One of the most ambitious satellite broadband programs taking place anywhere in the world is Shin Satellite’s IPStar initiative, which aims to deliver cutting-edge satellite broadband services to corporations and users across Asia. So far, it is proving a tough sell: At the end of March, Shin had approximately 75,000 IPStar customers and added just over 9,000 customers in the quarter, suggesting that the impetus of demand for satellite broadband in Asia has slowed.

In a recent edition of Satellite News (see: May 21 Vol. 30, No. 20) Chirasit Vuttigrai, a satellite equity analyst at DBS Vickers Securities expressed in a research note that he does not expect Shin to hit its targets in terms of IPStar subscribers.

Specifically, he said "we do not think Shin Satellite will meet its 100,000 units sales target for IPStar terminals in 2007. We forecast only 62,000 units for the period. As long as operations in China and India remain grounded, operating profit will be weak."

With the program still in its infancy, the challenge would now seem to be to grow the subscriber base for IPStar. By the end of this year – particularly pending any breakthroughs in China and India – the prospects for IPStar may prove to be much healthier.

In an exclusive interview, the executive chairman of Shin Satellite, Dumrong Kasemset talks about the story for IPStar thus far, and why he is harbors optimism that the program will prove to be a strong success across broadband markets in Asia.

Satellite News: What are the major challenges for Shin Satellite over the next 12 months? Could you tell us about your capital expenditure plans in terms of ordering new satellites?

Dumrong: We don’t plan to order any satellites this year. As you know, we are a very diversified company. We have a mobile business in Indo-China, and we have retail Internet businesses. We also have a very big traditional satellite business.

A lot of our business is driven by traditional TV broadcasting, which accounted for 50 percent of our revenues. Broadband accounted for about 40 percent of our revenues last year. Our revenues grew last year as a result of IPstar.

In terms of revenues from IPstar, we are looking forward to further growth this year. The broadband sector is the fastest growing sector in the satellite industry. We are now present in 14 different countries with IPStar. The plan is to install our gateways in all of the major countries … I am talking about countries like India. Here, we are installing gateways in Mumbai and Delhi. We are also working in Indonesia. Malaysia is another target market for us. But, we are also looking at Korea, Japan and Taiwan. Our challenge is to install gateways in various countries and clear the regulatory hurdles. We have found out that over the last year, making IPStar a success is far from easy. It is a very retail- oriented service. We have to be responsible for the rollout of the receivers on the ground. We are acting more like a DTH operator. We have to go after the subscribers. But you have to remember that the service is more complicated than basic DTH services, because it is a two-way service. The costs are higher, and it is more complicated to sell. We are becoming more of a retailer than a wholesaler. That is a big change in our lives.

Satellite News: While IPStar has made progress in Australia and New Zealand, user terminal (UT) numbers are around 75,000. What do you make of these numbers? Do you expect to see an acceleration of UT’s being deployed in the rest of the year?

Dumrong: We expect to see an acceleration in the number of UT’s being sold this year. In Australia, we have been very successful.

We had 10,000 terminals there at the start of this year, and we hope to get up to 50,000 UT’s by the end of the year. The market is a strong one, particularly as there is strong backing by the Australian government with the HiBis program, which brings communication services to remote areas in Australia. We now have about 15,000 subscribers.

Considering the subsidies provided by the Australian government, we think by the end of the year we will be up to 50,000 subscribers in Australia. In total, we hope to have over 150,000 UT’s deployed in all the territories we operate by the end of the year, which would mean a doubling of the numbers compared to where they are now.

Satellite News: How many IPStar subscribers would you need to be profitable? When do you hope to hit this target? What are the main challenges now for you to make IPStar a success?

Dumrong: In terms of when we will be profitable, a lot will depend on what types of applications we sell through IPStar. We have many applications. However, the main application will obviously be broadband access, which accounts for two-thirds of all applications. Another 20 percent is corporate applications. There are also other applications like satellite newsgathering (SNG) [and] video distribution.

So, it depends on what other applications we are able to sell. However, if you assume that all the subscribers will just be taking broadband access services, I would say we need 250,000 subscribers to reach the break-even point.

We would hope to hit the break-even target next year. We expect this to happen towards sometime next year.

Satellite News: Has making IPStar a success proved more difficult than imagined?

Dumrong: It probably has been more difficult than we imagined. In some territories, there have been difficulties in clearing the regulatory hurdles. We have done that now in countries like Australia and China.

The next stage is then to find effective distribution channels. This is a new service in a country like China. The rollout of IPStar might have started slowly, but I am happy with where we are.

It has taken longer than we expected to get the distribution channels in place. But, we are getting these channels in place, so I now expect to get an acceleration in terms of overall numbers.

In India, we are now at the point where we are receiving regulatory clearances and putting the gateways in Mumbai and Delhi. After that comes the rollout and distribution. The growth may not be as fast as we expected it to be, but there will still be strong growth.

We are very confident now about the success of IPStar, but I would say we are more realistic in terms of the growth curve. Whereas before we were expecting 500 percent growth, we are now expecting 100 percent growth. But that is still faster than anything we are seeing in the industry in this area. We are seeing that the model for satellite broadband is more retail than wholesale.

Satellite News: China and India are often referred to as the big markets for satellite broadband services. Could you offer an update on your plans here? What about the breadth of regulatory issues to be overcome? How difficult will it be to achieve success in these markets?

Dumrong: In China, we have completely cleared the regulatory hurdles. The only hurdle in China is now distribution. But, here we have appointed four major service providers to start handling this side, so that we can start the aggressive rollout of IPStar services across the country.

We want to further penetrate this market, so we are talking to more service providers. In India, we have completed the landing rights clearances with the Indian authorities. Once the gateways are installed, we can really attack this market. However, India is a completely different market, and growth could ultimately be stronger than in China this year.

We do have a lot of government demand in the backlog that we need to fulfill once the gateways are started up. In India, at the moment, we are doing site preparation which takes about three months. At that point, we can start to roll out terminals. We are now offering IPStar services in China.

The IPStar opportunity expands beyond India and China. We have coverage across numerous countries.

The next big push after India and China will be [in] Indonesia, Malaysia, Korea, Japan, Taiwan and the Philippines.

We don’t have to worry about growth. We have growth, both horizontally and vertically. In terms of the vertical market, we will be offering other value-added services like television, so we can bundle things together with the broadband access service.

Satellite News: How do you see the broadband access market developing in Asia? What do you see as the major new market opportunities for the company?

Dumrong: The broadband access market is generally very healthy in Asia. If you live in Asia, you have a variety of suppliers and technologies. In Japan, you are looking at the fiber-to-the-home (FTTH) as the primary vehicle.

In the rest of Asia, you have strong DSL penetration. We feel that we can serve areas where there is no fiber or copper.

We are the market leader in Asia in terms of satellite broadband services. We have the largest capacity in orbit of any operator, and we continue to drive the industry forward.

Our operations in the conventional satellite space are very stable and are very cash-flow positive.

We expect to expand further with our DTH partners in Indochina. We can expect a moderate revenue increase. We have a telecom business in Indo-China which is doing very well.

In summary, we are moving along strongly in all areas.

— Mark Holmes

Contacts: Piyanuch Sujpluem, Shin Satellite; e-mail: [email protected]

Chirasit Vuttigrai, DBS Vickers Securities; e-mail: [email protected]