Satellite operators doing business in Asia are thriving despite the global recession, with revenue from transponder leasing in the region remaining strong even as other sectors of the world’s economy have withered.

The commercial communications satellite industry’s most important drivers, including DTH television and intercontinental video transmissions, remain in growth mode because of the continued strong demand in Asia for these services. In addition, the multi-year contracts satellite operators often sign with their customers are enabling the industry to maintain a dependable revenue stream despite the turmoil in the world economy. Customers that depend on satellite links to run their businesses cannot afford to let those arrangements deteriorate, so they are likely to continue to make paying satellite providers a top priority, say analysts. "The industry hit the economic crisis in about the best possible position they could be in," says Patrick French, a senior analyst for Northern Sky Research in Singapore. "Transponder fill rates are generally high, the industry has somewhat consolidated and companies are going into this strong."

A key factor in the satellite industry’s resilience to the current recession is the popularity of television as a low-cost form of entertainment, says Paul Brown-Kenyon, COO of regional operator Measat Satellite Systems of Malaysia. This has helped pay-TV operators keep subscription revenues stable and fueled continuing growth in the number of television channels distributed in Asia, he says. "We’re not recession-proof by any means, but right now there’s just a slowdown in the majority of markets we’re in. The impetus of deregulation and rising living standards is still providing strong growth."

Asia also is benefiting because investors see its markets as being stronger than those in North America or Europe, where the economic crisis is having a greater impact, says Brown-Kenyon. "A lot of U.S. and European media companies are putting more focus on Asia because of the growth prospects here. It’s positive for us." He points to China and India as examples of how Asia’s seemingly insatiable hunger for telecommunications services is helping satellite providers maintain their momentum. Even if growth in those countries subsides somewhat, their economies are humming along at brisk paces — and that is translating into plenty of opportunities for satellite companies, he says.

"The industry hit the economic crisis in about the best possible position they could be in. […] Transponder fill rates are generally high, the industry has somewhat consolidated and companies are going into this strong." — French, Northern Sky Research

Indeed, only a small percentage of people living in many Asian countries, including India, Indonesia, the Philippines and other emerging markets, currently subscribe to any form of pay-TV, says Cynthia Dickins, senior vice president of market development for Asia at SES New Skies of the Netherlands. This means satellite companies have significant opportunities to realize growth. Moreover, markets where the DTH business is more developed are moving forward with the deployment of increasing numbers of high-definition (HD) channels. This is helping satellite-TV providers strengthen their appeal with consumers, she says. The rise in the number of HDTV channels also benefits satellite operators because they consume more bandwidth than their standard-definition cousins.

Beyond television, Dickins says mobile communications also is emerging as an important business catalyst for the satellite industry in the Asian region. Satellites provide an important service to mobile phone companies by transmitting voice and data from one area to another. Dickins cites research predicting that 500 million new cellular phone users would sign up for service during the next five years in Asian countries. VSAT networks, which carry data for corporate networks, rural telephony and other applications, also likely will play an important role in the industry’s growth in Asian markets going forward, she says.

Peter Jackson, CEO of Asia Satellite Telecommunications Co. Ltd. (AsiaSat) in Hong Kong, says the current economic downturn is affecting Asia differently than previous periods of economic strife, such as the 1997 Asian currency crisis, did. One difference is that advertising has continued, even if the kinds of products appearing in commercials have changed to reflect conditions, he says. Another change is that the economy has become more global — and Asian countries are more prominent than they were. "In 1997, we saw the rest of the world relatively unaffected, and they helped pull us out of it fairly quickly. This time, junebe Asia will pull the rest of the world out," he says.

Simon Twiston Davies, CEO of the Cable and Satellite Broadcasting Association of Asia, or CASBAA, based in Hong Kong, says the industry also is benefiting because of its increasing visibility as an economic enabler. "The communications market as a whole has become so embedded in the economic, political and entertainment landscape across Asia. Satellites help bring countries together…. They have a huge upside across the Asia-Pacific region," he says

Satellite operators are not taking the healthy interest in their services in Asia for granted. Officials at Washington-based Intelsat, for example, are working closely with customers to tailor services — and even satellites — to the specific needs of their customers, says David Ball, the operator’s regional vice president for the Asia-Pacific region. "We’re busy keeping our customers growing, and not many are leaving. My mantra to my sales directors is you need to understand the customers’ businesses," he says. Intelsat also makes a point of understanding the fine details of its customers’ requirements before settling on the design of new satellites, part of a deliberate effort to tailor its services to those users’ needs. "As we’re getting ready to buy replacement satellites, we sit down with customers and understand how they use capacity. We’re having that conversation. The satellite industry is a critical element of their business."

French notes that there are distinct differences between various Asian countries that make generalizations about the market inaccurate. While some countries, such as Singapore, have highly developed terrestrial telecommunications infrastructure, ground-based systems in other places, like Indonesia, are far less pervasive. Government regulations, topography and other factors also mean that serving Asia can be as challenging as it is rewarding. But one broad statement that does hold true is that the satellite industry must pay close attention to how it is perceived in the investment community, which does not always make logical decisions. "It’s one thing to say among ourselves that we’re pretty confident, but you have to take into account the perceptions of the Wall Street crowd. If you sell them on too good a story and something happens, your stock can very quickly get punished. We’ve seen this inside and outside the industry," he says.

While the continued strength of the satellite industry in Asia is encouraging, French said conditions could change quickly if the economy does not begin to come out of the recession by the end of 2009. That ugly possibility lurks in the background as satellite companies look for ways to maintain their strength, he says.

One issue satellite companies have to grapple with is overcapacity, a problem that struck the industry a decade ago and could easily recur if the number of transponders serving Asia’s many submarkets does not match demand for that capacity, French says. It took years for the Asian market to absorb the oversupply of transponders that resulted from the satellite boom of the late 1990s, and the industry’s collective ability to ultimately get past that situation is no guarantee it will not happen again. "People understand the lessons of the past, but the nature of the industry is that it’s hard to avoid periods of overcapacity. Every operator has to look out for itself, so there’s a natural tendency to build more than they need because everyone’s hoping to have a bigger slice of the market. If not everyone gets a bigger slice, someone’s going to be on the short end of the stick," he says.

Dickins says demand for satellite services is increasing fast enough that the arrival of new and replacement satellites during the next few years should not tilt the supply-demand equation out of balance. "In our experience, demand will continue for well-designed, well-coordinated, quality capacity that meets the needs of customers’ specific applications requirements. That’s why we continue to invest in the Asia market."

So-called high-quality satellites, defined as spacecraft which are positioned at especially popular orbital slots or have particularly good coverage of a certain area, are key to maintaining a healthy environment for the industry because they command higher prices, AsiaSat’s Jackson says. These satellites bring in enough revenue to enable their operators to post good profits and afford to replace spacecraft when their useful lives end. The industry can be hurt, he says, by operators who slash lease rates to bring in cash — and force competitors to engage in price wars that can have detrimental effects across the industry. On the other hand, customers are willing to pay more for better transponders, underscoring the need for operators to make smart decisions about where to deploy new spacecraft.

In some cases, satellites june not be replaced when they are retired, Dickins says. French agrees that tight credit and other consequences of the recession might force satellite operators to delay purchases of new satellites, even if they risk losing customers as a result. "If you’re faced with higher costs [to borrow money], what are you going to do? You could not replace a satellite and lose business, or you could replace the satellite and lose money because of the high cost of debt," he says.

The expansion of TV content and widespread embrace by consumers of satellite-delivered television in recent years has helped the satellite industry form a solid foundation that should help it maintain its footing going forward, says Twiston Davies. Interest in both C- and Ku-band satellite capacity is strong, with C-band transponder inventory almost all spoken for throughout Asia. Demand for DTH services is helping consume Ku-band transponders, which are better suited than their C-band counterparts for serving consumer satellite antennas, he says. Other telecommunications applications that are filling Asian satellites include Internet trunking and the fledgling mobile TV industry.

But the cyclical nature of the satellite business suggest that it could see some of the negative effects of the economic downturn later, when the recession begins to ease. "We shouldn’t be dazzled" by the satellite industry’s success, Twiston Davies says. "Over the last 12 months, revenues at many satellite operators have done very nicely, but there is going to be a slowdown in growth. I don’t think we’re going to see a net fall, but I’m less bullish about the environment during the next twelve to eighteen months," he says.

Brown-Kenyon says that, for now, the ever-changing relationship between demand for satellite services and the supply of high-quality transponder capacity is playing to Measat’s advantage. Prices for transponder space on sought-after satellites have increased over the past year, he says.

Ball sales his sales team is doing well selling transponder space to customers that want to serve users in Asia. The company is benefiting from programmers who want to localize channels for specific countries or transport content between Asia and other parts of the world where it either originates or is in demand. Intelsat also is seeing strong data traffic between Asian countries such as South Korea, Japan and China and nations in Africa. "We still hear there’s a glut, but we don’t see it. There’s solid demand across the region," he says.

Regardless of how the Asian satellite market evolves during the next few years, industry officials say it is likely to remain characterized by a large number of operators. Beyond the well-positioned regional operators, big satellite companies with a global presence, such as Intelsat and SES New Skies, stand to benefit from their economies of scale and demand for intercontinental carriage of TV programming to and from Asian countries. Meanwhile, the many government-sponsored Asian operators that exist more to satisfy national interests than to meet market demand are unlikely to lose government protection, independent consultant Laurie Sherman says. Similarly, regulatory constraints mean significant international consolidation among satellite operators in Asia probably will not occur.

In Japan, however, consolidation has somewhat redefined the market during the past few years. Sky Perfect JSAT of Tokyo, Japan’s main domestic satellite provider, includes the former JSAT and Space Communications Corp. companies as well as the Sky Perfect DTH provider, which grew out of the former DirecTV Japan. The merger of a leading Japanese satellite TV platform with a spacecraft operator — creating a company that resembles the vertically integrated DirecTV and Dish Network DTH providers in the United States — is an interesting development for the Japanese market, but is largely insignificant for the rest of the region.