Economic uncertainty and a global credit crunch do not look to be having an impact on the satellite industry, as demand for communications remains strong. The world’s four largest fixed satellite services (FSS) companies look poised to benefit from this demand, and the CEOs of Intelsat, SES, Eutelsat and Telesat think the FSS industry as a whole can do even more to capitalize on this growing communications marketplace.

"Despite the current economic downturn, the satellite sector is currently in a good shape with reasonable-to-high fill rates in different regions and significant growth prospects split between communication needs of emerging regions and sustained growth for [standard-definition] and HD channels depending on the markets," says Pacome Revillon, managing director of EuroConsult. "Significant growth should continue to be observed this year due to the investment strategy of both telecom and media players that is still unlikely to abruptly slowdown. Growth should still be high in 2008 and could begin to slow down in 2009, but [growth] could still be higher than 7 percent."

NSR estimates that more than 900 additional C- and Ku-band transponders will be sold in the next several years, as the FSS industry generates $9.3 billion in revenues from commercial transponder leases by 2012. Direct-to-home (DTH) services will have the highest rate of demand growth, with an estimate of 6.6 percent, and add the second greatest quantity of newly leased capacity demand, or more than 300 transponders of capacity, through 2012, according to "Global Assessment of Satellite Demand (GASD): A Demand-Driven, Region-Specific Analysis of the Commercial Geostationary Satellite Transponder Market for 2006-2012," NSR’s fourth look at the overall transponder market. "Only video distribution for services such as free-to-air television, cable headends, terrestrial TV channel redistribution and specialty/ethnic bouquets will add more C- and Ku-band transponder demand globally," says Patrick French, senior analyst for NSR and author of the report. "An average of 75 to 80 new C- and Ku-band [transponders] of capacity for video distribution services will be leased each year through 2012."

"When you live here you see the myriad of micro changes in your everyday life that contribute to the macro changes in the country. Things get done. This country can move mountains if it wants to." — Kill, Irdeto

While the largest FSS operators continue to post solid growth rates, Dave McGlade, CEO of Intelsat, believes the industry could and should be doing more. "As an industry, we need to spend more time looking for higher growth opportunities," he says. "Looking over the last few years, DTH, for example, was a big breakthrough. You could argue XM-Sirius has been a moderate success. We will see what happens in Europe. With WildBlue and HNS, consumer satellite broadband has had a good take-up, but it is still early in the game. But what are we doing as an industry to look for bigger plays on a global scale? There is an attitude that business as usual is good enough. The largest operators have all had a good year so far, but going forward, you have to think about what are we going to do to drive this industry, and I don’t feel as though we have done enough."

McGlade thinks the satellite industry could benefit from setting up an organization similar to Cable Television Laboratories Inc. (CableLabs), a nonprofit research and development consortium founded in 1988 by members of the cable television industry to develop technology and help members integrate those technical advancements into their business. "Our industry does not have something similar to CableLabs, which came up with technology, such as the DOCSIS standard for broadband, which really made a difference," says McGlade. "This is an example. We are a smaller industry than cable TV, but certainly we could do a better job on how we could collectively leverage our technology and development and look at what could propel the industry in terms of applications."

"We are a smaller industry than cable TV, but certainly we could do a better job on how we could collectively leverage our technology and development and look at what could propel the industry in terms of applications." — McGlade, Intelsat

High Definition

Of the revenues opportunities today, all the major FSS operators believe high definition (HD) will prove a strong growth area. While encouraged by Eutelsat’s growth in this area, Chairman and CEO Giuliano Berretta, says it is "difficult to predict" how many HD channels the operator may be carrying in 12 months because the market is still uncertain. "We are still in a market before the great acceleration," he says. "When you are in that phase, a little variation is enormous. When you are in the stable part of growth, predictions are much easier to make. One thing I can tell you is that the acceleration we saw in the first six months is continuing and that today we have 55 HD channels broadcasting through our fleet."

Dan Goldberg, president and CEO of Telesat, says HD is perhaps the key growth area for Telesat in the near future. "We are going to see significant growth over the next 12 months driven by the fact that we are launching three new satellites. When I look at two of those satellites, Nimiq 4 and Nimiq 5, they are already 100 percent sold out to Bell TV and EchoStar, who need the capacity for the introduction of additional advanced television services. And probably the most important advanced services these satellites will be used for is HDTV so in that regard, HD is driving our growth today."

Romain Bausch, president and CEO of SES, believes revenues derived from HD would be significantly boosted as markets in Europe show some long overdue progression in the area. "You will see sudden increases (in the numbers of HD channels) driven by individual markets," he says. "The [United Kingdom] will be first, followed by the French market and then, hopefully, the German market in the 2010 time frame. I would not be surprised if HD in Germany will happen at the same time the analog to digital conversion is in full swing. I would not be surprised if there would be 30 to 40 HD channels in Germany by 2010 or 2011. It is clear that once one of the public broadcasters in Germany decides to go HD, this will give momentum for private broadcasters to also go HD."

Satellite Broadband

With WildBlue and Hughes Networks Systems (HNS) making gains in establishing a satellite broadband market in the United States, the question of how big the satellite broadband opportunity is for the FSS players again come into focus. WildBlue launched service using capacity on Telesat’s Anik F2 satellite. "I was surprised at the quick ramp up, but once the service demonstrated itself and that there was a strong, pent-up demand for these applications, I have not been surprised since," says Goldberg. "Two years ago, I realized this service was for real. I wouldn’t say I had a skepticism about these services initially, but I was surprised just how steep the ramp up was."

WildBlue added its own WildBlue-1 satellite in 2006, but Telesat continues to provide capacity for WildBlue in the United States and for nearly 50,000 subscribers in Canada as well on Anik F2 and Anik F3. "The service has been successful, so much so that we are experiencing capacity constraints today," says Goldberg. "That means we are looking at ways we can efficiently expand our Ka-band capacity, working with existing customers. We have this option for the ViaSat-1 satellite, which has a Canadian payload. That could represent a very efficient opportunity for us to expand our capacity meaningfully in Canada."

Intelsat is an investor in WildBlue, and "it would be great to do elsewhere in the world what we are doing with WildBlue in the United States," says McGlade. "The hard part has been finding the countries and regions that have a consumer segment that will grow the same way as we have seen in the United States. As of today, the United States is the only market where there is decent penetration of consumer broadband, but there should be a play in other regions as well. In some countries in Europe it could work. I think it could also work in Latin America, Asia and even South Africa."

Eutelsat has taken a very ambitious approach in the satellite broadband market, signing of a contract in January for a dedicated Ka-band satellite to serve Europe. The operator is working in conjunction with ViaSat Inc., which ordered the identical ViaSat-1 to serve the U.S. market. "What we have done is to commit to a satellite that will completely change the concept of satellite broadband, put satellites in a new league in mainstream consumer services and offer a solution to resolving the digital divide," says Berretta. "Taking up the challenge of the Internet marks the opening of a third chapter in the satellite sector which began as a purely professional technology and continues to flourish with satellite broadcasting. Current satellites are simply not adapted for cost-efficient consumer Internet applications, which are all about one-to-one communications rather than the point-to-multipoint feature of broadcasting," he says.

Bausch also approaches the satellite broadband market in Europe more cautiously. "My assessment of the situation is that the rollout of terrestrial broadband will happen, but there will always be some 10 percent of unserved homes in the European market," he says. "In addition, there will be another 10 percent of underserved homes in Europe. They may get some ADSL, but it will not be sufficient for their needs. For some 20 percent of the population we see the opportunity to offer satellite solutions. In addition, you have also to take into account the fact that telcos are entering into the TV market and want to offer their product for 100 percent of the population." Bausch thinks using satellite to extend the reach of telco services makes sense. "Broadband providers could easily reach out beyond their terrestrial infrastructure by going on satellite," he says. "You see telcos invest in content rights as well as huge marketing campaigns in order to promote their triple-play offers. However, they are limited by the technical reach of their terrestrial infrastructure, while the marketing campaigns and the content rights are nationwide. They cannot reach 20 percent to 30 percent of homes they could do. So that is the role I see satellites playing."

Telcos

With France Telecom and Portugal Telecom both offering TV services via DTH and BSkyB offering telecoms services, the way operators are using different infrastructures is changing as they seek the best of different technologies and infrastructures to meet the needs of customers. McGlade believes, however, that some telcos may still need some convincing on the benefits of using satellite delivery. "The discussions in the United States have centered on when Verizon or AT&T will buy DirecTV or EchoStar. You never hear of them starting a satellite-based DTH platform on their own, at least not recently. A lot of telcos are network orientated. They do not like the idea of not having a network infrastructure. It is hard for them to do it. With AT&T and Verizon being so big, they don’t have to buy EchoStar or DirecTV, they could go and do this on their own," he says. [In September, AT&T announced it will market and sell DirecTV’s service as a co-branded satellite television service beginning in February. AT&T’s agreement to market Dish Network expires Jan. 31.]

Berretta points to the success of France Telecom (Orange) as evidence of a potential new deal route for satellite players with telcos. "The role of satellite in high-speed digital environments is clearly asserted with that fact that Orange, the world-leading broadband TV operator, is using [satellite] to complete their coverage. What Orange is doing by proposing to deliver TV by satellite to the 50 percent of French homes not eligible to receive it via ADSL is a model for everyone else. There are similarities between Rupert Murdoch’s strategy and what Orange is doing to find creative solutions to develop triple play," he says

Bausch also highlights the approaches of BSkyB and Orange. "There is a demand for satellite infrastructure that did not exist before. New players, namely the telcos, are coming into the TV space, and new players are entering broadband. We will see demand for satellite infrastructure from large players, namely the broadcasters, both in the TV and telecoms space," he says.

Telesat previously was owned by Bell Canada, Canada’s largest telco that also runs the country’s biggest DTH platform, Bell TV. Despite relinquishing its stake in Telesat, Goldberg expects Bell Canada to remain a major customer. "Bell Canada remains a very significant customer of ours, indeed our largest customer, through pay-TV as well as through some of their enterprise service activities, including providing services to remote communities. I think that there’s a good opportunity to continue to grow our business with Bell Canada as they roll out more and more innovative services to Canadian consumers and businesses," he says.

Mobile Services

While competition remains fierce among the FSS operators, the desire to develop new revenue streams has created cooperation in some areas. Eutelsat and SES have created the Solaris Mobile joint venture to provide infrastructure to enable mobile data and TV services throughout Europe. "We will offer the satellite infrastructure as well as some ground components to mobile service providers," says Bausch. "Solaris can provide more than mobile TV to mobile devices. It can provide mobile radio and mobile data communications services, safety and security services. The success of Solaris will not only be down to the take-up and success of mobile TV. There will be six spot beams mainly covering the United Kingdom and Ireland, France, Spain, Italy, Eastern Europe, and the German-speaking countries, and we can offer in any of these markets up to nine TV channels. There is no need to have any additional towers. You can use the existing [Universal Mobile Telecommunications Service] towers and upgrade the transmitters with the S-band frequencies. So it is a very efficient solution based on an intelligent combination between satellite and terrestrial optimizing the capacity and the coverage."

McGlade, who previously served as CEO of O2, one of the leading wireless operators in Europe, hints that the European mobile market could be a difficult one for satellite players to crack. "When I look at Europe, I see some pitfalls," he says. "You have such good wireless coverage in many, many countries. We will see what happens with 4G and WiMax. So I do not see as much of a need for satellite segment. There will be some regions where there are opportunities and some areas where there is not a role for satellite. Then I look at the power of FSS. You look at some of the technology that has been developed on the terrestrial segment and antenna infrastructure. We are now in a better position to leverage the FSS infrastructure. You can get better broadband than S-band could possibly offer," he says.

The announcement by Toshiba Corp. that it will close its mobile TV operations in Japan in March serves as a warning sign — if any was needed — that monetizing mobile services using satellite is far from easy. "I would say right now, [mobile TV] is a very nascent market," says Goldberg. "… I think consumers will adopt it quickly and consume it quite a bit. For FSS players, I think the most obvious near-term opportunity is to use our fleets to create an overlay infrastructure for the terrestrial distribution network. Satellites really do provide an excellent infrastructure to distribute video out to the fixed terrestrial infrastructure, really the tower infrastructure, and from there it will go to the handsets."

Bottom Line

There are a slew of growth opportunities for FSS operators. The challenge will be to develop a winning strategy in areas traditionally not the domain of satellite players. The operators are placing bets, and it will be interesting to see which ones pay off.