Eutelsat Communications SA

PAR:ETL

Earnings Call Transcript 2020-Q3

[Operator]

Good Day, and welcome to the Eutelsat First Quarter 2019-2020 Revenues Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Rodolphe Belmer, CEO. Please, go ahead.

[Rodolphe Belmer, CEO & Director]

Good evening, ladies and gentlemen, and thank you for joining us on this call where we will present our third quarter 2019-2020 revenues. I'm Rodolphe Belmer, CEO, and I'm joined today by Michel Azibert, Deputy CEO; and Sandrine Téran, CFO. Before looking at the operations in detail, let's give a look at the main takeaways of the quarter. First, overall -- sorry, first of all, our third quarter revenue performance confirmed our expectation of a progressive improvement in trend throughout the financial year 2020. I will come back to this. Broadcast was resilient with stable revenues year-on-year and a return to growth on a quarter-on-quarter basis. On the commercial front, we saw the solid outcome of spring renewal campaign with the U.S. government, with a renewal rate above 85%. And the commercial win in maritime mobility with a multiyear contract with Telenor, highlighting the unparalleled coverage of our fleet. And for Konnect Africa, the MoU to connect schools across the Democratic Republic of Congo. And finally, current trading leads us to confirm the revised financial objectives announced some weeks ago in the face of the COVID-19 crisis. As I highlighted just above, the topline trend for the Operating Verticals has improved throughout the year with a third quarter decline of 1.6% year-on-year, after minus 3.7% in the second quarter and minus 6.2% in the first quarter. On a quarter-on-quarter basis, we have consolidated the return to slight sequential growth recorded in the second quarter with a plus 1.2% rise in the third quarter. And our pure Broadcast business, i.e., excluding FRANSAT, continues to demonstrate its resilience with revenues of EUR 196 million in the third quarter, fully in line with levels observed over the past 2.5 years. This stability, which is unique in our industry, reflects a couple of central factors: First, our geographic exposure with emerging markets accounting for 50% of revenues and our absence from the declining North American markets. And the fact that our end customers are predominantly in DTH distribution, the most resilient subvertical compared, for example, with [indiscernible]. Before moving to the business-by-business analysis, a quick word on the recently signed Konnect Africa deal in DRC. It is aimed at connecting schools across the Democratic Republic of Congo to the internet and giving them access to digital platform of educational content and teaching materials. The first stage of the project aims to connect 3,600 private schools over the next 12 months, leveraging Konnect Africa's satellite capacity. We estimate an ARPU of around $100 per month for school for the [ 9 ] months of the school year. At the latter stage, it opens the door to further roll out the project out to several tens of thousands more schools in DRC with the potential to expand also into other African countries. So it is an indication both of the potential size of the market as well as the opportunity created by government needs in fields like educational, administration and other -- and others in Africa. Now over to Michel Azibert to take a further look at the Q3 performance by application.

[Michel Azibert, Deputy Chief Executive Officer]

Thank you, Rodolphe. Total revenues for the first quarter 2019-20 stood at EUR 322 million, down 4.4% year-on-year. This reflected mostly a EUR 13 million decrease in other revenues, which included a significant one-off engineering fee last fiscal year. Revenues for the 5 Operating Verticals, i.e., excluding other revenues, were down by 0.5% on a reported basis, and as Rodolphe said earlier, by 1.6% on a like-for-like basis, excluding the positive currency effect of Circa 1.1 points. There were no perimeter effect this quarter. As a reminder, all variations referred to in the following slides are on a like-for-like basis, i.e. at constant currency and perimeter. Let's have a look at the applications. Broadcast, 62% of total revenues recorded Q3 revenues of EUR 199 million, unchanged versus last year and up by 2.1% quarter-on-quarter. Data and Professional Video, 14% of group total recorded revenues of EUR 45 million, down 7.6% year-on-year and stable quarter-on-quarter. Government Services, 12% of the group total saw revenues of EUR 40 million, down 2.4% year-on-year and up by 2.3% quarter-on-quarter. Among the Connectivity businesses, Fixed Broadband revenues stood at EUR 19 million, a decline of 2.6% year-on-year and 2.3% quarter-on-quarter. Mobility generated revenues of EUR 21 million, up 2.2% year-on-year, but down 3.5% quarter-on-quarter. Other revenues amounted to minus EUR 1 million against a positive EUR 12 million a year earlier, which, as mentioned, included a significant one-off engineering fee. Other revenues for our current fiscal year included a negative EUR 3 million impact from hedging. Let's look at each vertical in more detail, starting with Broadcast. Third quarter revenues were stable on a year-on-year basis at EUR 199 million, reflecting on one end, the carryforward effect of the return of a couple of transponders in Russia in July. And on the other, higher revenues, notably in MENA and at 28.5° East. On a quarter-on-quarter basis, Broadcast revenues rose by 2.1%, including a positive one-off of circa EUR 1 million. On the commercial front, activity remained dynamic with the addition of a new platform in Sub-Saharan Africa, called Ghana RCF at 7° East as well as the renewal and expansion of business in the Western Balkans at the 16° East orbital position. During the quarter, EUTELSAT 7C entered into service, bringing 19 incremental transponders to the African market, which will ramp up gradually. Elsewhere, EUTELSAT 5 West B entered into service, replacing EUTELSAT 5 West A. A quick look at channel counts. At the end of March 2020, the total number of channels broadcast by Eutelsat satellites stood at 6,867, down 2% year-on-year. Half of the decline comes from 2 specific elements. One, the termination of a contract in Sub-Saharan Africa, already mentioned in previous quarters; and two, a negative one-off related to opening channels. Importantly, the number of channels are now stabilized sequentially. Year-on-year, HD channels rose by 10% to 1,667, implying a penetration rate of 24% compared to 22% a year earlier. The number of MPEG-4 channels actually declined slightly over the same period to 4,731. The penetration rates, nevertheless, remains close to 70%, well in excess of that of HD. And taken altogether, consumption of megabit per second at our KA-SAT rose by around 1% year-on-year. Turning to Data and Professional Video. Revenues stood at EUR 45 million, down 7.6% year-on-year. This reflected ongoing pricing pressure in a highly competitive environment. As expected, there was an improvement in trends related to the second quarter, which was minus 15%. On the back of an easing comparison basis and improved volumes, thanks in particular to a substantial contract win in MENA. As a result, on quarter-on-quarter basis, revenues were stable. Professional Video revenues, notably those related to the transmission of live sport events, started to reflect the impact of the COVID-19 crisis during the course of March and will undoubtedly be deeply affected in the fourth quarter. Turning to Government Services, where revenues stood at EUR 40 million, down 2.4% year-on-year. They reflected, on one hand, the negative carryforward effect of 2019 renewals rates, which were 85% in spring and 90% in fall. And on the other, the initial contribution of the EGNOS payload, which entered to service on 15th February, on EUTELSAT 5 West B. On a quarter-on-quarter basis, revenues were up 2.3%. The latest round of contract renewals with the U.S. Government, spring 2020, resulted in a robust renewal rate at above 85% in value. The fourth quarter should benefit from 2 tailwinds: The full quarter contribution of EGNOS and the temporary relocation of EUTELSAT 7A. Third quarter Fixed Broadband revenues stood at EUR 90 million, down by 2.6% year-on-year and by 2.3% quarter-on-quarter. The decline reflected yet again the absence of new capacity and a lower contribution from traditional distributors in Europe, which is not yet offset by the ramp-up of the Preferred Partnership Program. In Africa, revenues remain modest at this stage as we remain focused on [ trialing ] distribution models on a limited scale ahead of the arrival of Konnect next fiscal year. As mentioned earlier, the MoU with school app highlights the opportunity represented by government-backed digital inclusion programs in Africa. Third quarter revenues for Mobile Connectivity stood at EUR 21 million, up 2% year-on-year, reflecting the continued ramp-up of Maritime business. The effect of the COVID-19 crisis on this application was limited to a slowdown of capacity contracts on KA-SAT in March. However, the direct and indirect impact of the shrinkage in airline and maritime traffic will be more pronounced in the fourth quarter. On a quarter-on-quarter basis, revenues were down 3.5%. As a reminder, second quarter revenues, including the catch-up of a negative one-off of circa EUR 1 million, which was booked in the first quarter. On the commercial front, we signed a multiyear contract with Telenor Maritime for mobility services in selected sailing areas, highlighting the long-term potential of this vertical as well as the quality of Eutelsat's in-orbit resources and tailor-made customer solutions. A quick look at the backlog and fill rate rates. The order backlog stood at EUR 4.2 billion at the end of March 2020 versus EUR 4.3 billion at the end of December '19, reflecting natural backlog consumption in the absence of material broadcast renewals. It was equivalent to 3.2x 2018-19 revenues with broadcast representing 67%. The number of operational transponders stood at 1,377 at the end of March 2020, down by 41 units on a year-on-year basis and by 10 units quarter-on-quarter. This reflected, on the one hand, the end of life in stable orbit of EUTELSAT 4 West B and lower operational capacity at 5 West. And on the other, incremental capacity brought by EUTELSAT 7C in January 2020. The number of utilized transponders stood at 959, stable year-on-year and down by 7 units quarter-on-quarter. As a result, the fill rate stood at 69.7% at the end of March 2020 compared to 67.7% a year earlier, and it was unchanged over the quarter. Now back to Rodolphe for a word on the outlook.

[Rodolphe Belmer, CEO & Director]

Thank you, Michel. Compared with many companies, Eutelsat is well placed to weather the COVID-19 crisis. The nature of our infrastructure allows us to ensure virtually 100% business continuity, even in a work-from-home context. Our business is typically characterized by long-term contracts, a substantial backlog and the criticality of our capacity for our customers. Moreover, our activity remains highly cash generative and our financial health is robust. We have ample headroom relative to our non-bond debt covenants. After the work carried out on our debt profile in the past couple of years, we have a well spread refinancing schedule with no maturities within the next 12 months, and we have a strong liquidity position of over EUR 1 billion at end March. In spite of this resilience notably of our core Broadcast business, which represents over 60% of revenues, certain verticals or sub verticals are feeling the effects of the current crisis, particularly since mid-March. They include Professional Video, circa 1% of group revenues, which is impacted by the postponement of -- or the cancellation of sports and other events, and I mean the occasional use part of the Professional Video segment. Second, the Mobile Connectivity segment, which represents 6% of group revenues, which is affected by the impact on airline and maritime traffic of this crisis, and to a lesser extent, Fixed Broadband, representing 6% of group revenues, which may face a slowdown in gross ads in the context of more challenging customer gathering in the initial low down phase. These effects still limited in the third quarter will be more pronounced in the fourth quarter, representing a risk to full fiscal year '20 revenues of the order of EUR 20 million, which is reflected already in our revised revenue targets. And these same factors are likely to continue to affect our business into the next fiscal year, together with likely delays in our fleet deployment program. For example, the rollout of Ground gateways for the Konnect satellite and the probable launch delay of EUTELSAT QUANTUM. We are assessing the impact of these factors on fiscal year '21 revenues, together with the probability of a more generalized slowdown in the face of new business. [indiscernible]. We confirm that COVID-adjusted financial outlook of the 9th of April, revenues from the 5 Operating Verticals of around EUR 1,250 million for the current fiscal year. Cash CapEx, at an average, not exceeding EUR 400 million per annum for the period covering July 19 to June 22. Pursuit of the implementation of the LEAP 2 cost saving plan, and they're generating EUR 20 million to EUR 25 million in annual savings by fiscal year '22. And of course, we maintain our objective of a sound financial structure to support our investment-grade credit rating, and we'll continue to aim at the medium-term net debt-to-EBITDA ratio around 3x. Our objective of discretionary free cash flow of around EUR 500 million in fiscal year '22 remains suspended, pending our assessment of the effect of the crisis on the outer years. Although, as stated earlier, we are confident our business will remain highly cash generative. An updated objective will be provided by the end of July. As regard shareholder remuneration. In order to create additional financial flexibility, the Board of Directors will recommend a dividend cut of 30% in respect of fiscal year '20 at the AGM in November 2020. However, we plan to reverse to our policy of a stable to progressive dividend as soon as circumstances permit. Regarding the share buyback program, the first tranche of EUR 20 million has been completed already, obviously, at favorable prices. The program is suspended until further notice. A few words to conclude. COVID issue aside, our Q3 revenues delivered the underlying improvement in revenues we were expecting. In particular, Broadcast was resilient with a return to Q-on-Q growth in the third quarter. Our cash generation capacity remains solid, even in the context of lower topline growth, our tactical -- sorry. We have a high level of shareholder remuneration, even taking into account the dividend cap. And we are well positioned to withstand the challenges of the current environment, thanks to the combination of resilience and cash-generative activities and solid backlog and a robust financial position. I thank you for your attention, and we are now ready to take your questions. You can now open the lines to questions.

[Operator]

[Operator Instructions] And we'll take our next question from Paul Sidney from Crédit Suisse.

[Paul Sidney, Research Analyst]

Just a couple of questions from me, please. Just in terms of the COVID-19 impact, you've had a bit of time now to look at the impact on your business. Clearly, it will have an effect in full year '20 and spill into '21. But my question is really, do you think this is just purely timing? Do you think this revenue in this business will eventually come to you over time? Or do you think there is any sort of permanent loss due to the crisis? And then secondly, sort of a big picture question. We've seen Eutelsat going to Chapter 11 today.[indiscernible] didn't make it. Just interested [indiscernible] to get your big picture views on how you see the competitive landscape in the future going forward? And also, do you think with less players and potentially, the more rational players, you can see return to better pricing power in the industry?

[Rodolphe Belmer, CEO & Director]

Well, thank you, Paul. Concerning your first questions on the impact of COVID-19. We see, well, the vast majority of the impact has been purely timing. When you think of what will be the main impact on Eutelsat, the revenues in fiscal year '21 of COVID-19, it will be mostly linked to delays in some satellite programs like the QUANTUM satellite, which is likely to be launched later than expected, the Konnect satellite for which total stations are -- well, the installation of the [ stations ] are less due to the confinement. And of course, this delay will be caught up later on, meaning that we will -- these initiatives will produce denominal revenues, but a bit later in time. The other large impact will be concentrated in the Mobile Connectivity segment where -- it's [indiscernible] that as long as the airline and maritime traffic remains very low, of course, the revenues in the mobility segment will be affected, but they will resume as soon as the traffic is back, probably [ '22 ] or '23, which means that the vast majority the impact on us, we think will be purely timing and that we should find as well our nominal trajectory once the peak of the sanitary and economic crisis are behind us. Concerning the situation of the industry, it's sure that, well, the situation of the industry overall is changing. Even though, Eutelsat's profile is very solid because we managed the company very prudently in the past few years, as you know, very well because we thought that our industry was in a transition phase in which we need to be prudent, which means that we actually have a very solid balance sheet, very solid liquidity situation, very high cash flow generation, secured shareholder remuneration. But our industry is marked with significant challenges and difficulties, and you have listed the first -- to the first of them with the examples that you have taken. Do we think that this might end up in a more -- in a less competitive situation in our sector in the short term, probably not. Probably [indiscernible] because even though, some [ actors ] are challenge, they are still there, and they will continue to impose a competitive weight into the sector. It means that in our balance sheet, we don't have any market [indiscernible] as you call it, driven by the financial difficulties encountered by our -- by our peers.

[Operator]

And now we take our next question from Aleksander Peterc from Societe Generale.

[Aleksander Peterc, Equity Analyst]

I have a few. First of all, you said that you had a EUR 20 million impact from the pandemic on your sales for the year. Now off that EUR 20 million, how much did you see coming through -- in the quarter, if any? And so that will allow us to define what remains for the fourth quarter. Then specifically in Mobile, can you tell us what is the proportion of fixed noncancellable contracts that you have in there that will not go away? And what the proportion can go away, if all Mobile basically just standstill, which is the case at the moment. And then the third quarter, I don't know how much you can say this, but we've seen reports of Eutelsat billing for OneWeb assets. So if you can say anything about that? Are you looking at the entire business or just part of it? And so which one was the involvement of [indiscernible] and the EU in [indiscernible] in the reports you've seen, which you can't say anything about [indiscernible] just can you just share your latest thoughts on NGOs, and how your position evolve on the usefulness of such constellations?

[Rodolphe Belmer, CEO & Director]

Well, thank you, Aleksander. Your first question on the impact of COVID on our fiscal year '20 revenue, and how they are -- how those EUR 20 million impact are -- is staggered across the fiscal year. The vast majority of the impact is expected into the fourth quarter. We had a very, very small impact in the third quarter, but very limited. The impact we had instantly was in the Occasional Use segment, which is very small, for which was due to the cancellation of some sport events, we had some reduction in the consumption of capacity in these very small segment, but it was very, very small in the third quarter. And second, it was in the Mobile Connectivity segment where the -- what the total use contracts started to produce less revenue immediately when the planes were -- was started to be grounded at the mid -- in the middle of the month of March, but it was very small. And the vast majority of this EUR 20 million are expected to take place and to [ occur ] into the first -- into the fourth quarter. Second question. In the Mobile Connectivity segment, and we have mostly, as you call them, fixed contracts. Very vast majority of our contracts are firm commitments, which are taken by our customers. We have a very -- well, a small portion of our contract are in a sort of paper use scheme, and that's a contract that we have in Europe in KA-SAT, which has a value of mid-single-digit in terms of millions of euros, meaning -- and that's been the main variable contract we have in that segment. And lastly, well, your last question or your last set of questions concerning OneWeb and the non-geostationary constellations. Maybe I will start with the latter. We have not shared our view on low orbit constellation. We believe and the more we dig into it, the more we believe that those constellations comes with very, very important economic challenges, meaning that it's highly -- well, it will be very difficult to derive decent amount of returns out of the first phase of those investments, which means that we are very prudent when it comes to investing into LEO constellation, into NGSO. Of course, there are some markets in which makes sense because the CapEx are very small and the revenue potential very -- I mean substantial and can derive into a very good rate of returns. And I mean that's the project we have in the Internet of things with our ELO constellation. And the reason why it makes sense, economically speaking, it's because the CapEx associated with the development of this kind of constellation is very low. When you think of ELO, you might imagine CapEx, which are in order of about EUR 1,000 million to EUR 3,000 million. It's very limited Capex, with revenues which are substantial, which means that you can expect, you can hope for, well, different rate of returns. We [indiscernible] our threshold, which is 12%. Below 12%, we don't interest. But we approach all the projects of consolidation with this driver in mind. Are we in a position to generate a rate of return [indiscernible] 12% is a very high level of [ probability ], and that's our key driver. We are looking at all the opportunities, which are opened by the current economic situation in our industry. That's our jump. That's our -- that's one of our animations. And of course, we are looking into OneWeb situation, but be sure that we look at this situation with very disciplined, very value creation focused eye. And for the moment, the situation, in OneWeb, is nonbinding, purely indicative stage, and we are looking at that, but no more than that.

[Operator]

And now we take our next question from Sami Kassab from Exane.

[Sami Kassab, Media Research Director, Co]

Few questions from my side. First one, can you discuss the year-on-year pricing development, capacity pricing development across verticals? Has deflation slowed? Or did it accelerate? Second question, please, is SpeedCast just [indiscernible] for Chapter 11. Gogo, Global Eagle and other service providers in the oil and gas industry are suffering. Did some of these service providers reached out to you to reset fixed contract terms? And if so, what has been your report? And more generally or more specifically, what is your exposure to SpeedCast, please? And lastly, DTH has returned sequential growth. How do you see that growth in Q4 and Q1? Do you think it can remain positive?

[Rodolphe Belmer, CEO & Director]

Well, thank you, Sami. I will start with your last question. DTH, well -- and more than DTH, our Broadcast segment, which covers mostly -- which consists mostly of DTH, that not only is very resilient. I insist on that. We have been saying that for a very long time. Sometimes we have not very -- we have not been -- well, may we have enough credibility on that front. Our Broadcast business is very solid, very resilient, very stable, very predictable, and this quarter, is confirming exactly the same elements and the same argument. Do we believe that our -- that this business will continue to be likewise in the future, we do. This business is very resilient with the capacity we provide to our customers is absolutely necessary to them to reach to populations. They are targeting, and we anticipate to have solid results in the broadcast segment in the next few quarters. Your second question on SpeedCast, Gogo, Global Eagle. In total, these 3 customers account for around 1%, or precisely 1%, I should say, of our total group revenues, meaning that we are little exposed to those 3 customers. I'm not going to more -- into details and to give to you what's exactly the turnover we make with each of those, of course, for [indiscernible] to understand. But in total, those 3 customers, we are very little exposed to them. Are we approached by some customers today with demand to reduce our price or to renegotiate our contractual terms. Of course, we are. But are inclined to accept, of course, not. The quality of the service we deliver is untouched. Most of the times, our customers need our capacity to produce services for which they generate good margins and good revenues. And in most cases, we see no reason why we would accept to renegotiate or to enhance our contractual -- contractual terms. And that's the -- so I can bring to your direct question. Concerning the pricing evolution, maybe I can give you the broad view, and Michel can help me, if he want to bring more elements. In terms of pricing, in the Video segment, our pricing is stable overall. On most of our orbital slots on our -- what we call, our hotspots, our main orbital position in the Video segment, our pricing is stable. We have some price which are in reduction at some nonprincipal nonmajor orbital slots to attract new customers, and we have been quite successful at that in the past few months where we have been able to attract more customers to launch their DTH platform through our orbital resources. And of course, it does affect our average price per transponder, but if you take at constant perimeter, our price is remarkably stable, and we are able to control our price very well. In the fixed Data segment, what we see is, a sort of continuation of the price erosion at the past pace.

[Michel Azibert, Deputy Chief Executive Officer]

Just -- yes, for most of it, in fact, the improvement in trends that you see quarter-on-quarter is mostly due to volume, both in Data and Professional Video and also in Broadcast. We, of course, the big difference that Rodolphe has highlighted that the broadcast pricing power is high. So the prices are good in Broadcast and in Professional Video, of course, and Data is competitive, but the trends in pricing from quarter-to-quarter are in continuity.

[Operator]

And now we take our next question from Michael Bishop from Goldman Sachs.

[Michael Bishop, Equity Analyst]

Actually, my 2 sort of follow-ups from some of the previous questions. So firstly, just to clarify on broadcast, you've had this EUR 4 million step-up in terms of revenue. So can I just confirm that you're essentially saying that because that's being driven by selling more capacity in [ EM ], that EUR 4 million uplift should stick in terms of a new base for us to think about Broadcast revenues over the next couple of quarters, obviously, before some of the bigger renewals that you flagged in the past. And then secondly, could I just ask if you're giving any more detail around the Telenor Maritime contract.

[Rodolphe Belmer, CEO & Director]

Well, in the -- well, I'm not sure I fully got your first question. On Broadcast, what we have in mind is that what our Broadcast revenues are very resilient, more or less stable. With the gains that we make in the emerging markets, compensating the natural [indiscernible] erosion that we see in Europe. And that's the big trend we see in the Broadcast. Michel will bring more.

[Michel Azibert, Deputy Chief Executive Officer]

Yes. I think you highlighted that the difference quarter-on-quarter from one to the other is plus EUR 4 million, which is plus 2% applied to EUR 200 million per quarter in Broadcast. And most of this plus-EUR 4 million is a permanent increase, which will continue, except that there is a EUR 1 million to EUR 1.5 million one-off -- net one-off impact, which maybe you should deduct from the basis if you consider the following quarters.

[Sami Kassab, Media Research Director, Co]

Yes. That's exactly the question.

[Rodolphe Belmer, CEO & Director]

And Telenor contract, I don't know what kind of details you want. We may give you for the total [indiscernible] of contract in the Maritime segment, where we bring capacity to Telenor, which itself is a distributor of connectivity for merchant marine in some European seas. They are bringing connectivity services, and we bring capacity to them for this usage in European seas that they cover. It's well targeting selling areas in Europe. There is some lines crossing the Atlantic and also to carry theirs.

[Michel Azibert, Deputy Chief Executive Officer]

It's a managed service, maybe which [indiscernible]. We're providing additional value in the orchestration of services to develop a global footprint when they need the capacity.

[Operator]

And now we take our next question from Patrick Wellington from Morgan Stanley.

[Patrick Thomas Wellington]

[indiscernible] question. First one, on [indiscernible], you pointed earlier in your -- you had [indiscernible] services that were very robust, and you [indiscernible] on price. But you did say the last quarter that Sky Italia and [indiscernible] negotiations would be tough. So how should we view that? Are you expecting them to reduce their volume requirements, put pressure on pricing? Can you tell us a bit about that? Secondly, on content, we've got another delay on content. Can you give us any idea of when content might happen? And what the impact of that delay is on potential demand? And then you [indiscernible], but that delay impact of total or for that? Thirdly, on Governments, at renewals at 85%. But of course, you've been telling us that renewals at 85% put it like underlying revenue pressure on the Government segment. So how good is 85% of renewal rates? And then very finally, on C-band, the market seems to be interpreting the decision to go [indiscernible] the project. Can you confirm or [indiscernible] whether that is a positive [indiscernible] think about that.

[Rodolphe Belmer, CEO & Director]

Thank you. Thank you, Patrick. On your first question on Sky Italia, well, I'm -- well, the discussion with Sky Italia has started now. And of course, I can give more -- a lot of details -- to comment on the situation on a negotiation that has started. What I can say is that, well, there is no real update relative to comments that I made with our first half results. I said also that we are very comfortable with the conservative assumptions that we have taken in our business plan, which underlines our guidance. Of course, it's too early, evidently to know or to comment on the outcome of those negotiations. And you will understand easily that I'm reluctant to comment any further on that. But what I can say is that we think that this discussion, this negotiation and that what I meant in my last comments on that is that this will be a difficult discussion. We have run tons of those kinds of discussions with our blue-chip partners over the past few years, and we are quite accustomed to that. Your question on QUANTUM delay. It's a bit difficult also, I'm sorry for that, to answer with precision to your question because this time, the delay in the QUANTUM launch is due to the lockdown of the launch center of [indiscernible] and in the manufacturing facilities of the [ co-passenger ], we will have on [indiscernible] for this for this launch. Our QUANTUM satellite is almost finished now. It's almost constructed. But we are -- we have to wait for the -- for our co-passengers satellite to be also fully manufactured. And this co-passenger is a bit late due to the confinement. And of course, the delay will be proportional to the duration of the lockdown of the manufacturing facility. If the lockdown in the most of the third-world countries is confirmed, the delay would be probably in the order of 2 to 3 months. That's the kind of order of magnitude I can quote. But of course, it's not firm unconfirmed because we can always resumption of the [indiscernible] crisis, which may further impact the delay. And that's for your second question. Third question is 85% renewal rate with the [ U.S. ] deal. It is definitely [indiscernible] corresponds to a very good level of renewal compared to the historical levels that we have -- that we have reached. It doesn't mean that our Government vertical is going to decrease by 15% -- of course, because part of our business with the U.S. DoD is renewal. And part of, of course, is also a new business, which means that 85% renewal is a good performance, also because we are adjusting to get new business at new orbital positions for new usages with the U.S. DoD every year. And if you want to have a sort of broader view, longer-term view on that Government Service vertical, we think that this business will be relatively stable in the next few quarters. On -- in [indiscernible] sorry, I can't remember the question. Yes, the question on the -- well, if I may summarize it, is Chapter 11 of Eutelsat. Good news in that respect or in the [indiscernible] subject, well, we think that the C-band order issued or released by the FCC will materialize, will actually be -- will become concrete and will be accepted by most of the satellite players. We understand from the latest [indiscernible] communication that [indiscernible] has decided to accept the FCC order, and we don't see any indication why the other [indiscernible] [indiscernible] wouldn't accept that order, which means probably that if those decisions are confirmed before May 29, the [ DSC ] order will be accepted, and will be executed by all stakeholders, which means that the level of uncertainty to get the month -- the proceeds, which are promised by -- backed by the FCC, the level of uncertainty will become more and more narrow, and it will be dependent on the ability of each satellite company to perform their own migration. And as far as we are concerned, Eutelsat, we are pretty much certain that we are in a position to execute the migration of our customers to the upper part of the C-Band. Well, effectively, in the time frame imposed by FCC. Meaning that if the FCC order is accepted, May 29, and we think that now the probability is very high, the certainty to get the payment for Eutelsat is very, very high. And that's the way we see the situation.

[Operator]

And now we'll take the next question from Mathieu Robilliard from Barclays.

[Mathieu Robilliard, Research Analyst]

Just a couple of questions on my side. Firstly, could you give us -- just following up on QUANTUM, an update on the degree of interest in the QUANTUM from government customers? And secondly, could you give us any indication of the potential size of the opportunity connecting schools in the DRC?

[Rodolphe Belmer, CEO & Director]

The potential of this program that we have launched in DRC with the support of the Congo government. At this point in time remains, what I would say, a bit limited since the objective is to connect 3,600 schools with an ARPU that I have quoted of around EUR 1,000 per year, which means expected revenue for us of around EUR 3.5 million. Well, if I make the math that you can do by yourself, around EUR 3.5 million of revenue annually for this program. But there are 2 phase: first, it's a first phase, and it could develop to a far more significant number of schools to be connected by us in the second phase, if the first phase is successful; and second, it shows that the segment of the B2G, business to government, is what is very promising and a very high potential in Africa, and that's the first for us concrete element that we can bring forward to you that this business, Konnect Africa, is surrounded by a very, very significant business potential. First question on QUANTUM. Degree of interest of our end customer is very high. I cannot say a lot more at this at this stage, but what I can tell you is that in all the conversations we have with our end customers and in all the pre-marketing efforts we have started to develop with our end customers, we see a lot of interest and of excitement for this very exciting, very innovative capacity.

[Operator]

[Operator Instructions] And now we will take our next question from Giles Thorne from Jefferies.

[Giles Thorne]

My first 2 questions were on the Telenor agreement. And first one was, well, I'm not certain, but I feel like this is the first time where a customer will be migrated from one spectrum band to another within the same agreement. And I'm referring you to the Ku agreement migration to [indiscernible]. So I'm just [indiscernible] what's going on there? And the second thing is the fact that Telenor is going to be [indiscernible] a customer suggested that their plan for a follow-up satellite to [ 7 ] is now sell, which obviously has implications for capital allocation in the sector and competition in general. So it's not really your position to confirm Telenor's investment plan, but I'll ask you the question anyway. And then my second question is -- having another go at Sky Italia question. There is news out there in the past few weeks that they've just canceled a channel, and then follow the cancellation of [indiscernible] 7 or 9 [indiscernible] number one, but a number of channels in the second half of last year. Is that level of volume reduction something that you've seen and is forming a major dimension of current negotiations?

[Rodolphe Belmer, CEO & Director]

Well, thank you. Giles. I will start with question on Sky Italia. And maybe Michel will take over on the question on Telenor, second one, which would be easy to answer, I guess. Sky Italia, well, the number of channels they carry has been remarkably stable over the past few quarters -- over the past year. But of course, it fluctuates quarter-on-quarter because sometimes they want the [indiscernible], or they also have commercial discussions with their own providers. But when, if you take the number of channels at Sky Italia, it fluctuates around 215 or 220 as it has been relatively stable over the past few quarters, and we don't see if we take a broader view. We don't see a significant trend for the reduction in the channel count. The number of channels continues to grow slightly in the world and to be more or less stable in Europe. And if you take maybe more -- well, sometimes in Europe, if you take HOTBIRD, the channel count might be very, very slight reduction, even though it's almost stable. But what's more important is the consumption of megabits, the consumption of bandwidth, that's what we sell to our customers. And that as you know, we follow that metric, and we have started to communicate that metric to you a few quarters ago. And this consumption of megabit continues to grow very, very slightly, I must say, by 1% year-on-year. And it's the combined effect of the erosion of channel count, the capacity consumption per channel, the dual elimination of channels in different standards, the big 2 big 4. And all in all, the end result is a very slight increase in the consumption of megabit, and that's the key driver of the fill rate of our capacity and the main predictor of our pricing power in the long run. What we have seen in the past few years in the negotiations we had with customers in the more mature markets is a trend to reduce the number of transponders that we have compensated by an increase in price to maintain our revenues.

[Michel Azibert, Deputy Chief Executive Officer]

On Telenor. So yes, we will not comment, of course, on the investment plan of Telenor satellite. That's on our contract with Telenor Maritime. Again, it's a managed service contract which provides them flexibility to use within certain coverage areas that Rodolphe has mentioned, Europe, Trans-Atlantic, Caribbean and part of Southeast Asia to provide capacity where they need, when they need. So on a basis of a pay as you go, there are sort of certain commitments of guaranteed capacity. And then there is a possibility to migrate vessels first onto our network from other networks, like a competitor networks or Telenor networks that we see. And then at some point in time, to migrate from Ku to KA because it's a multiyear agreement, which goes beyond the date of, of course, Konnect and especially Konnect DTH coming. And then they will have a dual -- they will use on the vessels, dual Ku antennas, and they will be able to migrate. But of course, the core value that we are providing is first flexibility when we use all our Ku satellite. And then, of course, the advantage of the performance of the specific performance of Konnect DTH when it comes.

[Operator]

And now we take our next question from David Cerdan from Kepler.

[David Cerdan, Equity Research Analyst]

A few questions for you. I would like first to come back on deals with the FCC. Is there a risk because of the financial crisis and the economic crisis in the U.S. to see the deal to be modified by the government, the U.S. Government? So this is my first question. Second question is, do you face some delays in payment from your clients? And last question, which was related to QUANTUM. Can you remind us of potential of revenues for QUANTUM?

[Rodolphe Belmer, CEO & Director]

Well, we do -- we don't give these kind of details, and we don't communicate on revenue objective on a satellite-per-satellite basis. What we have said is that while QUANTUM satellite is expected to generate the average kind of revenue, we generate for an average satellite of our fleet. And if you divide our revenues by our number of satellites, it's in the order of EUR 35 million per satellite, and that's the kind of assumption you can have in your model. Delays of payments in the current crisis, of course, we have some customers begging for payment delays. What I can say, because I cannot -- of course, we resist as much as we can, and we resist hard to those kind of demands. Although, that we serve and we deliver a good service for our customers. What I can say to give you more -- I would say, more quantified view on that is, if you take our cash flow projection for this fiscal year, we think that -- well, the effect of the crisis will be relatively neutral on our cash flow generation for this fiscal year. Why? Because we have some negative elements, which are well driven by this payment delays asked by or demanded by some customers, which are on the one hand. On the positive side, we have some nice scores of payments of satellite programs, which are delayed because of the lockdown of the manufacturing facilities and on the launch pads. And all in all, this has more or less neutral impact on our cash flow production. The negative elements being more or less offset by the positive ones. On the -- well, I don't know, Sandrine, if you want to comment more on that.

[Sandrine Téran, Chief Financial Officer]

No, that's okay. That's true.

[Rodolphe Belmer, CEO & Director]

So [indiscernible] that it's true. It is true. FCC, is there a risk that the [indiscernible] process is -- we suffered or restructured by the -- or due to the current [indiscernible] or financial crisis. Well, there is one. In our view, no. That's our point of view on that question. The FCC order is firm. There is condition precedence to the execution of that order, which is that 80% of the satellite operators accept the order, 80% in value terms. And we understand -- our best understanding at point of stage is that the order will be accepted by satellite companies, representing together more than 80% of the value of the order, which means that the order will be executed and the decision being imminent. It's May 29. We think that the order will become effective as of this date and will start to be rolled over and executed in the U.S. The main backers -- financial backers for this FCC plant are actually the telecom companies in the U.S., which are relatively unaffected by the economy crisis that their ability to pay for the proceeds and the compensation that we deserve is very -- well, it's untouched, I would say, by the situation. I think that our view on this is very positive. And as I said, specific to us, our migration plan is underway, and we are highly confident that we are in a position to migrate all of our customers in due time to meet the time thresholds, the time targets decided by the FCC.

[Operator]

We have no further questions at this time...

[Joanna Darlington, Head of Investor Relations]

It looks like we've lost the operator, but anyway, there are no further questions. So I don't know if you want to...

[Rodolphe Belmer, CEO & Director]

Well, maybe a word or 2 words to conclude. To thank you for attending this presentation. And some messages like to insist on, in conclusion -- so to conclude, Broadcast business, very resilient, different from most of our peers with a reach return to Q-on-Q growth in the third quarter. That's one of the very meaningful event of that quarter. Our company is actually very solid. Our cash generation remains very high, despite the economic situation and our ability to continue to generate very solid yield for our shareholders in the future is -- remains very high, and we are pretty confident we can deliver on that. Thank you for your participation and for attending and see you all very soon in person.

[Operator]

This concludes today's call. Thank you for your participation. You may now disconnect.