[Satellite News 10-20-08] CEOs from the satellite industry’s largest companies remain largely optimistic about their prospects despite the current worldwide economic crisis.
    “The good news is, nobody blames the telecom industry for the crisis and satellite is in a pretty good position right now,” Michael Targoff, CEO of Loral Space and Communications said Oct. 15 at Satcon 2008 in New York. Targoff said the satellite industry’s bubble occurred in 2000 with its customer base and that has fueled the industry ever since, adding that 80 percent of Loral’s customers are not dependent on the stock market.
    Intelsat CEO, Dave McGlade said that his business model has not changed drastically either. “We are a diversified industry. When you are spread across the world, you have insulation from economic downturns. We have seen minimal impact,” he said during the “Satellite Keynote Panel: Industry Leaders Speak.”
    Pradman Kaul, president and CEO of Hughes, agreed, stating that all is well on the retail side of the industry. “We have not seen the direct economic impact in retail. There is still a favorable supply and demand,” he said.
    On determining what companies would take the hardest hit from the economic crisis, the consensus was that it all comes down to securing funding.
    “Analysts are right when they say that cash is king,” Dean Olmstead, president of EchoStar, said, touting his company’s current financial standing as insurance against economic pressure. "EchoStar has $255 million in cash, so we have the funding to bring us through the crisis,” he said.
    Michael Butler, COO of Inmarsat, took the opportunity to boast his company’s financial stability. “Our satellites are already paid for,” he said. “I could not imagine having to secure funding for future projects at a time like this. If you don’t have your funding, your future projects are in trouble.”
    Increasing launch costs and insurance rates have had more of a constraining effect on the industry than the economy, said Olmstead. “If we had the launch vehicle prices we had a few years ago, I would say we could launch one more satellite per year,” he said.
    While McGlade said he agreed with the fact that significant inflation has driven launch prices up 50 percent over the last few years, he asserted that launch providers are not constraining the industry. “Inflationary pressures have had an effect on the business models of the launch companies. Insurance rates have been good, but we have had some failures recently and hopefully, we will have consistent success to bring those costs down a little,” he said.
    Robert Bednarek, president and CEO of SES Americom/SES New Skies said launch costs and the industry as a whole has put a lot of pressure on manufacturers. “We ask manufacturers for research and development, and they ask for the lowest possible launch costs so that they can increase their business. I think it is unfair to dump it all on the vendor. We all need to play a role in providing growth opportunities and lowering risk,” he said.
    One possible way to spread the risk could be through industry partnerships. Inmarsat’s possible acquisition of an unnamed, larger distributor in 2009 aims to do just that, said Butler “Whether or not we revolutionize the value trends, the partnership just gives us the likely opportunity to make sure we continue to expand the overall market and lower prices,” he said. “It is a different business model than most operators, but it is extremely important to us in this competitive environment to secure close-knit partnerships.”
    The panel also was unanimous in stating that significant growth opportunities exist even in this period of tight budgeting and restructuring of business plans.
    “Media providers are our main drivers,” said McGlade. “Providing backhaul, Internet and data and high-definition video services to emerging nations are crucial to their economies and the demand is clearly there. Globalization has and will continue to increase demand.” Intelsat partnerships with the military and other government customers to provide Internet services and communications-on-the-move also provide future growth opportunities, he said.
    Kaul urged fellow executives on the panel to continue focusing on increasing capacity. “We need to increase capacity to meet the demands in Latin America, Africa and the Middle East. These markets constrain our growth in the industry because of a lack of capacity. We are reaching a stage today where capacity is the critical element in growing our industry.”
    Simon Bull, a senior consultant at Comsys, agreed with Kaul and grilled the panel for not discussing the potential of spot signaling on Ka-band satellites in terms of capacity. “Eutelsat, WildBlue and Telesat have moved in the direction of spot signaling. Intelsat and SES have done nothing,” he said. “When will these companies wake up? When the data services market is completely taken away from under them? They may have the video market, but the data market will completely polarize in a year or two as the companies that do have this ability can start delivering 20, 80 or even 100 gigabits of capacity to markets in the United States, Europe, Africa and the Middle East. Will these larger operators like SES and Intelsat become dinosaurs?”
    McGlade took issue with the statement. “I guess I shouldn’t be considered a dinosaur since I am the second largest shareholder of WildBlue,” he said. “We have been watching Ka-band for a long time. We spend a lot of time thinking about technology. If you do not anticipate technology, you do become a dinosaur. The power of the Ka-band satellite is interesting, but it is still bent pipe. A lot of the great innovation has happened in the ground segment if you look at the higher order modulation and the compression algorithms costs per bit. We would love to get Ka-band broadband capacity around the world, but you have to make sure the demand is there. The potential is there, but you have to be smart about it. To put this kind of system onto a worldwide satellite system right now would be a huge risk and would be a foolish approach. The consumer market in many countries still is not where it needs to be.”