The announcement by Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ) and its Yes broadcasting subsidiary that they are abandoning satellite broadcasting in favor of Internet broadcasting put the share of Spacecom into a 10% reverse. Yes is Spacecom's second largest customer and its most important customer for satellites located in the sky at 4 degrees west.
In a notice to investors, the company said that the transition to Internet broadcasting was a long-term gradual process that would take several years and require regulatory approval. Spacecom emphasized that together with its joint work with Yes, it continues to carry out its business plans and achieve its targets. Among these are the upcoming launch of the innovative Amos 17 satellite for activity in Africa, Europe, and the Middle East, and the plan to build its next satellite for the point in the sky at 4 degrees west.
Yes uses these satellites for its broadcasts to customers in Israel under a long-term agreement with Spacecom. This agreement generated $21.75 million in revenue for Spacecom in 2017, 29.4% of its revenue in that year.
Spacecom's biggest customer is the Israeli government under an agreement that generated $23.7 million in revenue for the company in 2017. This revenue came from two sky zones: $15.9 million from 4 degrees west and $7.8 million from 65 degrees east.
Under the Yes-Spacecom agreement, Yes receives services through two satellites. Amos 7 is a satellite leased in 2017 for only 4-5 years from AsiaSat, following the loss of the Amos 6 satellite when its launcher exploded. The broadcasting agreement between Yes and Spacecom is valid until December 31, 2028, but it can be terminated early in exchange for payment of compensation for a breach of contract by Spacecom. Termination without grounds will require Yes to pay 55% of the remaining amounts due for the Amos 8 and Amos 3 satellites and 100% of the amount due for Amos 7.
Amos 7 is an expensive temporary solution pending the launch of Amos 8, construction of which has already been delayed by over a year. In March 2018, Spacecom signed an agreement to purchase a satellite from US company Loral Space and Communications. Pressure on government ministers by employees of Israel Aerospace Industries (IAI), however, resulted in a decision that the satellite would be built in Israel. At the same time, the government itself has not yet agreed to finance the extra cost of building Amos 8 at IAI, amounting to hundreds of millions of shekels, leaving Spacecom between a rock and a hard place.
In the framework agreement with Yes, Spacecom undertook that Amos 8 would begin operating in February 2021. If no binding agreement with a satellite manufacturer is signed by June 2019, the company can cancel the agreement in early 2021, provided that it gives notice of this by March 2020. If it does not do so, Spacecom can cancel its contract with AsiaSat and provide Yes with sewrvice exclusively through Amos 3, which is scheduled to go out of use in the first quarter of 2026.
Published by Globes, Israel business news - en.globes.co.il - on March 14, 2019
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