By Peter Brown

The satellite transponder market has consolidated considerably since the London Satellite Exchange (LSE) was created more than five years ago to serve as a marketplace where companies could bid for leased space on satellites.

In April, EADS Space Services announced it would acquire a 49 percent stake in the LSE in a move to strengthen EADS Space Services’ one-stop-shop strategy of providing satellite capacity and services, including non-military capacity, to government customers. This move also is a next step in the evolution of the LSE and its initiative to balance media and enterprise business with contrasting government contracts. While this transaction did not exactly put satellite capacity trading back in the spotlight, it reminded everyone there are a lot of different activities underway whenever the satellite industry is in motion.

"Both LSE and EADS Space Services mutually benefit from our combined operations. (LSE has) expertise in areas where we are not active. They are a highly reactive company that keeps in regular contact with satellite operators worldwide, and we expect a nice cross-fertilization of business between the two of us," said Jean-Francois Gambart, EADS Space Services vice president for business development, answering a question about why EADS has purchased a stake in LSE.

"The aim of (our) 49 percent LSE stake acquisition is to reinforce our usage of commercial capacity, to be able to provide on-demand satellite communication services to our users with quick turn-around and the (greatest) flexibility," added Gambart. "Thanks to its business model and its daily contacts with FSS operators, LSE has developed a unique expertise, and sophisticated databases and tools, which provide increased flexibility and agility."

LSE’s strength in the commercial sector — with telcos and media in particular — compliments EADS Space Service’s operations in the government/military sector, too, according to Gambart who describes EADS Space Services as a young, fast growing company which now has operations in the United Kingdom via Paradigm Secure Communications Ltd. as well as in France and in Germany. Besides delivering end-to-end secure military communication services to government/military users worldwide, the company currently operates four Skynet-4 satellites to be replaced soon by three next-generation Skynet-5 satellites.

Dylan Browne, managing director of LSE, estimates 50 percent of commercial satellite capacity is procured through resellers — 9 megahertz (MHz) is the norm for LSE, although LSE reports doing deals as big as 45 MHz. Agreements are in place with all major Fixed Satellite Services (FSS) operators including Eutelsat, Intelsat, Loral and New Skies, along with regional operators such as Asiasat, Singtel and APStar. Mobile Satellite Services provider Inmarsat also is on the list.

According to Armand Musey, president of New York-based Near Earth LLC, satellite capacity trading may take hold once again as a result of both a wave of additional capacity, including Ka-band, comes online throughout the next few years and as more sophisticated customers emerge who are willing to pursue more flexible strategies as they go about obtaining the lowest cost capacity available.

"The big FSS operators have traditionally been reluctant or unenthusiastic when it comes to promoting any activity which results in their capacity being seen as a commodity. Exchanges such as LSE disintermediate the operators from the value add side of the equation, among other things, including network management and uplink services," said Musey. "It was the bandwidth glut a couple of years ago which fed this type of activity. And if operators once again find themselves awash in unused capacity, it could provide an unwanted boost to LSE and perhaps other capacity traders as well."

The one group of companies that have barely noticed the capacity traders is the satellite operators themselves. "In essence, the fundamentals of customer buying behavior have not changed," Monica Morgan, a spokeswoman for SES Americom said. "The most sophisticated customers appreciate the advantages of neighborhoods — for cable, for radio programming, for education, for news. The most significant influences on the spot or occasional market are major events, news and then world events such as the activities in the Middle East which have resulted in an enormous spike in the U.S. government’s demand in that region for three years or more."

But Philip Haines, a U.K.-based consultant, who runs Satcap, believes the capacity trading market will continue to play a role in the industry, as one third of all Ku-band capacity worldwide remains unsold. His estimate corresponds with a June Futron Corp. white paper, "Satellite Services Demand: The Future in High Def," which projects global utilization now exceeds 60 percent "for the first time in several years." Futron sets the combined global supply of C-, Ku- and Ka-band transponders — measured in 36-MHz equivalents — to be about 9,000, and hovering near this total throughout the coming decade.

According to Haines, consolidation in the satellite operator sector has not necessarily made it any easier for less experienced buyers of satellite capacity to fulfill their needs. "For example, the satellite where they want to acquire space might previously have been owned by a local company dealing in their own language, their own currency and their own time zone," said Haines. "Now, it might be owned by a corporation on the other side of the planet with little or no local support. The satellite exchanges are able to cope with this on behalf of their customers."

Browne estimates the level of churn — meaning the choice of a customer to move its business elsewhere at the end of a lease contract — has increased from perhaps 10 percent to nearly 40 percent throughout past decade, and the principal factor driving churn is medium-term uncertainty.

As for Ku-band capacity over the key mid-latitude markets of Europe, the United States and the Middle East, and the fact these three regions are monopolized by four major operators, Browne is pragmatic. "In order to break into these markets, competitors are obliged to accept constraining frequency coordination terms which provide for inferior power levels and ultimately unattractive offerings," said Browne. "Thus, the logic follows that if you are looking for significant Ku-band growth you should deploy your satellites over emerging markets, such as West Africa, Central Asia and the Indian subcontinent."

As for the most attractive FSS satellite neighborhoods, Haines notes there a few that are completely spoken for. "The best stuff always sells first, and there are a few neighborhoods globally that are essentially sold out. However, as noted above, about one-third of all Ku-band bandwidth remains unsold," said Haines, who does not see industry- wide restructuring as the solution to sold out neighborhoods, rather the answer lies in an earth segment approach via the use of smart antennas and smart receivers that can cope with several satellites simultaneously.

"The attractive FSS satellite neighborhoods are spoken for — until a determined company creates another one. This has been the history of the development of neighborhoods and will probably continue to be," said Bell.

While watching the growing demand within European governments for commercial satellite capacity, Brown also sees an occasional use market which has seen its own consolidation, leading to a smaller number of satellite news gathering (SNG) operators each doing more business.

"SNG operators are now able to enter into larger bulk commitments or full time leases to service their own requirements and have less need of the satellite exchanges," said Haines.

"The [occasional use] market will continue to be a part of the service portfolio of carriers and teleport operators, because it meets a customer need," said Bell. "But [occasional use] volume will decline as more sports venues and other [occasional use] sites are fibered."

Roger Rusch, president of California-based Telastra said there always will be special events and disaster situations that will produce a surge in local transponder demand. "Over the years, these unexpected surges in demand have been extremely profitable for the satellite operators," he said.

Capacity trading has not emerged as a driving force or a fundamental business concern, and yet trying to dispel its influence altogether might not be the best way to proceed either. Predictability some times falls flat on its face. Over the coming years, the satellite market will see its share of further changes.