For many years, the satellite industry behaved differently from other high technology industries, where continuous and rapid change is a constant. Only until recent years has our industry begun moving so quickly that it is important to take time to try and project what comes next; to be prepared either to take advantage of opportunities that arise or to properly face the challenges along the way. Reviewing the behavior of the satellite industry in recent years, I would like to point out a few trends that will also affect Latin America and our industry, not only in 2018, but for several years to come.

Costs Driven Down

Latin America is no stranger to the growing offer of satellite capacity, both in traditional satellites and High Throughput Satellites (HTS) — a situation that inevitably leads to scenarios of high competition and a decrease in capacity prices. According to Northern Sky Research’s (NSR) Satellite Capacity Pricing report from December 2017, the cost of satellite capacity globally has decreased by more than 30 percent over the past two years, and everybody expects that trend to continue in the following years around the world.

Latin America is not excluded. Dropping costs is making satellite a viable alternative in industries and services that were not accessible before. As an example, we can see what is happening with cellular backhaul, where in addition to the flexibility offered by satellite technology, the price per megabit required by cellular operators makes satellite a feasible solution to grow their networks. Cellular operators will soon use satellite not only to meet regulatory requirements but also as a way to profitably expand their coverage.

However, the question remains if such pricing decreases will increase demand enough to consume all that additional capacity coming to market. We all hope it does, but if not our industry will be in a difficult situation for many years to come.

Residential Market in Latin America

Residential market models that have been successful in the United States due to the geographical and demographic characteristics of the population are not necessarily replicable in Latin America. The need for a solution like satellite exists, but the big question is if there is enough volume of potential users with purchasing power to acquire the service in rural and suburban areas. Throughout the world there have been other initiatives to reach residential consumers using satellite and only a few have been successful outside the United States. Latin America also has had initiatives that tried to conquer this market, but up to this point the results have been a failure.

However, only until recently do we see companies with a lot of experience in serving this segment entering the Latin American market. Therefore the jury is still out whether satellite is a viable alternative to serve the consumer segment in the region.

In Brazil, Hughes’ initial rollout went well, although the rate of penetration of the residential segment seems to have slowed down in the second year of service. If the more structured initiatives are not successful, perhaps they will migrate their offer to Small and Medium Enterprises (SMEs) with basic connectivity needs. But that for sure will not be enough to consume the capacity available for the residential market initiatives in the region, which means more MHz inventory will be available to serve an apparent insufficient demand in other segments.

Searching for New Models to Remain Competitive

Overcapacity will continue to increase the pressure of operators to stay competitive. We see most of them trying to improve their offer, trying to differentiate their products and services, to move out of the increasingly commoditized sale of MHz. In the meantime their stock prices have plummeted as revenues fell across the board. Several of the major operators in the industry reported decreases of up to 8 percent in their revenues during 2017.

In an effort to get closer to the end customer and understand their needs to better use their capabilities to serve those clients, many operators have been building infrastructure to provide managed services. Whether those assets and capabilities will be used to better support their traditional customers (integrators/service providers) or to go after end customer opportunities themselves depends on the vision and strategies of each of the operators. What is clear is that in three to five years the industry value chain will probably not look the same. In the meantime, the market dynamics are, and will continue to be, confusing and messy as different types of players try to find their new role in a world where the sale and purchase of MHz will mostly disappear.

Such a scenario creates challenges for service providers as well. They need to continue to demonstrate their worth in the value chain, focusing on efficiency and looking for ways to differentiate and strengthen their product portfolio. How? Probably with alliances and partnerships with different players of the value chain seeking to better serve and generate more value to their customers — which is not necessarily very different from what has kept them relevant in the industry up to this point.

Mauricio Segovia is currently CEO of Axesat, a satellite telecommunications company with 100 percent Colombian capital with presence in Colombia, Mexico, Peru, Ecuador, Chile and Central America.