There's a debate every time we had one of these regarding spectrum around the world and mobile operators wanting some of that. From your engagement with the 2019 conference, should we be concerned outside the U.S. about spectrum being taken away as a result of what's going on over the C-band process? Second question, Eutelsat was on the record on the docket as saying that the CBA did not have authority to go beyond a 50% treasury contribution. No one else seems to be mentioning a 50% treasury contribution so where did they get the number from? And why was that the focus of their conversation?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [53]

--------------------------------------------------------------------------------

So okay. Thank you, Nick. In terms of WRC-19, of course, this is a major industry event every few years. Intelsat is present at WRC-19 along with other satellite operators and other associations in the satellite sector. We've been working very closely with associations and other operators to defend our interests and protect our interests at WRC-19. At this WRC, the main focus is around some of the higher bands, Ka-band in particular. And so we are supporting the industry's efforts to make sure that, that spectrum is protected for satellite use well into the future. And so we are working diligently on that particular topic. C-band is not on the agenda at this WRC. There may be some proposals to put it on the agenda for the next one, so we will obviously be engaged on that. So this is a regular part of our business. We have -- as an industry sought to find areas of cooperation and support with the wireless interest, but we have to protect our spectrum just as they are anxious to get spectrum themselves. Regarding Eutelsat, I really don't have much of a comment on their statement regarding the contribution to the treasury. They haven't been present in the meetings with the government along with the CBA, so I'm not sure where that came from.

--------------------------------------------------------------------------------

Operator [54]

--------------------------------------------------------------------------------

Our next question comes from Walter Piecyk with LightShed .

--------------------------------------------------------------------------------

Walter Piecyk, [55]

--------------------------------------------------------------------------------

Can you provide some kind of timeline on how to expect things in terms of maybe a change in the auction structure and any government contribution? Do you anticipate the CBA making a recommendation? Or is it something that will just come out at the time of an NPRM?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [56]

--------------------------------------------------------------------------------

Well, let's look at the timeline. We know that the FCC wants to achieve something this year. So the timing is tight, there's a lot of activity going on right now, there are a lot of conversations between the CBA and other stakeholders. And so we're moving as quickly as we can to find common ground with the stakeholders to bring this effort to a conclusion, and that includes how we bring the spectrum to market and in an auction design and approach.

--------------------------------------------------------------------------------

Walter Piecyk, [57]

--------------------------------------------------------------------------------

I understand that. I mean, I just -- seem that you've sent us the press release out last night to address this obviously important issue. In terms of the amount of spectrum, is it going to be something similar in terms of the auction structure, which you previously, obviously, presented as well as contributions, which you've acknowledged as an issue that you're dealing with. Is it going to take the form of you issuing releases about this ahead of the order or is it just going to be a part of the order that you will then come out the same day the order and say, "Hey, we approve of what the FCC has just proposed?"

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [58]

--------------------------------------------------------------------------------

No. Well, we want to put things in the record as it's appropriate, and that's what we've done through the whole process. And so if there's something to put on record that would help the FCC move to completing its drafting of the order, then we'll do it.

--------------------------------------------------------------------------------

Walter Piecyk, [59]

--------------------------------------------------------------------------------

Understood. And then in terms of -- you mentioned a 30-days stay-period. If someone is suing the government, the FCC, that would obviously not occur during this -- within that 30-day comment period, right? That is outside of that. And I'm just curious if there's any kind of acknowledgment that like, everyone can sue if they want, they're obviously going to sue, here's how we're kind of framing how it could and have an impact on the timeline of the process in terms of gaining the spectrum, the 5G spectrum in the hand of operators. And maybe the costs -- actually, the costs, you probably don't care. In that case, the FCC is the one incurring the cost because they're defending themselves. So I guess it's more about if someone is suing on jurisdictional terms outside of this day period, how long you think that may take?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [60]

--------------------------------------------------------------------------------

Well, if there is a suit outside of the stay period, that does not impede the progress on the project. We continue to move forward. How long will it take? We know how fast the courts move. It takes years, and so it doesn't mean that we can't make substantial progress in the meantime.

--------------------------------------------------------------------------------

Walter Piecyk, [61]

--------------------------------------------------------------------------------

Understood. So your point is that -- I'm sorry for the last -- this will be the last thing. So I think what you were just saying then is if the FCC issued this and someone is challenging their jurisdiction, you believe that everyone can move forward, you can clear the spectrum, you can conduct the private auction, even if there's this lawsuit going on in the background?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [62]

--------------------------------------------------------------------------------

That's correct.

--------------------------------------------------------------------------------

Operator [63]

--------------------------------------------------------------------------------

Our next question comes with Vivek Stalam with New Street Research.

--------------------------------------------------------------------------------

Vivek Stalam, New Street Research LLP - Communications Services Associate [64]

--------------------------------------------------------------------------------

I was wondering if you could a little bit about the demand that you and the CBA have seen from the spectrum as far as potential buyers. I think it's well understood that the major U.S. wireless carriers are likely to participate in an auction. But who are the other companies or maybe groups of companies that you're seeing interest from?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [65]

--------------------------------------------------------------------------------

Yes. I don't want to get specific about what -- who we're talking to in this process, but we believe that the C-band spectrum is unique. It is unique in the sense that it is available in large nationwide blocks, which is important. It's clear spectrum, meaning that if there's no incumbrances from other services. And so by all accounts -- and by the way, it's also being used internationally in other markets for 5G and is being deployed today. So we believe it's central to the 5G strategy and deployment of operators. And the range of operators could be big national operators, so they could be small regional or rural operators as well. The importance of 5G is a nationwide priority, not just a urban priority. So we can't speak specifically about demand with our expectation this is very unique spectrum that will be going on the market.

--------------------------------------------------------------------------------

Vivek Stalam, New Street Research LLP - Communications Services Associate [66]

--------------------------------------------------------------------------------

Got it. You sort of break it down into existing large and small carriers. And I guess I'm just wondering are there potentially new large carrier entrants that you're seeing demand from?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [67]

--------------------------------------------------------------------------------

I think this could be attractive to all kinds of companies. And so we'll see what happens when it comes to market who shows up.

--------------------------------------------------------------------------------

Operator [68]

--------------------------------------------------------------------------------

Our next question comes from Arun Seshadri with Crédit Suisse.

--------------------------------------------------------------------------------

Arun A. Seshadri, Crédit Suisse AG, Research Division - Analyst [69]

--------------------------------------------------------------------------------

Steve and David, not to put the cart before the horse or daring to look beyond C-band, just a couple of bigger picture questions from me. First, industry rationalization at this point, it'd be good to hear your thoughts on whether it's needed in the broader context? And then secondly, on LEO/MEO, do you think having a bigger participation there is important for you? And then thirdly, role of like resellers and industry-specific service providers like Gogo and ENT and KVH, et cetera. Any opportunity there in terms of either vertical integration, consolidation or other thoughts on that would be helpful.

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [70]

--------------------------------------------------------------------------------

Sure. Okay. Thanks, Arun. We've said for a while that consolidation in our sector could be a healthy next step. So that is always a possibility for synergistic and most importantly, for strategic reasons. But it's always been difficult in our sector as well, right? So we just have to wait and see what develops there. And we can't obviously comment on anything more specific than that. Likewise, vertical integration is something that is a possibility as well. It may be appropriate in certain areas where the value chain needs to be strengthened and the go-to-market strategy needs to be strengthened. And so I think there could be some speculation of where that could make sense for some companies, but no specific comments on that either. In terms of LEO and MEO, we've always believed that the future is a hybrid future. And we have a fleet of satellites now that operate in C, KU and Ka-band. And spectrum can be sourced from all different spectrum bands. We also believe that geo satellites can coexist in a hybrid service with LEOs in other orbits or even non-terrestrial networks such as high-altitude platforms. And so no one particular orbit spectrum solution fits all requirements. And so as we look to the future, we'll look at a hybrid multifaceted-type architecture and network. So we'll continue to engage across the ecosystem to see what capabilities we want to incorporate.

--------------------------------------------------------------------------------

David M. Tolley, Intelsat S.A. - Executive VP & CFO [71]

--------------------------------------------------------------------------------

Arun, it's David. I might add one thing. We continue to evaluate M&A opportunities, whether they have to do with industry consolidation or vertical integration opportunistically. It's something we think about and look at all the time, but we also believe that it's critical to control your own destiny, because you never know when these opportunities might be available or available at a value that makes any sense. So when you think about the investments we're making in our managed services platforms, or how we think about reinvesting in our space segment, it's always with a view to building a solid standalone industrial company and stabilizing and ultimately, growing our top line. And then if there are things that are opportunistically in addition to that, fantastic.

--------------------------------------------------------------------------------

Operator [72]

--------------------------------------------------------------------------------

Our next question comes Ric Prentiss with Raymond James.

--------------------------------------------------------------------------------

Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [73]

--------------------------------------------------------------------------------

Couple of questions. Apologize, it's been a busy wireless infrastructure satellite last 12, 14 hours. On the C-band proposal, when you mentioned the clearing up 2 tranches, is the first tranche expected to be an auction format or it's just the second tranche expected to be an auction format?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [74]

--------------------------------------------------------------------------------

So that is still in development on how we would proceed, and so I'm not going to comment specifically about what the format will be. But we recognize the importance of having a process that is transparent, that's fair, that's open to a whole range of bidders, that's familiar to the bidding community so that we can move quickly through the process. And so that is very much in development at present.

--------------------------------------------------------------------------------

Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [75]

--------------------------------------------------------------------------------

Okay. Those are all the right words we keep hearing from the other side of the equation, too so glad to hear those words. When you talk about 100 megahertz available, 120 put into it, in 46 of the top 50 PEAs, do you know which markets are not in the top 46 out of 50? Trying to figure out how many tops are we talking about that would be in that first tranche.

--------------------------------------------------------------------------------

Dianne VanBeber, Intelsat S.A. - VP of IR & Corporate Communications [76]

--------------------------------------------------------------------------------

I don't know if you can name all 4 of them. I can give that to you.

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [77]

--------------------------------------------------------------------------------

Yes. We know that. Well, first of all, Honolulu is not part of it because that's not part of this proceeding. And then there are 3 other major markets.

--------------------------------------------------------------------------------

Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [78]

--------------------------------------------------------------------------------

Okay. I'll get that from Dianne later today. That's great. And then the second one, glad to hear the comments on -- that you are having discussions in different parts of the government about voluntary contributions. In the past, there has been thoughts and sayings that it's hard to figure out who you're supposed to negotiate with, and you don't want to negotiate with yourself. Has it become more clear who really is the correct party to be negotiating with and how do we think about the path to getting that resolved?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [79]

--------------------------------------------------------------------------------

We think it's become more clear and we're having those conversations with those parties. But as I said earlier, it's progressing constructively, but I can't say it's completed yet. So that's very much in process, but the right people have heard what we're willing to do, which is the important thing.

--------------------------------------------------------------------------------

Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [80]

--------------------------------------------------------------------------------

As opposed you don't know who you're negotiating with, so that's a clear plus. Okay. And then the final one for me, as previously on clearing the 200 plan was that you had not included 4 satellites into your CapEx budget for that. Now the way is one says there might 8 satellites. Is that 8 for the whole C-band that you would just have to do 4? Or how should we think about the old thought of 4 satellites were not in CapEx guidance and now that there might be 8 satellites?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [81]

--------------------------------------------------------------------------------

So the satellites that we're talking about are CBA. Let's call them CBA satellites that would be procured both by Intelsat and SES. And that's not in our current guidance.

--------------------------------------------------------------------------------

Dianne VanBeber, Intelsat S.A. - VP of IR & Corporate Communications [82]

--------------------------------------------------------------------------------

8 for both companies.

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [83]

--------------------------------------------------------------------------------

8 for both companies.

--------------------------------------------------------------------------------

Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [84]

--------------------------------------------------------------------------------

8 combined from both companies? And previously, when you thought it was 4, was that just 4 for you?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [85]

--------------------------------------------------------------------------------

Yes. Well, when we talked about 4, it was 4 for us. That's correct.

--------------------------------------------------------------------------------

Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [86]

--------------------------------------------------------------------------------

Okay. So it's really not a change in the number of satellites. It's just 8 have to be done by the C-band and by both you and SES?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [87]

--------------------------------------------------------------------------------

Right.

--------------------------------------------------------------------------------

Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [88]

--------------------------------------------------------------------------------

Okay. And then any clarification on the $2.5 billion to $3.5 billion versus the previous $1 billion to $2 billion. about how much is still for satellites versus how much is for the compression and other items?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [89]

--------------------------------------------------------------------------------

We haven't broken it down, but you can see the increase relates directly to the large investment we're going to have to make in compression technology.

--------------------------------------------------------------------------------

Operator [90]

--------------------------------------------------------------------------------

Our next question comes from Giles Thorne with Jefferies.

--------------------------------------------------------------------------------

Giles Thorne, Jefferies LLC, Research Division - Equity Analyst [91]

--------------------------------------------------------------------------------

It was quite specific, I just want to come back to the level of HEVC investment and satellite investment have been the 2 things you've spoken about that gives the extra 100. I just wanted to explore whether there was any acceleration as the channel switch off by customers by broadcast, that's also contributing to technically squidging down the volumes, squeezing existing envelope of business into a smaller spectrum allocation?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [92]

--------------------------------------------------------------------------------

Yes. So the question is about SD, Giles?

--------------------------------------------------------------------------------

Giles Thorne, Jefferies LLC, Research Division - Equity Analyst [93]

--------------------------------------------------------------------------------

Yes. That's right. So you've seen SD switch off for a while but did you sit there with a customer and say, "Look, if you really did switch off those 10 channels and move to HEVC." Then we can realize our goals or was there any aspect to that?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [94]

--------------------------------------------------------------------------------

So, yes. I mean, that has been happening. We've been talking about how some SD channels have been switched off and how distributors of content are down converting from HD to SD when they need to at the head ends. As we engage with our customers on the plans to implement HEVC, it was a discussion in the context of their existing plans for various decisions in their network. And I have to assume that, that some HD switch offs were part of that. But it was a comprehensive view of where their plans are in terms of the distribution over time and what channels and what formats, et cetera. So I assume that, that's somewhat part of it. But I will say that there was nothing in those discussions that would suggest that any channels are being turned off for over-the-top type-alternative transmission. That impact does not seem to be part of the equation as we have had these conversations.

--------------------------------------------------------------------------------

Giles Thorne, Jefferies LLC, Research Division - Equity Analyst [95]

--------------------------------------------------------------------------------

So it's just a regular, a time of channels. They're not of relevance anymore?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [96]

--------------------------------------------------------------------------------

It all depends in the operator's -- each particular operator, how they distribute their various channels around the country.

--------------------------------------------------------------------------------

Dianne VanBeber, Intelsat S.A. - VP of IR & Corporate Communications [97]

--------------------------------------------------------------------------------

It's more format, Giles, because sometimes, they put out both an SD and an HD of the same channel, and so what this does is just gets them down to distributing single format.

--------------------------------------------------------------------------------

Giles Thorne, Jefferies LLC, Research Division - Equity Analyst [98]

--------------------------------------------------------------------------------

(inaudible) in an earlier question -- sorry, go ahead.

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [99]

--------------------------------------------------------------------------------

Yeah. Sorry. Go ahead. That's correct. I mean, it's not that you're turning off discrete channels, they're just reducing the duplication in their distribution.

--------------------------------------------------------------------------------

Operator [100]

--------------------------------------------------------------------------------

Our next question comes Chris Quilty with Quilty Analytics.

--------------------------------------------------------------------------------

Christopher David Quilty, Quilty Analytics, Inc., Research Division - Founder & Partner [101]

--------------------------------------------------------------------------------

I just want to get 2 clarifications on the CapEx profile. Does the current guidance include the replacement for 29e? And do you expect to get that order lockdown shortly?

--------------------------------------------------------------------------------

David M. Tolley, Intelsat S.A. - Executive VP & CFO [102]

--------------------------------------------------------------------------------

Chris, what we said last quarter was that we thought we could incorporate a replacement for 29e within the current CapEx guide, and that continues to be the case. And so I would expect an announcement in that regard to just come in the ordinary course.

--------------------------------------------------------------------------------

Christopher David Quilty, Quilty Analytics, Inc., Research Division - Founder & Partner [103]

--------------------------------------------------------------------------------

Got it. And do you expect it to be in the same Epic design, or -- I guess is the follow-on question, are you still on track for announcing the post-Epic plans by the end of this year?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [104]

--------------------------------------------------------------------------------

Yes. It will be a high-throughput satellite that will have similar but better capabilities than our existing Intelsat Epic satellites. We have the benefit of time, as time has gone on since our last Epic satellite has been built, we believe we can get better economics and better performance in this satellite. So it's not necessarily our next generation. Next generation of Intelsat Epic is part of our software defines satellite strategy that we've talked about in the past, and that we are very much focused on at the present time. But it's a step in between, let's just put it that way.

--------------------------------------------------------------------------------

David M. Tolley, Intelsat S.A. - Executive VP & CFO [105]

--------------------------------------------------------------------------------

And Chris, I wouldn't commit to it, but I think we will have something to say about it this calendar year.

--------------------------------------------------------------------------------

Christopher David Quilty, Quilty Analytics, Inc., Research Division - Founder & Partner [106]

--------------------------------------------------------------------------------

Okay. And final question, on mobility services, can you give us an idea on the quarter how that compared vis-à-vis last year, up, down, flat?

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [107]

--------------------------------------------------------------------------------

Well, mobility in particular was impacted by Intelsat 29e. So that, unfortunately, put some pressure on that.

--------------------------------------------------------------------------------

David M. Tolley, Intelsat S.A. - Executive VP & CFO [108]

--------------------------------------------------------------------------------

But Chris, I would say, so it would have been down year-over-year, but that is primarily due to the dislocation caused by 29e. So for example if you were to look quarterly sequentially, it would have been up.

--------------------------------------------------------------------------------

Christopher David Quilty, Quilty Analytics, Inc., Research Division - Founder & Partner [109]

--------------------------------------------------------------------------------

Got you. And is that primarily on maritime or aviation or across all markets?

--------------------------------------------------------------------------------

David M. Tolley, Intelsat S.A. - Executive VP & CFO [110]

--------------------------------------------------------------------------------

I would say the primary drivers were maritime and aero, but those weren't the only drivers.

--------------------------------------------------------------------------------

Operator [111]

--------------------------------------------------------------------------------

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Steve Spengler for any further remarks.

--------------------------------------------------------------------------------

Stephen Spengler, Intelsat S.A. - CEO & Director [112]

--------------------------------------------------------------------------------

Thanks, everyone, for joining our call, and thanks for your questions. Look forward to seeing many of you at upcoming investor and industry events in the months of November and December. So thanks for joining us.

--------------------------------------------------------------------------------

Operator [113]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, you may now disconnect.