Shin Satellite had a tough year in 2006, reporting a net loss of Baht 46 million ($1.3 million).

However, the operator said this was down to Thaicom 3’s write-off of Baht 675 million ($20.2 million). Without the write-off, Shin Satellite would have made a net profit of Baht 629 million ($18.8 million).

While the operator suffered through Thaicom 3, there were some bright spots as revenues increased by more than 22 percent in 2006 compared to 2005. Shin also has distributed nearly 40,000 IPStar users terminals in 2006, more than double the figure of 2005. The company also said it had completed the installation of 10 IPStar Gateways in eight countries including Thailand, Vietnam, Australia (two gateways), New Zealand, Myanmar, China (three gateways) and Cambodia.

IPStar Concerns

However, the operator faces a tough year as it looks to makes its ambitious IPStar strategy a success.

While the service has started well in Australia, the keys to overall success for IPStar could depend on its performance in markets such as China and India.

One leading investment bank analyst who wished to remain anonymous said, "Shin Satellite will start its operations in China soon but we do not believe it will be successful because a Chinese state enterprise, CBSN will be doing the marketing," the analysts said. "We also do not expect the company to obtain licences in India soon. Growth of IPStar should remain slow because satellite services are protected in most Asian countries. We assumed 130,000 IPStar net adds in 2007 and 200,000 in 2008."

Mayuree Chowvikran, a satellite equity analyst at Siam City Securities said, "In my view, the key success factor for Shin Satellite will be its IPStar business. However, we don’t expect that it will be able to launch this business in India very soon as Dumrong Kasemset, Shin Satellite chairman, said. "We still maintain a sell rating on the stock."

It has been a tough start for the IPStar project with many analysts wondering whether the operator will achieve a strong return.

Colin McCallum, a satellite equity analyst at Credit Suisse, wrote in a July research report that "our concerns over this $490 million project have so far been borne out; contracted sales have not increased for over a year, and the largest project to date involves implicit subsidization of user terminals by the Thai government."

In this report, McCallum expressed real concerns about whether the IPStar project would work. "Our initial concern was that IPStar has been a technology-led project from the outset (conceived at a time of great optimism for future Internet use), rather than one that identified a strong and quantifiable level of demand and then found a technology to meet it."

Among the concerns are whether IPStar can compete with terrestrial systems, an issue complicated by the fact that terrestrial technologies can develop further while IPStar cannot. McCallum also questions the affordability of IPStar in areas that do not have fixed-line infrastructure and whether IPStar’s configuration requires broad uptake to ensure success.

"We think that the absence of new contracts shows the lack of a commercially viable business case (and the lack of willingness from governments in the region, except the Thai and Australian governments, to subsidise the UTs)," McCallum said. "Management continues to focus on attempting to sell capacity to wholesale customers, such as ISPs, and this limits visibility of the weakness of real demand from end-users."

Government Interference

As well as issues on making IPStar a success, there are other clouds on the horizon.

Richard Moe, a satellite equity analyst at Macquarie Equities wrote a research report last week about "the Thai government wanting ‘national asset’ Thaicom satellites back." According to Moe, "this desire either represents misplaced nationalism or an awareness of [a merger or acquisition] opportunity."

The situation could become complicated given Shin owns nearly to 50 percent of Lao Telecom, a dominant telco in Laos, and is the sole owner of another telco, Cambodia Shinawatra. Moe believes such a move to "nationalize" the assets could provoke a strong response from some of Thailand’s neighbors.

"A Thai military-inspired nationalization of Shin Satellite may also draw resistance from authorities in Laos and Cambodia," Moe said. "How many small countries would like their telecom infrastructure under the thumb of the military of their larger neighbor? They may also say that if the Thai government wants to nationalize Shin Satellite to keep it out of the hands of the Singapore government, they should nationalize Shin Satellite’s operations in their countries as they, too, want their assets back.

"We fully anticipate that the Thai management of Shin Satellite will bring the nationalistic sensibilities of other Asian countries to the attention of the Thai military and its appointed government. We would expect all sides to work out a compromise that addresses the concerns of Thais and the other countries that host Shin Satellite services."