Is The Worst Over?

Another challenging year has passed for the global commercial satellite industry. The year 2002 echoed much of its predecessor in terms of contracts, launches and substantial business growth. Even now, halfway through 2003, any executive working within the various satellite sectors still fights the uphill battle posed by a stagnant economy.

Once again, Via Satellite took a closer look at the industry developments that shaped business strategies in 2002. Objectively allowing the numbers to tell the story, the data research results, along with near-term projections, indicate the year 2002 weathered the worst advancement since the beginning of the millennium’s economic decline for some of the major industry sectors. The next three years, however, do show more promise in both application and hardware growth, providing encouragement for those who continue to maintain forward momentum through these doldrums. According to our numbers, by year-end 2002, there were 246 Western-built, GEO satellites in orbit and 47 more under various stages of construction.

Throughout it all, the most significant theme to surface is the chain reaction scenario that materialized in full force in 2002. In other words, slow global economic growth and flatlined financial investments stunted new application initiatives, which in turn halted satellite manufacturing projects that ultimately lightened the payloads for the major global launchers. Even though demand for broadband services and applications remained strong in 2002, the processes behind getting those applications to the end user did not occur. Thus, the major industry segments suffered in 2002 as the following charts indicate. One bright spot, however, indicates that consumer-oriented video services remained one of the strongest drivers of growth in the satellite services sector.

In addition, by mid second quarter 2003, the commercial satellite sector has witnessed some movement, with five Western-built, commercial, geostationary communications satellites launched into orbit on four launch campaigns and five launch contracts announced for the major rocket companies. Unfortunately, the satellite manufacturing arena continues to experience a downturn in new orders, similar to what it witnessed in 2002. As of May, only three commercial communications satellite contracts were awarded to the major Western manufacturers.

Even though the numbers that shaped 2002 were not favorable, business initiatives during the latter part of last year and continuing on through this year have sparked some revenue growth. For one, 2002 saw the U.S. government increase its commercial communication need for its 2003 military events. For another, more companies restructured business services to further provide turnkey solutions for clients, such as satellite operators acquiring ground segment teleports and satellite service providers offering total network operations instead of mere data transport control. Now, all eyes are once again beginning to focus on broadband initiatives spurred by the resurgence of the Astrolink and Wildblue ventures. So the question remains when exactly the resurgence for commercial communication satellite services will happen. The years 2002 and 2003 may be some of the most challenging ones for the commercial sector in terms of business growth, but 2004 and 2005 may see a return to regrowth.

Commercial Activity To Orbit

Throughout the past decade, the GEO commercial communication satellite launch rate for Western-built spacecraft has, at times, fluctuated much like a stock sheet. Overall, the industry has averaged 20 launches per year. Even though a below-average launch scenario played out in 2002 with 18 successful and two launch anomalies, the number did increase from the 13 launches in 2001. Likewise, even though the launcher industry suffered a decline in 2002, it has weathered worse as seen back in 1993, when only 10 Western-built commercial launches were conducted. As far as actual launches per provider, Arianespace dominated the 2002 launch scene, commanding 50 percent of the year’s activity. It is also worth pointing out that 2002 ushered in the advanced vehicles of the Ariane 5, Atlas 5 and Delta 4. Everyone awaits the customers to now sign multiple contracts needed in order to maintain these new vehicles in a healthy marketplace.

Commercial Operations In Orbit

Out of the 246 satellites Via Satellite tracks, 41 percent of those spacecraft orbiting are owned and operated by the major satellite service providers. In 2002, Intelsat significantly upgraded its satellite fleet with the addition of its nine series of spacecraft. Currently, they are examining and evaluating the older series in orbit, looking toward future plans of upgrading their global service where necessary. At the same time, in 2002, Intelsat cancelled one of its two 10 series spacecraft, while it reevaluates the marketplace. In contrast, the near term looks to be SES Global’s showcase as it commands a 17 percent share among this group of satellites under construction. Overall, 29 percent of the satellites under construction came from these four operators listed in the chart. It is important to note, however, that upon closer examination of the 47 spacecraft currently under construction among the Western manufacturers, only 19 percent of those satellites are actually built and awaiting launch. For 15 percent of the group, building has not yet started and 66 percent are under construction.

Commercial Activity To The Launch Pad

It has been more than 20 years since the commercial satellite industry witnessed such a small manufacturing order sheet as it did in 2002. Alcatel won the Koreasat contract, Boeing won the Thuraya contract and Orbital Sciences won the Telkom 2 contract. In addition to the three orders signed, Via Satellite counted five contracts as either resales or previous years’ orders. Among them Alcatel had two: The Eutelsat W5 (resale of W1) and the Agrani spacecraft (resale of Thaicom 4); Astrium had one: The Hellas Sat (resale of KTV); and Lockheed Martin’s AMC 15 and 16, contracts which were originally signed in 2000. We anticipate this number to rise slightly in 2003.

Commercial Operations To The Consumer

Throughout 2002, one of the major news issues within the commercial satellite arena centered on a possible consolidation venture, joining DirecTV and Echostar Communications Corp. With that merger no longer on the boardroom table, the Carmel Group projects the DBS market will reach 21.4 million subscribers this year, approximately 2.0 new subscribers for 2003. The Carmel Group does, however, say that the years of fast growth are gone, and it will soon take twice as long and perhaps much more effort to capture the same number of subscribers that it took back in 2000. The new growth curve of today will resemble a hill more than a steep mountain, and the industry is projected to reach a 25 percent penetration level for U.S. television households by 2009 with 28.5 million subscribers.

The year 2002 also brought to fruition an expansive growth to the two digital satellite radio services in the United States. Both XM Satellite Radio and Sirius Satellite Radio services are maintaining a positive industry perception and all eyes are watching this industry niche grow. According to the Carmel Group’s projections, 2003 will be the year when satellite radio will reach critical mass with approximately 1.5 million subscribers, having added more than 1.1 million net new subscribers since year-end 2002. Finally, the Carmel Group estimates that in 2006, satellite radio will have almost 15 million U.S. subscribers, corresponding to a 6.9 percent penetration of total U.S. cars.

Nick Mitsis is the editor of Via Satellite magazine