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Intelsat S.A. (NYSE:I)
Q4 2019 Earnings Call
Feb 20, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2019 Intelsat S.A. Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker, Ms. Dianne VanBeber, VP of Investor Relations. Thank you. Please go ahead.

Dianne VanBeber -- Vice President, Investor Relations

Welcome, everyone, and thank you for joining Intelsat's Fourth Quarter and Year-end 2019 Earnings Conference Call. Earlier this morning, we issued our earnings release, which is available on our website. We are updating our disclosure practices and, starting today, will provide extended opening remarks in lieu of issuing the quarterly commentary. Later today, we'll be filing the annual report of Intelsat S.A. on Form 10-K with the SEC. You can find the link in the filing on our website. In our prepared remarks today, all comparisons will be to fourth quarter and full year 2019 as compared to like periods in 2018, unless noted otherwise. Also during today's call, we'll 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.

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 annual report on Form 10-K for the year ended December 31, 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. All right, C-band. We know that information regarding the C-band proceeding is critically important to the investment community. The FCC issued its draft order on February 7, and we, like other parties, are still in the process of analyzing the impact of the draft order on the company. Yesterday, we filed with the SEC suggested modifications to the draft order. We believe those proposed changes are essential to produce a final order that is implementable and has an acceptable level of business risk. We direct investors to our filings to understand our current views on the proceeding.

We continue to meet with the FCC and discuss various aspects of the draft order and may make additional filings. There can be no assurance that the FCC will accept our suggested modifications. And thus, any further commentary at this time would be speculative. As a result, on today's call, we will not entertain any questions on the C-band proceeding at the FCC. We will defer our comments until we are fully informed on the major elements of the final order which is currently expected to be issued no earlier than February 28. When we have studied the final order, we can offer definitive views on the outcome as it pertains to Intelsat. Finally, please be aware that the conference call today is open to the investment community and media with 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 CEO, Stephen Spengler; and our Executive Vice President and CFO, David Tolley. Following opening remarks by both, we'll open the call for questions. Steve?

Stephen Spengler -- Director, Chief Executive Officer

Thanks, Dianne. 2019 ended on a strong note, with our full year revenue, adjusted EBITDA results coming in above our guidance range. Our performance reflected new contract starts from the telecom infrastructure and mobility sectors, driven by our new satellites that entered the fleet in 2019, Intelsat 39, Horizons 3e. We also benefited from steadily increasing revenue streams from our agile core trunking in flex managed services. Compared to 2018, our full year revenue of $2.06 billion declined about 5%. Full year adjusted EBITDA of $1.48 billion or 72% of revenues declined by 11%. Fourth quarter revenue declined 5% to $517 million due primarily to challenges in our media business. Adjusted EBITDA declined 11% to $371 million. These results reflect the impact of the Intelsat 29e loss, which occurred in April 2019. In addition, in 2019, we incurred increased direct cost of revenues for Horizons 3e and Intelsat 38 as we pursue programs that trade-off increased opex for lower capital expenditures. Looking briefly at each of our business units.

The network services business finished strong at $200 million in revenue with nearly flat performance as compared to the year-ago quarter and increasing sequentially. Two factors fuel the improved performance in network services. First, our managed services growth strategy led to unit and revenue growth, especially for maritime mobility and broadband infrastructure applications. In 2019, we provided our customers and more specifically, our distributor network with the right products and marketing support. Second, there is renewed strength in telecommunications infrastructure, notably in Asia. This trend was supported by Intelsat 39, with incremental revenue as it entered service in early October. The trend also reflects new starts on Horizons 3e and Intelsat 33e, coming from leading wireless and broadband service providers in Japan, Indonesia and Pakistan. Our fourth quarter media revenue declined 9% to $211 million. With the increasing importance of digital platforms, content owners seek to reduce operating expenses for linear distribution, which is impacting our media business.

That said, satellite distribution remains the essential enabler of our media customers businesses in the fourth quarter, booked long-term renewals on several services from one of our largest direct-to-home and distribution customers in Africa. Further, in January, we contracted with a new customer and established direct-to-home distributor in India with services expected to begin later this year. In addition to nonrenewals, a reduction in revenue from an Eastern European direct-to-home customer with financial difficulties contributed to the lower results in the quarter. Our government business declined 2% to $96 million in the fourth quarter. Its run rate is tracking to the third quarter results. Overall, the government business achieved generally strong renewal rates. Our government business is fully engaged in our managed services strategy in bringing new solutions to market. Managed services offer flexibility to the customer and provide alternative contracting models such as pay-as-you-go services that are advantageous to tactical end users. The government business rolled out a new managed source in the fourth quarter, FlexGround.

The service is designed to provide on demand, high data rate access for first entry forces, special operations and other quick-action situations. Using terminals that are designed to set up to be set up and connected in minutes, FlexGround will offer enhanced speed and improved economics as compared to MSS services. With respect to the Intelsat fleet, we were flying 54 satellites at year-end 2019. We currently have manufacturing orders on two satellites. The first is Galaxy 30, which will provide C, Ku and Ka-band North American services and a hosted payload for the L-band an L-band hosted payload for the FAA. It's expected to launch in the second quarter of 2020. In early February, we announced the order of Intelsat 40e, the newest addition to our fleet of Intelsat Epic high throughput satellites. Intelsat 40e is purpose-built to address high growth, aeronautical, land and maritime mobility applications featuring U.S. coast-to-coast coverage. We are also investing to access and develop other space-based technologies and higher-growth markets that are adjacent to ours.

An example of this is the funding we provided to BlackSky, which we announced in the fourth quarter. BlackSky is a geospatial intelligence provider with data analytics capabilities that we see as a natural extension of our government business. We view this as the foundation of a commercial partnership that will extend our product line while expanding BlackSky's go-to-market capabilities for our global sales force. As you can see, the fourth quarter capped the year with several operational accomplishments. In 2020, we will continue to build on those. Our four 2020 operating priority are designed to achieve revenue stability and ultimately, a return to growth over the midterm. We always start with our network. Our first operating priority is to ensure that we leverage our network assets to maximum effect. Investing in new assets that support growth, such as Intelsat 40e is a great example. This priority also includes leading the sector with innovation on software-defined satellites, which promise to improve the capital intensity of our business.

Our use of the Northrop Grumman mission extension vehicle, for which the historic first mission is under way, is an important example under the priority, known as MEV one, the service will be used to extend the life of a low of a satellite low on fuel, but otherwise healthy by up to five years. This allows us to extend revenues, increase our flexibility and defer capital expenditures. Our second priority is to continue to scale our managed service capabilities, investing to capture growth from mobility services in particular. Earlier this week, we introduced FlexMove. Our latest managed service is designed to address the needs of businesses and first responders, requiring secure broadband from locations with either no or completely disrupted infrastructure. With so many operations moving to Internet-based or cloud-based applications, highly reliable, cost-effective access is essential. The hardware suite that we selected for this service supports on-the-move or on-the-pause communications. Our first distributor for FlexMove, GRC, specializes in communications for governments, emergency responders and oil and gas exploration.

GRC already has contracted customers at the time of our service launch. So we're off to a great start. We'll also pursue the addition of value-added services adjacent to the applications we serve today. Our BlackSky alliance is an example of this. Third, we will lead the sector and seamless integration with the telecom industry. Driving for standards-based hardware through our 3GPP 5G initiatives. In December, the 3GPP standards body issued its list of approved topics that will be featured in release 17. For the first time, satellite and other nonterrestrial network technologies were included as a result, in part, of the leadership role Intelsat has provided over the last 18 months. This is a breakthrough moment for satellite, and we're using this work to position Intelsat to the vast 5G opportunity.

Under our third opportunity under our third priority, we'll expand our cloud-based access services, building on our partnership with Microsoft Azure ExpressRoute. Our cloud direct service provides highly reliable, secure connectivity cloud access, leveraging the global footprints of our network. The fourth and most immediate operating priority is to optimize our spectrum rights. This, of course, is the FCC proceeding is the FCC C-band proceeding. The issuance of the draft order was an important event in this proceeding. We are working to ensure that the final order gives the best possible outcome for our customers, our company and the American public. In closing, we start 2020 with great enthusiasm. Our results signal that our strategies are effective. We have a clear line of sight to what needs to be accomplished to achieve top-line growth.

With that, I'll turn things over to David, who will cover our balance sheet's commentary, and walk you through our 2020 financial outlook.

David Tolley -- Executive Vice President and Chief Financial Officer

Thank you, Steve. We ended 2019 in an excellent liquidity position, with over $800 million of unrestricted cash and no debt maturities ahead of us in 2020. Our next scheduled maturity is the $421 million of luck notes due June of 2021. We executed no capital markets transactions in the fourth quarter of 2019. Today, we announced our financial guidance for 2020. We expect full year revenue to range from $1.93 billion to $1.98 billion, representing a 5% decline from 2019 actual to the midpoint of 2020 guidance. As a reminder, 2019 actual results included two significant events that we do not expect to reoccur in 2020. The first was one large customer agreement in the first quarter of 2019 that triggered accelerated revenue recognition as a sales type lease. The second and more significant was the unexpected total loss of Intelsat 29e in April of last year. We estimate the combined effect on 2019 results of adjusting out these two events was over $30 million.

As adjusted, we expect revenues to decline in 2020 by about 3.5% year-over-year, which compares favorably to the trailing five year period. This revenue decline represents a continuation of shallowing of recent market trends as new business is still expected to be insufficient to fully release nonrenewals and renewals at lower price points. First, we expect the bulk of the consolidated revenue decline to be driven by the media segment, the result of anticipated nonrenewals, driven by continued secular challenges in the distribution of linear programming. Second, we expect our network services business to modestly decline from 2019 to 2020, driven by expected nonrenewals in network fixed enterprise and point-to-point applications and pricing pressure in certain markets, offset by double-digit growth in mobility. Our government business is expected to be stable year-over-year. Our contracted backlog at the end of 2019 was $7 billion, helping to provide good visibility on our 2020 guidance and supporting the medium-term stability of the business.

We forecast adjusted EBITDA for 2020 to be in the range of $1.34 billion to $1.39 billion, representing an 8% year-on-year decline and a projected 70% adjusted EBITDA margin. We estimate the combined effect on 2019 of adjusting out the sales-type lease and revenue loss and incremental restoration cost due to 29e to be approximately $20 million. As adjusted for these nonrecurring events in 2019, the 2020 decline in adjusted EBITDA is expected to be about 6.5%. And of that decline, we estimate the decapitalization of network costs, Steve referred to earlier, essentially trading capex for opex, as in the case of Intelsat 38, Horizons 3e, MEV one and later this year, MEV two, will contribute to an increase in direct cost of revenue of approximately $20 million, which constitutes about 150 basis points of that 6.5% adjusted decline. The remaining 5% points of the adjusted decline is due to the negative operating leverage associated with lower revenues and increasing direct costs of revenue, driven primarily by growth in managed services, staffing and infrastructure. Our new three year capex guidance is over $100 million favorable to the three year guidance last issued in 2019. In 2020, we expect capex to be in the range of $200 million to $250 million, roughly flat year-over-year.

We expect to launch Galaxy 30 in the second quarter of 2020. In 2021, we expect capex of $225 million to $300 million, and in 2022, $225 million to $325 million. Our plan includes five new satellites, two of which, including Galaxy 30, are in the design and manufacturing phase and three of which are being actively competed. Those three satellites are expected to be the foundational birds for the next-generation of our Epic fleet. These satellites will be software-defined, meaning that beam footprints, power levels and even frequencies can all be created and changed dynamically on orbit with a faster time to market and far less potential for stranded capacity than with traditional satellites or even satellite constellations. The next-generation of Epic satellites has potential to anchor the most capital-efficient cost per bit sold satellite network ever deployed. One note, none of the satellites needed to implement the C-band clearing contemplated by the FCC order are included in this guidance. Once the final order is available, we will update our capex guidance if and as appropriate.

In conclusion, based on the guidance provided today, we expect to generate adjusted EBITDA minus capital expenditures in the range of $1.1 billion to $1.2 billion in 2020. Dianne?

Dianne VanBeber -- Vice President, Investor Relations

Yes. Operator, we're ready to take our questions now.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Jason Kim with Goldman Sachs.

Jason Kim -- Goldman Sachs -- Analyst

Good morning. Thank you. So the first question I have is, I can't understand that there may not be the immediate focus for the company right now, at this moment. But the fact that matter is you do start to have some maturities coming up in 2021. And we have the company burning some cash for the foreseeable future. So I know your capex guidance came down a little bit over the next couple of years. But beyond that, how should we think about managing liquidity profile here as we wait for the C-band procedures to come to a closure. And realistically, when can you start thinking about your capital structure, if we were to assume that the FCC's orders approved later this month?

David Tolley -- Executive Vice President and Chief Financial Officer

Well, Jason, first of all, in terms of the LuxCo maturity next year, we think we have ample liquidity to be able to manage that in a variety of different ways to move funding around to satisfy that maturity. So that's something that we're looking at, but that we feel comfortable in terms of our ability to manage. And then second, in terms of the capital structure, more broadly, I think what we need to do is wait, see what this final FCC order looks like, see whether it's something we think we can work with. And then assess what next steps might be for the capital structure, if any.

Jason Kim -- Goldman Sachs -- Analyst

Sounds good. And then a long-term question. You have been trading capex for opex in recent years that hit your margins by lower capex. Is that a long-term trend in the business in your view? Or is it more transitory?

David Tolley -- Executive Vice President and Chief Financial Officer

Look, I think it's opportunistic, honestly. In the case of MEV one and two, we're talking about slots where we weren't confident that it made sense to recapitalize them completely. Maybe the price points were quite high enough. Maybe the revenue base, generally speaking, wasn't big enough, but the IRR on a mission extension vehicle made a tremendous amount of sense. In other places where the business at a particular slot is healthy and/or we need to control the assets as part of a broader effort, you would expect to see us continue to capitalize those slots. So it's opportunistic. The industry has evolved relative to where things were 15 years ago, we had the opportunity to trade capex for opex to optimize the economics. So it will continue to evolve. But it isn't part of one directional trend.

Stephen Spengler -- Director, Chief Executive Officer

I might just maybe add, strategically, it's given us the ability to work with other operators like JSAT, like Telenor, Azure Cosmos to provide capacity in key regions at a much more cost-effective, lower risk type of investment. So we will continue to look at those. We have cooperation across the globe with other operators, with our orbital assets. And so we will see what transpires going forward.

Jason Kim -- Goldman Sachs -- Analyst

Thank you guys.

Stephen Spengler -- Director, Chief Executive Officer

You're welcome.

Operator

Your next question comes from the line of James Ratcliffe with Evercore ISI.

James Ratcliffe -- Evercore ISI -- Analyst

Good Morning. Thanks taking question. Two, if I could. First of all, on the again, the topic of capex versus opex. Are there are you constrained by your capital structure and your ability to make those trade-off, just in terms of meeting leverage targets and the like? And secondly, just broadly in the long term, do you see a path to stabilizing or even growing EBITDA from here?

David Tolley -- Executive Vice President and Chief Financial Officer

I'll take the first one. I think I can say confidently that in every case where we have evaluated as capex versus opex trade-off, we've made that decision on an unlevered basis, meaning we've tried to optimize the risk-adjusted return at every one of these slots without regard for our capital structure, and I don't see that changing anytime soon. So we're not going to let the capital structure cause us to make the wrong decision for the business. That'd be the first point.

Stephen Spengler -- Director, Chief Executive Officer

And let me just talk about the trajectory of the business and what we see over the longer term. Right now, our focus is on stabilizing our core business and driving new growth opportunities across our across the world. We need the right assets in the right service to do that. And that's why we've invested in the Intelsat Epic fleet, why we're investing in the Intelsat 3e, and why we've invested in our ground network and capabilities to deliver managed services. Of course, the Intelsat 29e had an impact in 2019 in that regard. But the asset base, keeping that competitive and vibrant is really important. The new managed services are focused on growth areas of mobility, whether in the air, sea or on land, it's focused on wireless networks and enterprise applications, where we see the real need for the types of service we deliver. And so that's another focus for our business. We have been very diligent in our yield management strategy related to all of that to ensure that we get the proper value in the services that we provide, the right kind of pricing for everything we provide. And then longer term, we're making investments in the next generation.

David talked about software-defined satellites that's really important. It keeps us competitive. We're going to be able to match up very well with the satellites that are coming forward in the future. And so it will allow us to be both capital-efficient as well as providing competitively priced services. And also for the future is the work we're doing on standards. And we think that this is a great opportunity to broaden the marketplace for satellite communications to develop hybrid solutions and services into the broader telecom landscape around 5G and development of modems that are open and interoperable. So we do see a path. It is something that we're very focused on execution in the near-term and then building these strategic investments for the longer term.

James Ratcliffe -- Evercore ISI -- Analyst

Great, thank you.

Operator

Your next question comes from the line of Mike Pace with JP Morgan.

Mike Pace -- JP Morgan -- Analyst

Hi, good morning, and thank you. I guess just to go back to the network services in the fourth quarter, at least, and suspect them not alone, just the sequential change in revenue, up about $20 million. I think everybody; again, including myself, were there anything that was onetime in there? Were there less counter revenues from the 29e? Just some color on what drove plus 20 quarter-over-quarter and then how that rolls into Q1 of 2020 and beyond. Just some help there would be great.

David Tolley -- Executive Vice President and Chief Financial Officer

Sure. Mike, there were some one-timers in 4Q that drove that sequential improvement. It was a meaningful sequential improvement, as you know. A couple of the larger ones would have been traffic overages that a couple of our customers clocked during the year, and there's typically a catch-up and true-up in the fourth quarter. So a couple of those were quite meaningful. There were one or two chunky deals that came through that involved not the magnitude of what we experienced in the first quarter of 2019, but there were still a little bit chunkier that involves some hardware delivery. And then the balance was some meaningful ramp in mobility. So I think going into next year, though, as in years past, we'll see some big slug of network services business reprice itself. So I would expect to see us be down sequentially from 4Q going into 1Q of 2020.

Mike Pace -- JP Morgan -- Analyst

And could I dare ask if you could quantify, I guess, the what you'd call maybe onetime or not necessarily normal boost in the quarter, their traffic or the chunky stuff of that $20 million, give or take?

David Tolley -- Executive Vice President and Chief Financial Officer

I don't have that off the top of my head, probably not something we disclose anyway. But I would say, the sequential growth in mobility was a meaningful contributor to the sequential improvement as we're the one-timers. So I'd probably characterize it that way.

Mike Pace -- JP Morgan -- Analyst

Got you, And I know you're not giving guidance by segment, but maybe and I don't know if Steve or David, if you want to take this, but just in terms of network services and media specifically, can you just review for us the one or two or maybe even three kind of headwinds and tailwinds that you expect? Obviously, mobility is would be a clear tailwind in network services. But just how do we think about the upcoming year in terms of the puts and takes there?

Stephen Spengler -- Director, Chief Executive Officer

Yes. Yes. Mike, let me just start with network services. As David just mentioned, this is one part of our business that still has meaningful pricing pressure on renewals. There's still a mark-to-market type of reset of pricing. However, it is far better than it was a few years ago. And we see the strength of our pricing strategies slowing that decline in pricing upon renewals. So the networks part, where we work with MNOs and enterprise customers still has that kind of pressure. At the same time, we do see pretty healthy demand in some of the success we had in 2019. For networks, we see continuing into 2020. The mobility of the and of course, the mobility part of network services is growing. It does have the tailwinds, as you mentioned. We see continued ramp-up of our managed services in that sector, including some of the new managed services we're bringing to market as well as capacity for some of the large players in aeronautical and maritime. Media is more challenged, and we've talked about that. Media is going through a sector change right now.

The good news, we believe, is that we're maintaining value in our neighborhoods, where we have specific satellites and beams that are focused on media customers for DTH or cable distribution. We're maintaining our pricing and value in those places as they deserve because they are critical to the operators that deliver content in those areas. But we do see pressure, as we've been talking about for a number of quarters now within the media sector to reduce cost to have less Flex capacity on their books to down convert from HD to SD at the edge rather than have multiple formats being set. So we're still seeing those situations that results in nonrenewals or renewals that are with less capacity. So that experience we've had in media. In 2019, we expect to be something we'll experience in 2020.

Mike Pace -- JP Morgan -- Analyst

And just one more, and acknowledge this is a tougher one than the first two I just asked you. And I know your C-band commentary is limited. But putting aside the FCC order, putting aside the changes that you would like to take place and just under the assumption that you and other FCC and other stakeholders can figure this out. I guess the question that we get quite a bit is structurally how and where these incentive payments flow into the company. Historically, I believe you've said add Jackson because that's where the licenses sit. But color here would be really helpful. And then also from an accounting perspective, is this above or below the EBITDA line?

David Tolley -- Executive Vice President and Chief Financial Officer

Mike, that's a question that we get frequently, as you can imagine. I can tell you, quite frankly, that it's not something I'm focused on at all. What we're focused on is maximizing the expected value of this order for the company. And we don't know what final form that might take. We don't know what conditionality might be associated with it. We don't know what execution risk is associated with it. There are all those things we don't know. I think we're going to know a lot more after this order becomes final. And at that point, we can start really tightening up our analysis of everything that goes into answering the questions that you just asked me. But today, we just don't know. And frankly, we're not focused on it.

Mike Pace -- JP Morgan -- Analyst

Understood. Thank you know,

Operator

Your next question comes from the line of Anthony Klarman with Deutsche Bank.

Anthony Klarman -- Deutsche Bank -- Analyst

Hi, Thanks A few questions. I guess maybe starting first, you've driven much greater efficiencies out of capex, and I think most people would have thought. And I know that a prior question, talked a little bit about the trade-off between capex and opex. But the declines you're putting in the forward capex guidance are far outpacing any increases in opex, which would seem to imply that absolute levels of capex are coming down. But you mentioned that you still have a launch manifest in place that's going to launch the next-generation of satellites over the next few years. I guess I'm just wondering what levers you're able to pull that are driving these kinds of efficiencies in the overall aggregate levels of capex?

David Tolley -- Executive Vice President and Chief Financial Officer

Look, it's a good question. I would say the following, and then Steve may want to comment as well. We are incredibly focused on reinvesting in the business and stabilizing the top line and returning this company to growth. In order to do that, we know that our investments are going to have to be capital efficient. And I think it's fair to say, we have been waiting a little bit to watch the technology evolve and to watch the satellite manufacturing and launch industry evolve to get comfortable that we're investing at the right point in the technology cycle and that we have a thesis about how to end up with the lowest capital cost or operating cost, frankly, the lowest cost per bit sold.

And it's really on the back of these software-defined satellites that we think we're going to be able to do that. The relationship between capital cost per bit and pricing in the market is really complicated, very hard to have a crystal ball that indicates to us what that's going to look like in the medium term. But I think this is more a comment about knowing that we need to invest in the next-generation of satellite technology, knowing that we have to be capital cost-efficient if we want to continue to win business and believing that we're investing at the right point in the technology cycle to do that. And then we'll all look together at what revenue flows from that in year three.

Anthony Klarman -- Deutsche Bank -- Analyst

And then if I could go back to an answer you gave, David, to Mike's question on network services. You pointed out the positive one-timers, and you said that, obviously, 1Q without those one-timers would be sequentially lower. But after 1Q, you're also about to lap a pretty significant headwind from the loss of 29e. And I guess, as we think about the pacing of network services in the context of the fact that I think Steve in his commentary mentioned that media would generate the bulk of the EBITDA decline in the guidance. Could we read that to imply that as we start to think about the pacing for network services that you do start to see year-over-year increases in that segment, given the scaling of some of the mobility pieces that you mentioned?

David Tolley -- Executive Vice President and Chief Financial Officer

I think it will be look, I think about the world there are a lot of different ways to cut this. I think about the world, as I went through in my talk about the guidance in terms of doing my level best to adjust out 29e from last year. And on that basis, I would say, that mobility isn't quite going to be in a position to outgrow the networks decline during the year next year. It could get close by 4Q, but it's probably not quite enough, so I would say that. And then I would say, if you look at the company on a consolidated basis because we don't provide guidance by segment. If you look at the step down that we're going to experience from 4Q going into 1Q of next year, given all of the puts and takes, there's a pretty even contribution to the top line of the company across all four quarters next year. That's just the way the numbers play out.

Anthony Klarman -- Deutsche Bank -- Analyst

Yes. Okay. That's helpful. And then I was wondering if you could, David, just refresh us on what the ASC 606 impact is in EBITDA. I think the EBITDA guide doesn't adjust for that. But what the noncash portion of EBITDA is that's in there?

David Tolley -- Executive Vice President and Chief Financial Officer

Sure. ASC 606 for 2020 should be about $110 million.

Anthony Klarman -- Deutsche Bank -- Analyst

Got it, $110 million. And then final, David, you gave the cash balance. I know at one point you guys used to give cash kind of various subsidiary levels. I wasn't sure if that was something you were able to tell us in terms of perhaps how much cash sits outside of Jackson at this point?

David Tolley -- Executive Vice President and Chief Financial Officer

No, that isn't guidance that we provide. If we did it historically and at some point discontinued, I apologize for that. But for at least as long as I've been around, that's not guidance that we've given.

Anthony Klarman -- Deutsche Bank -- Analyst

All right, thanks very much. You bet.

David Tolley -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from Lance Vitanza with Cowen.

Lance Vitanza -- Cowen -- Analyst

Hi, Good Morning. This is Chris on for Lance. To the extent you can talk about the FCC process. You did mention in the press release about trying to significantly improve their proposal. Is it fair to think that this back weighting of the accelerated relocation payments to what they call Phase two is something that you'd want to see more front loaded, and that's something that you would characterize as a significant improvement that you're looking for? Any way you can share on that?

Stephen Spengler -- Director, Chief Executive Officer

Okay. As we said earlier, we really don't want to comment on specifics of the draft order in our proceedings right now with the FCC. But I would refer you to our filing that we made yesterday, where a number of topics were addressed, that we believe are important to improving the order once it gets finalized, hopefully, by the end of next week. And then we will, as David said, we will fully evaluate where we are at that time.

David Tolley -- Executive Vice President and Chief Financial Officer

And I might add, because there's nothing new here beyond what was in our filing, that this topic was directly addressed by the filing. And we believe, if you look at the framework that the FCC has used to define how value has been created, it would result in a split of 45-55, Phase one, Phase two versus 25-75, which was in the original order.

Lance Vitanza -- Cowen -- Analyst

All right, great. Thank you.

Operator

Your next question comes from the line of Simon Flannery from Morgan Stanley.

Simon Flannery -- Morgan Stanley -- Analyst

Great, thank you very much. Just a quick point on the C-band alliance. So what is the status of that? Is that being dissolved now after the reported order? And then talk if you could talk a little bit about the media business and just give us the latest update on how those revenues split between DTH and between video delivery for the for providers? And how does backlog look? Is that mostly media? And then how that splits between the services?

Stephen Spengler -- Director, Chief Executive Officer

Okay. Simon, I'm not going to comment specifically about the CBA, but I will maybe offer some general observations. The CBA was established to advocate for a market-based proposal a couple of years ago. It has worked very well toward those goals in general because you can see a lot of the activity the CBA incorporated in the draft order. But as we know, the FCC changed a path in November and move toward a public auction. And when the draft order came out on the seventh, it was very clear that the FCC was treating each satellite operator individually.

And so therefore, we believe it made sense for each company to respond from its own perspective once the FCC changed that orientation. So we know as this moves forward, there is a significant implementation phase ahead. And there will be ample opportunities there for operators to cooperate and make sure that the outcome is as good as possible for the FCC and for the country. In terms of media, the breakdown between DTH distribution and contribution is 53% DTH, 41% distribution. That's when we're feeding cable head ends and 6% for contribution. And right now, the media business is about 61% of our total company backlog.

Simon Flannery -- Morgan Stanley -- Analyst

Great, Thanks so much.

Stephen Spengler -- Director, Chief Executive Officer

Okay, welcome sign.

Operator

Your next question comes from the line of Rick Prentiss with Raymond James.

Rick Prentiss -- Raymond James -- Analyst

Thanks. Good morning. I know you can't talk a lot on the C-band proposal. But I thought one of the things that was interesting is you filed an exhibit B that was for confidential treatment. Can you share with us a little bit about what was new or different in that exhibit B versus what had been previously provided for yourself or others?

Stephen Spengler -- Director, Chief Executive Officer

I can't comment on the specifics of that. It was filed under confidential treatment because it was confidential company information in that exhibit. So I prefer not to elaborate further than that at this time.

Rick Prentiss -- Raymond James -- Analyst

Okay. Is it safe to say that maybe it was updated for year-end results, though?

Stephen Spengler -- Director, Chief Executive Officer

No.

Rick Prentiss -- Raymond James -- Analyst

Second question is and obviously, it's very hypothetical right now until we know what the final order from the FCC is, but given kind of the shared usage of the C-band, can you hypothetically walk us through, if one set of satellite operators elect to clear early and another set were not, how would that impact the process? Or what would be kind of the impact? Just trying to think philosophically.

Stephen Spengler -- Director, Chief Executive Officer

Well, in general, because it's shared use, as you know, all the spectrum needs to be cleared to have cleared spectrum for cleared spectrum for the mobile operators that will be using the spectrum. So there is not necessarily an advantage clear early. But it is critical that it's cleared by the date set in the final order when that comes out.

David Tolley -- Executive Vice President and Chief Financial Officer

So I guess, theoretically, you could say, look, if we're so there's a threshold of 80% in the order, where 80% of the people have to opt in, in order for accelerated clearing to be active essentially. But obviously, people who intend to clear could fail actually or somebody representing 5% of the traffic could opt out of clearing. And so we think that the people who are buying the spectrum, will be making that as to whether people can execute on declaring that they've committed to, and that the results of the auction will reflect those bets as to whether spectrum is going to be available in five years or 48 months or 18 months or whatever.

Rick Prentiss -- Raymond James -- Analyst

Right. And obviously, Chairman advised on a lot of work here to move this forward. Congress keeps raising their head occasionally. Any updated thoughts as far as how Congress is going to play into it as far as affecting either the FCC order or stuff after the FCC order?

Stephen Spengler -- Director, Chief Executive Officer

Ric, I would just say this is that it's very hard to speculate on legislation. There's been a lot of activity and a lot of talk. So I really don't want to go there because it's very uncertain as to what will happen. I will say, though, that it's pretty clear from the FCC's actions and proceeding with the draft order and moving toward a final order that they believe they have the authority to execute on this proceeding without Congress being involved.

Rick Prentiss -- Raymond James -- Analyst

Okay, thanks, guys.

Stephen Spengler -- Director, Chief Executive Officer

Yeah, you're welcome.

Operator

Your next question comes from the line of Vivek Stalam with New Street Research.

Vivek Stalam -- New Street Research -- Analyst

Hey, guys, thanks for taking the questions. Just really quickly, who has historically paid for MPEG-two and MPEG-four upgrades? Is that something the cable distributors or the programmers generally pay for? And how should we think about that level of compensation that has historically been incurred by those parties as it relates to a potential HEVC upgrade going forward?

Stephen Spengler -- Director, Chief Executive Officer

That's typically done by the programmer, the content owner as they distribute their content out into the cable distribution plant around a particular country. So for them, it's a carefully weighed and examined expenditure because it's not inexpensive, and it's not simple. And so many have moved from MPEG-two to MPEG-four, many have networks that are well established in DTH that would make it difficult to make that change and really incredibly costly to make that change. What we're seeing now is that some of the media companies are looking to see if HEVC is the move in skipping directly from MPEG-two to HEVC in the future, which gives a much higher levels of compression and positions them for Ultra HD if they choose to go in that direction.

Vivek Stalam -- New Street Research -- Analyst

Got it. And just one really quick one. You're incurring about $650 million in annual capex and network cost of service. How much of this work can now sort of be repurposed or undertaken the C-band reallocation, assuming that goes forward?

Dianne VanBeber -- Vice President, Investor Relations

Can you restate your question, Vivek? I don't think we've got you.

Vivek Stalam -- New Street Research -- Analyst

Yes. So I'm just trying to sort out how much of the existing capex and network cost of service budget could be reallocated or refocused on the C-band reallocation effort and potentially be compensated for through the relocation fund?

David Tolley -- Executive Vice President and Chief Financial Officer

I think the right way to think about it is that our costs to clear the spectrum will be entirely incremental. If there are opportunities to absorb overheads or other costs that the FCC is comfortable with as representing the cost of the transition, we'll look for those opportunities. But for planning purposes, I think you should assume that the cost to clear the C-band is all incremental.

Vivek Stalam -- New Street Research -- Analyst

Got it? Thanks.

David Tolley -- Executive Vice President and Chief Financial Officer

Welcome.

Operator

Your next question comes from the line of Giles Thorne with Jeffries.

Giles Thorne -- Jeffries -- Analyst

Thank you. I have three questions, please. My first question was on the India DTH new contract win. The last time looked at India DTH, it's a bit of a mess. I think it's five or six paid TV operators in that market. Accessing the market's hard because you've got to go through ISRO and the commercial guys that have managed to do that are pretty well entrenched. So I wanted to get a sense of actually how quality how high quality this new revenue stream is going to be for you?

Stephen Spengler -- Director, Chief Executive Officer

Yes. We have a normal... Yes. Sure. Go ahead, Giles.

Giles Thorne -- Jeffries -- Analyst

European way, Steve, you remember, I got to get all three out. And...

Stephen Spengler -- Director, Chief Executive Officer

Giles, I'm sorry to interrupt.

Giles Thorne -- Jeffries -- Analyst

Yes. Just to make sure Dianne's writing all this down. And the second one was on the on I've forgotten where I was. The second one is on software-defined satellites. The software-defined satellites out there is the EutelSat Quantum program, which is going to give them a window of proprietary technology. And then as SES with mPower, which is going to be unique to them. And I'd just be interested to know how much of the technology you're getting access to is going to be unique to you, i.e., is there really going to be a cost per bit advantage that Dave was referring to earlier or intimated earlier?

And then the third question was, I'm afraid back in the C-band matter. In short, SES has released today intimate with your actions in the export filing from yesterday, you're in some kind of contravention of the C-band alliance agreement. So I guess my question is, what are your I don't know, legal handcuffs under the CB Airlines agreement? And do you feel that you are in contravention of them in the way that SES is suggesting?

Stephen Spengler -- Director, Chief Executive Officer

Okay. Giles, first of all, on India DTH, this is not a start-up DTH operator. It is an established DTH operator that needed to have a new home because their satellite operator was not replacing their satellites. So they are one of the leading players, and they're very well established, and it was a competitive bid situation for us to win this business. Fortunately, because they are established, the ISRO challenges are obviated. So there's no real risk in terms of getting the appropriate licenses and approvals from ISRO in that one. In terms of software-defined satellites, we're talking about the next-generation of GEO satellites that are absolutely high throughput, high capacity satellites with maximum flexibility based on software. And the thought here and what a number of the manufacturers are doing are trying to standardize a hardware platform and allow great flexibility by leveraging the software capabilities to give different operators the flexibility to deploy that capacity, in those services as they see fit. So on the basic on the base level, these designs are very capex advantageous in terms of what kind of capacity we can get for each capex dollar.

And as David mentioned, the cost per bit, which is critical for competitive positioning long term. We'll be competitive with the other systems that are being deployed or envisioned today, including the LEO systems. So what makes it unique is how each operator uses it. We will be incorporating this next generation into our global architecture, underpinned by Intelsat Epic. It will be optimized this in space for specific applications whether it's mobility or network mobile network operator services or others. And so it's the uniqueness comes into deployment and how it's implemented within a network, and we feel very good about how this will fit into our future network.

David Tolley -- Executive Vice President and Chief Financial Officer

Steve, I would add one thing to that, because I totally agree with it. We're a services company, not a technology company, right? We don't believe, whether it's mPower or the EutelSat program that you referred to or even the next generation of our Epic satellites that we refer to will provide a sustainable technological advantage. It's all about how it's incorporated into the network. And generally speaking, the whole industry is going to ride these technology trends together. And yes, people make poor decisions about capital investments all the time and end up with stranded capital. So we're focused on being efficient, incorporating it into the network, lowering our cost per bit and providing a cost-effective system and total cost of ownership that make sense for our customers.

Stephen Spengler -- Director, Chief Executive Officer

And Giles, to your last question, it's something that I really shouldn't comment on at this point in time. So thanks for the question, but I can't answer that.

Giles Thorne -- Jeffries -- Analyst

Very good. Thank you. Thank you for that day.

Stephen Spengler -- Director, Chief Executive Officer

You're welcome.

Operator

Good your next question comes from the line of Philip Cusick of JP Morgan.

Philip Cusick -- JP Morgan -- Analyst

Hi, guys. Thanks for Coming to the end here. But can you give us some idea of preleasing on Galaxy 30 to be launched next quarter? And when that will be in service as well as on Intelsat 40 and the timing of that much?

Stephen Spengler -- Director, Chief Executive Officer

Sure. Galaxy 30 is scheduled to be launched late in the second quarter and put in service in the third or fourth quarter. The C-band payload on that satellite is virtually committed because it is a replacement payload in one of our cable distribution neighborhoods. So the C-band is totally committed. The L-band was hosted payload for the FAA is, of course, totally committed. And we're out marketing the Ku and the Ka capabilities on that satellite today with a pipeline of opportunities. In terms of Intelsat 40e, our target availability of that satellite is the end of 2022. And as we said, we that is in construction, early stages, of course, right now.

Philip Cusick -- JP Morgan -- Analyst

Thank you.

Stephen Spengler -- Director, Chief Executive Officer

Okay, welcome.

Operator

Your next question comes from the line of Arun Seshadri with Credit Suisse. Please.

Arun Seshadri -- Credit Suisse -- Analyst

Yes. Hi, thanks for taking my questions. Just a couple from me. Now that you have a sense, at least at a high level of the timing of the two payments, can you talk a little bit about how you what your initial thoughts are in terms of the accounting treatment of proceeds? And separately, if you could also talk about any updated views you have on what taxes would be owed?

David Tolley -- Executive Vice President and Chief Financial Officer

Sure. So first, in terms of accounting treatment, that's not something we've really spent any time looking at. We're focused on maximizing the expected value of the opportunity and the business deal. And once that has come to rest, we'll figure out the appropriate way to account for it. So that was your first question. And then on the second, look, we are a taxpayer in both the U.S. and in Luxembourg. Once the order is finalized and we understand better what these payment streams look like and whether the order is acceptable to us, we'll figure out the appropriate tax treatment.

Arun Seshadri -- Credit Suisse -- Analyst

Okay. Fair enough. And then separately, if you could also talk a little bit about your comfort level vis-A -vis the first lien maintenance covenant, and if you've begun any discussions to sort of look at that?

David Tolley -- Executive Vice President and Chief Financial Officer

Haven't begun any discussions at all, and very comfortable with it for the foreseeable future. It will get a little tighter over time. At some point, we'll need to have some discussion about that, but it's not a burning issue.

Arun Seshadri -- Credit Suisse -- Analyst

Thank you.

David Tolley -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Sami Kassab with Exane.

Sami Kassab -- Exane -- Analyst

Thank you very much. I have three questions, please. The first one, software-defined satellite. Can you provide more details on the cost per bit advantage that these are light to provide perhaps comparing bandwidth economics to your current Epic average level? Is it 10%, 20%, 50% better? And perhaps comparing it to OneWeb's or Starlink's, please? Secondly, what type of spot price deflation do you assume in your guidance for the networks division in 2020? And lastly, can you remind me who the incumbent satellite operators was in India, whom you took the package away from?

Stephen Spengler -- Director, Chief Executive Officer

Okay. So in terms of the software-defined satellites, I don't want to get into the specifics of how much lower it will be than the Intelsat Epic, but it will be meaningfully lower than that. And what we see, and we believe is that it will be competitive with the LEO and other systems that will be potentially deployed when the software-defined satellites are in operation. So we feel good about its competitiveness. We love its flexibility. We love the fact that we can invest in one satellite at a time and focus on particular markets and vertical applications and build it as we go. And we feel very confident that we'll be competitive from a cost standpoint. Sami, the second question was related to pricing and networks?

David Tolley -- Executive Vice President and Chief Financial Officer

Yes.

Dianne VanBeber -- Vice President, Investor Relations

Yes. What deflation we've assumed in the guide for networks in 2020.

Stephen Spengler -- Director, Chief Executive Officer

So we fully assumed that we will have repricing in our networks business upon renewals. And so that assumption is built into our plan for 2020. And as I said earlier, that change in pricing at renewal is nowhere near it was like a few years ago. It's something we're managing very carefully. It's something where we're very diligent in implementing our yield management strategy to make sure we get proper value for everything that we sell.

Sami Kassab -- Exane -- Analyst

So is it mid-single-digit rather than double-digit deflation?

Stephen Spengler -- Director, Chief Executive Officer

Well, it has been it hasn't been in the double digits for a while. We're seeing definite improvement. And the last question was about India. I really don't want to say who the operator is, that is providing the service today because I'm not sure that they have made that information public.

Sami Kassab -- Exane -- Analyst

Understood. Thank you very much, gentlemen.

Stephen Spengler -- Director, Chief Executive Officer

Okay, you're welcome. Thank you, Sammy.

Operator

Your next question comes from the line of Chris Quilty with Quilty Analytics.

Chris Quilty -- Quilty Analytics -- Analyst

Thanks, David, you mentioned projected double-digit growth in the mobility business, in 2020. Could you give us what it was in 2019 and/or the fourth quarter? And have you given any thought to breaking out managed services to give us some sense of how large that activity is growing, I should back up, the your Flex family of services. Would love to know how large it has grown and what the trajectory of that business has been.

David Tolley -- Executive Vice President and Chief Financial Officer

We haven't given any thought to breaking out managed services, which is to say that we shouldn't, at some point, just that we haven't and then in the mobility business, I don't have a my reference to double-digit growth going into 2020 was really after I stripped out 29e from the first quarter of 2019. So I'm looking at it on an as-adjusted basis. I don't have that same look on a quarterly basis, but it's single-digit growth.

Stephen Spengler -- Director, Chief Executive Officer

That's right. Chris, in 2019 over 2018, year-on-year growth for our mobility is about 9%. So high single digits. And it's roughly about 15% of our total company revenue now, mobility, I'm speaking about.

Chris Quilty -- Quilty Analytics -- Analyst

Got you, and following on that, the new 40e satellite in the announcement on that, you indicated that the design is different than what you did for 29e based upon changes that have happened in the ensuing years with the demand trends. Can you give us a sense of what you're seeing, both for maritime and aviation? And what you think the trends will be that you're designing into that satellite?

Stephen Spengler -- Director, Chief Executive Officer

Yes. Sure. So the Intelsat 40e design is focused on the U.S. market, in particular, with flow into surrounding countries and waters. And of course, the Intelsat 29e was much broader in coverage than that. But we didn't feel we felt that we needed to focus on the North American market, in particular, for the replacement satellite because we already have Intelsat Epic coverage existing in Latin America with one of our other Intelsat Epic satellites as well as over the North Atlantic. So the focus is for the North American market, where we believe that there's going to be some meaningful future demand, especially for aeronautical services as airlines change their model with customers potentially to a free WiFi service that has been talked about in a few places, and so we felt it's important to bring additional high throughput capacity into the market for those opportunities.

Chris Quilty -- Quilty Analytics -- Analyst

Understand. And maybe that putting capacity in the U.S., where you've got a ViaSat-three, a Jupiter-three and an NCS-17, all coming in the market with Ka. Obviously, 40e is going to be Ku based. Can you give us your thoughts again on how the band wars are trending and whether you see any competition for Ku capacity in the U.S.?

Stephen Spengler -- Director, Chief Executive Officer

Yes. We've talked about this for a while now. We believe that the aeronautical connectivity business and marketplace is large. There is a large opportunity globally and really only a fraction of the planes and the fraction of the capacity is available today compared to what it will be in the future. The fact is, today, Ku-band is the global platform of choice. Global is the key word there. Even ViaSat uses Ku-band internationally. So we believe that the Ku-band ecosystem is strong. And one of the key benefits of the Ku-band is that it's resilient. There are multiple layers of satellites, multiple layers of beams. So when there is a problem, customers have protection. They're able to move to other spacecraft. And the Ku-band is predominantly an open architecture compared to Ka-band.

So we saw the benefit of this, unfortunately, when Intelsat 29e failed, we were able to restore all of our mobility customers on other Ku-band that we have and other Ku-band in the industry. So it's that resilient that's important for global operators, and we believe that it will be an important differentiator going forward. And we see continued expansion in this frequency band by Global Eagle and Gogo and others. And so we feel very confident that it's going to be competitive over the long term, and there's a big marketplace. And so we're going to have our share in the marketplace and provide some very strong resilient and robust services for our customers.

Chris Quilty -- Quilty Analytics -- Analyst

Great, thank you.

Stephen Spengler -- Director, Chief Executive Officer

You're welcome.

Operator

I am showing no further questions at this time. I would like to turn the conference back over to your host.

Stephen Spengler -- Director, Chief Executive Officer

Thank you, Lisa. Our goals for this year are quite clear, build revenue stability while positioning for future opportunities. And our team is energized to take on these challenges. I want to thank everybody for joining the call today. We look forward to providing an update after the conclusion of the C-band vote at the FCC and meeting with investors at conferences next month. Thank you.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Dianne VanBeber -- Vice President, Investor Relations

Stephen Spengler -- Director, Chief Executive Officer

David Tolley -- Executive Vice President and Chief Financial Officer

Jason Kim -- Goldman Sachs -- Analyst

James Ratcliffe -- Evercore ISI -- Analyst

Mike Pace -- JP Morgan -- Analyst

Anthony Klarman -- Deutsche Bank -- Analyst

Lance Vitanza -- Cowen -- Analyst

Simon Flannery -- Morgan Stanley -- Analyst

Rick Prentiss -- Raymond James -- Analyst

Vivek Stalam -- New Street Research -- Analyst

Giles Thorne -- Jeffries -- Analyst

Philip Cusick -- JP Morgan -- Analyst

Arun Seshadri -- Credit Suisse -- Analyst

Sami Kassab -- Exane -- Analyst

Chris Quilty -- Quilty Analytics -- Analyst

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