Satmex is one of Latin America’s largest regional operators, and earlier this year, was one of the first operator’s to sign up to buy an “all electric” satellite from Boeing, which will be called Satmex 7. It also signed a deal to launch this satellite with SpaceX. Satmex’s CEO, Patricio Northland, explains the reasons behind these bold strategic moves, as well as the potential growth opportunities for the operator in Latin America. 

VIA SATELLITE: What will be Satmex’s Latin America capacity deal flow in 2012?

Northland: Latin America is continuing to grow very strong, both in the DTH business and the cellular backhaul market. There is strong growth in broadband in cellular networks. Right now, we are very constrained with capacity. We have a utilization rate on both satellites of more than 97 percent. We are extremely tight with capacity. We are working with various customers so hopefully they will wait for us as we prepare to launch Satmex 8, which will bring an additional 19 Ku-band transponders as compared to Satmex 5. We expect Satmex 8 to be in commercial operation by the end of this year. The demand for capacity is strong both from existing customers, as well as new customers. We see some good DTH opportunities for Satmex. 

VIA SATELLITE: Why did you decide to go with Boeing’s electric propulsion satellite model?

Northland: We are entering into this new era of satellites with electric propulsion. They are being advertised as “green” satellites, but the 702SP satellite is not all about new technology. The majority of the actual components of the payload and the platform have been available for some time. The technology is the new way of putting together electrical propulsion and all of these other parts of technology. The integration is the new thing here. In order to mitigate that risk, we are hiring one of the best outside consultants that specializes in electrical propulsion systems, as well as all the other new components that will be comprised on this satellite.

This is a very strategic move for Boeing. I would cautiously say that we believe the 702SP provides a significant number of advantages that mitigates the potential risk. The fact that we are using electric propulsion allows us to save an enormous amount of mass on the satellite. That allows us to use launch vehicles that can launch satellites with this mass. We selected [SpaceX’s] Falcon 9 because it would enable us to do a dual configuration, which means our satellite can be launched with ABS together. This is still a very capital-intensive business. We are able to launch the satellite for significantly less money than typical satellites today, producing a reliable and very capital efficient satellite platform. 

VIA SATELLITE: Why did you choose SpaceX as your launch service provider?

Northland: In our view, SpaceX will be a viable launch vehicle for commercial satellites. The company has great leadership, and we are confident that they will develop a reliable launch alternative for the industry. The U.S. government has funded the company to demonstrate launch services supporting the space station and other military applications. They already have launch contracts with prestigious organizations such as NASA, Iridium, SES, Thaicom and AsiaSat. We like the fact that the Falcon 9 launch vehicle uses a two-stage vehicle regardless of whether the mission is for LEO or for GTO launches. There is no additional hardware risk for GTO missions associated with an additional upper stage, and the reliability record established by SpaceX for every launch is directly applicable to our Satmex 7 launch regardless of the mission flown.

SpaceX currently has a manifest of more than 15 launches, at least five of which will be GTO missions, that are scheduled to be executed prior to our Satmex 7 launch. We are confident that SpaceX will have established an impressive reliability record prior to our scheduled launch date. 

VIA SATELLITE: What are your capital expenditure plans beyond Satmex 7?

Northland: Our next satellite is Satmex 8, which we are planning to launch later this year. Satmex 7, which is using the 702SP platform, is currently scheduled to launch in early 2015. We then have an immediate option six months later to deploy our second Boeing satellite. If we take that option, it will be commercially available six months after Satmex 7.

VIA SATELLITE: What do you see as the next big growth opportunities for the company outside of Mexico?

Northland: We derive around 30 percent of our revenues from Mexico. The majority of our revenue is coming from South America and the United States. We are also looking to explore opportunities in the Canadian market. The significant growth is coming from DTH, cellular backhaul and broadband services. There are some new DTH platforms emerging, but growth is also strong from existing platforms. We are also beginning to see potential growth opportunities on our cable neighborhood capacity. DTH and cable operators want to move into HD programming, which requires additional capacity. I would say that all of the existing video networks will require significant amounts of additional capacity. Satmex is well positioned to provide capacity to those video networks looking to grow. We can reach all of the Spanish speaking countries in South America, like Chile, Peru, Colombia, Ecuador and Venezuela, etc. That is one very specific growth opportunity for us. The second area of growth for us is cellular backhaul. We continue to see a tremendous amount of growth on cellular telephony networks. All of the trunking of those cellular networks are connected by satellite in many countries like Peru. It is very hard to justify the costs of using connectivity technologies other than satellite for cellular operators in countries with difficult geographic characteristics. 

VIA SATELLITE: Is Satmex pursuing any opportunities in military and government?

Northland: Satmex is an international operator. We don’t just have a strong relationship with the Mexican government, we also have a good relationship with many other governments in South America, such as Colombia and Peru. There are countries that are looking to do various critical applications for government use. They are working on areas such as remote monitoring and surveillance, which are key elements to some government military programs. When you put all that together, the government sector is definitely ready to grow in Latin America. I believe that there is enough funding in countries such as Mexico and Colombia and it seems that they are committed to continuing to grow, and they want to provide additional technologies to their national security agencies. Satmex is in a very good position to capitalize on this need. 

VIA SATELLITE: How do you view the progress of Ka-band in Latin America?

Northland: Ka-band, in my opinion, is a natural progression in our industry, which will allow operators to take advantage of new opportunities fulfilling the need of growth in high-speed Internet or data broadband at a more cost-effective basis with Ka-band than Ku-band. Latin America as a region is in a position to leapfrog other regions by utilizing the opportunity to exploit Ka-band technology. For example, if you look at the cellular business, Latin America has exhibited much higher rates of growth compared to other regions of the world relative to the fixed line. A lack of terrestrial infrastructure meant there was an opportunity for cellular operators to quickly fill the gap using cellular data and telephony rather than expanding in fix lines. I would expect the same thing with Ka-band. It could provide cost savings for commercial applications and government communication programs, as well as play a role in the maritime markets.

I have no doubt that Ka-band will have a good place in the Latin American market. If you observe the various business cities in the Latin American region, many of these urban centers are spread out in a large area of several miles radius, which will create a huge opportunity for offering high-speed Internet directly to its end-users versus the traditional ADSL or cable Internet services. I expect both retail and business customers to be willing to pay a slight premium over terrestrial Internet services when the product offerings are much better. There is no doubt in my mind that the prospects for Ka-band are tremendous in the region.