By Mark Holmes

The demand for satellite -based communications and broadcast services in emerging regions such as Latin America, the Middle East, Africa and Asia appears very strong, particularly as nations look to reduce the digital divide and bring state-of-the-art media services to all parts of its populations. The Satellite 2010 Show Daily talks to Maria Velez de Berliner, president, Latin Intelligence, to find out about how satellite is faring in Latin America; Simon Twiston Davies, CEO of CASBAA (Cable & Satellite Broadcasting Association of Asia) for a perspective on Asia; Patrick French, a senior analyst at NSR; and Maxime Baudry, a satellite analyst at Idate, about the growth of satellite services around the globe.

SHOW DAILY: What impact did the economy have on satellite communications in emerging markets?

Baudry: In general, the economic recession had a limited impact on satellite markets. The only visible effect was a slight increase of churn and some cancellations of subscriptions due to an increase in unemployment.

French: Many industry players saw a substantial slow down for the first half of 2009, though this seemed to impact the VSAT segment of the industry more than the broadcasting and DTH. Yet, there was a definite upturn in the second half and in particular Q4 2009. Overall, the industry certainly felt some pain from the global economic recession but far less than other non-telecoms sectors.

Velez de Berliner: Despite falls in commodity prices and a temporary decline in China’s demand, Latin America performed better than expected in 2009, and Brazil, Colombia, Chile, Mexico and Chile project growth of between 2 percent and 5 percent in 2010. Therefore, satellite communications will be resilient and have improving economic conditions should enable growth. The multilatinas and governments will increase demand for broadband, social services and entertainment delivered via satellite, particularly in the capital regions.

Twiston Davies: I think we have come out of the back end of the global recession, relatively strongly in Asia with the economies. Korea, China, India and Southeast Asia have been performing pretty well. The demand for media and video content continues to remain strong. We haven’t seen any major hiccups in the market place. Growth has been slower than we would have hoped for going from late 2007 into 2008, but 2009 was really much better than might have been expected in late 2008. The overall industry is healthy. Video services continue to drive satellite demand. The increased deployment of mobile means the numbers continue to astonish, particularly in somewhere like India. The additions of DTH platforms in India remain very strong. In China, we are seeing continuous demand for satellite backhaul services for voice and data services. There is also an increasing sense that mobile TV services can pick up. People are not betting against mobile TV in the way they perhaps were six to nine months ago. VSATs for SMEs have been very strong. Demand for new TV channels coming into the market looks very good. There are about one or two channels launching every couple of weeks in Asia. We are also getting a number of enquiries about talking to broadcasters looking to launch channels. It is very encouraging to see that media and telecoms seem to be ahead of the economic growth curve.

SHOW DAILY: Do you expect big operators to target emerging regions more?

Baudry: We think developed markets such as North America and Western Europe are reaching a maturity phase with slow CAGRs in the next years. Big operators are probably also sharing this point of view, as they are more and more targeting emerging markets. We saw this trend with SES targeting the Middle East and Africa, making strategic moves with O3b and Yahsat. Eutelsat is also targeting emerging markets such as North Africa or Asia — the same way Hispasat is pushing its Hispamar subsidiary in Latin America. Small operators are also targeting emerging markets. Yahsat and Measat are for instance betting on Africa as part of their expansion strategy.

French: For the last several years, all of the big operators have been very focused on emerging regions and have profited handsomely for it. This is not a new trend and operators will continue to invest strongly wherever they see the biggest growth potential, which certainly includes emerging markets.

SHOW DAILY: Do you expect to see satellite have a more important role in Africa, Middle East and Asia?

Baudry: In developed markets, WiMax is not satellite’s biggest threat. When moving to rural zones, WiMax becomes very expensive in terms of capital expenditure and operating expenditure. 3G is a serious competitor but examples such as the Irish National Broadband Scheme demonstrated that it can be limited in some cases. In general, it appears to us that terrestrial mobile technologies are often preferred for digital inclusion, and satellite is often chosen in last resort to cover the remaining households. In emerging markets, the situation is completely different: Terrestrial infrastructures are very poor, and 3G doesn’t even exist in some cases as 3G licences were not granted. WiMax is sometimes being offered, but with poor performances, slow speeds, high prices and restrictive limitations of traffic. In such markets, satellite has definitely a window of opportunity.

French: While there continue to be many developments and trials with WiMax, it would today be hard to say that WiMax is the dominant telecoms technology in emerging markets such as Africa, Middle East and Asia. Both satellite and WiMax have roles to play and are better suited, one or the other, for different clients and different services.

Velez de Berliner: Wireless is king in Latin America, but it depends on location of base stations and served populations. It all depends on pricing of equipment, the economics of the systems deployed and, most important, the disposable income of the potential consumers. In general, overall disposable income is low, and it shrank during the present Great Recession, but a large segment of Latin Americans will always go for entertainment, soap operas and sports content to counter hardship or unpleasantness. As is often the case, it is wise to begin product or content introductions at the highest economic level, from which they will trickle down to the level of income the market will bear. While economic gains seldom trickle down in Latin America, content does. The wealthy are the region’s drivers of cultural diffusion.

Twiston Davies: The traditional strength of satellite is point-to-multipoint, and that remains valid. An awful lot of backhaul distribution of WiMax services must be made via satellite. Whether it is point-to-point, that adds demand for point-to-multipoint delivery. I don’t see that as being a challenge. I think that is part of the environment, which will grow the overall demand for telecoms services in the region.

SHOW DAILY: Can DTH platforms make a profitable business case on low ARPUs?

Baudry: Emerging markets are always characterized by low ARPUs. For instance, the mobile industry in emerging markets is characterized by low ARPUs of $4 to $5 per month, and operators are very profitable. The problem is more linked with the number of platforms. In India for instance, we think the current situation is not sustainable in the long term. Just as Western Europe as few years ago and Eastern Europe in two to four years, consolidation will occur.

French: NSR does believe that the low-ARPU DTH business model has legs and will continue to grow and expand elsewhere (such as has occurred in Latin America). The real question is how many low-ARPU DTH platforms can each individual country support? This is not just related to DTH but also needs to take into account other pay-TV services (cable, IPTV, TV over DSL) in each country as well as what the free-to-air services (satellite and DTT) look like. It would appear that countries with many pay-TV options (both satellite and the other technologies) will likely see some consolidation and the low-ARPU side of things might be the first to go depending on the situation in each country.

Velez de Berliner: DTH in Latin America is driven by disposable income, therefore, the higher probabilities of success lie in high-income countries, such as Chile, Peru, Colombia, Mexico and Brazil. Although there have been large investments on DTH in the region, the DTH market is subject to the vagaries of local economies and pressures on personal budgets. This market will take years to give expected ROI across the board.

Twiston Davies: You are getting the advantages of a mass market, where the price of equipment is becoming cheaper. The capacity is being taken on the satellite, and as prices come down, the services become more affordable to more people.

SHOW DAILY: Is the sector healthy in Latin America?

Velez de Berliner: Despite being a capital-intensive industry at a time of scarce capital, the industry will remain healthy in Latin America. However, its health can be improved significantly if satellite companies think outside the box and offer innovative products, content and services at reasonable prices and if they team up with governments and private industry to help them deliver what is needed by the majority of people who live in the capitals’ marginal areas and in rural regions.

SHOW DAILY: Is the  industry in good health in Asia?

Twiston Davies: Yes, the industry is in good health. I think a husbanding of the resources that you have is sensible. We are optimistic, and I am sure all of the satellite operators are taking that view.