By James Careless

Talk to many satellite operators in Latin America, and they will tell you the same thing: The Latin American market is not for the faint of heart. The combination of uncertain ‘roller coaster’ economies, political volatility and the continuing habit of incoming Latin American regimes to rewrite telecom rules as they see fit makes accurate forecasting of future business developments challenging at best.

As a result, "People trying to forecast near-term in Latin America never get it right," says George Kappaz, president and CEO of Comsat International. As for looking further into the future? That’s even more difficult. With all the forces at play in this part of the world, long-term planning is nearly impossible. In other words, "Three years is an eternity in Latin America," says Mauro Wajnberg, director of space segment business for Star One SA.

This said, many satellite operators are weathering Latin America’s economic storms; mindful of the opportunities offered by a population of 180 million that, in many ways, is woefully underserved. Despite all the risks, "Latin America represents the best opportunity in the near term for realizing double-digit growth," Kappaz says. "The economic recovery in the last three to four years has been impressive."

An Improving Market Environment

Latin America’s recovery from its latest economic collapse is only the tip of the iceberg as far as satellite operators are concerned. What is really whetting their appetites is the apparent maturation of this region as an economic market, as governments and business literally begin to grow up.

Despite the fact that 12 presidential elections are scheduled to take place in various Latin America countries in 2006, the political situation is relatively stable, says Maria Velez de Berliner, president of Latin Trade Solutions Inc. She attributes this stability to a trend by the region’s governments toward inclusion, bringing disparate social groups together rather than setting them against each other for political gain. The result is that regime change no longer necessarily means radical social change in Latin America. In turn, this creates a less volatile economic climate — one in which investment is less vulnerable, and marketplace rules are more likely to be maintained from government to government.

Meanwhile, "Latin America is no longer depending exclusively on the U.S. market" for its export revenues, de Berliner says. Although the United States remains the region’s largest customer, serving other parts of the world is making Latin American less vulnerable to U.S. market forces. This diversification is resulting in "demand for higher connectivity in Latin America; particularly in the countryside to bring it into the mainstream," she says. Projected growth in this market segment is running at 3.75 to 3.9 percent annually.

Challenges And Risks Remain

Notwithstanding the improving political and economic climate in Latin America, many challenges remain for the enterprising satellite operator. This is why companies will need deep pockets and the ability to endure business downturns if they have any hope of making their way in this region.

Adding to the challenges facing Latin American operators is what de Berliner called a "two-level market." Specifically, only 20 percent of the population in Latin America can afford the wide range of services satellite offers. Those customers often take advantage of those offerings, but the remaining 80 percent of the population that also could benefit from satellite services simply do not have the money to pay for them.

Beyond this ongoing economic divide, the differences among Latin America countries means constant bureaucratic headaches for satellite operators offering services across the region, such as having to collect fees in local currencies, says Wajnberg. "That sometimes creates a challenging environment for us whenever the exchange rate increases or decreases."

Then there is the excess of available satellite transponder space. Even though demand is growing, "there’s still a huge oversupply of capacity," Wajnberg says. The result is that transponder prices "are still going down." This said, "there’s an expectation that at the end of the decade, the price will recover slightly."

All told, these factors add up to continuing uncertainty for operators such as New Skies, for whom Latin America is an important player, says Dolores Martos, New Skies’ vice president of sales for Latin America and the Caribbean. "Latin America is 13 percent of New Skies’ global market," she says. "Six of our top 20 customers and seven of our top 20 video customers are in this region." Martos allowed that the Latin American economy is "the best it’s been since the 1980s," but how much longer it will last is anyone’s guess. "The growth rate hit 4.9 percent annually in the last two-and-a-half years," she says. "Our outlook is for 4.3 to 4.5 percent [growth] in 2006 with low inflation," assuming nothing goes radically wrong. Problems which could drag down growth include social inequality and unrest, poor education, unemployment, criminal violence, and corruption, "just to name a few," she says.

Significant Opportunities In Latin America

Having outlined the perils and un-certainties of the Latin American market, there are opportunities being pursed by satellite service providers as the market continues to strengthen.

Take Panamsat, whose Latin American revenues are growing at 30 percent to 40 percent per year, says Carmen Gonzalez-Sanfeliu, Panamsat’s vice president of Latin America Operations. For her company, video services to regional viewers and those in North America are a huge opportunity; especially with high-definition TV (HDTV) making its way into the marketplace. Gonzalez-Sanfeliu also sees Voice over Internet Protocol (VoIP) and satellite broadband demand rising in Latin America, as well as continued growth in business VSAT networks. Also looking good are rural telephony, which "will include VoIP and Internet access," cellular telephony, and occasional usage for events such as the Olympics and the 2006 FIFA World Cup.

Panamsat’s bullish assessment is echoed by Erwin Mercado, Intelsat’s regional vice president for Latin America. "The mobile market is growing exponentially and it will continue that trend for a while," he says. In general, Mercado expects the Latin American telecom demand to boom. "Argentina has grown 30 to 40 percent in terms of telecom from last year," he said. "We also see excellent growth in Brazil, Peru, and Colombia."

Alejandro Macarron, Hispasat’s head of sales and services, is a bit more reserved in his assessment. "We see Latin America in a better orbit," he says." But we don’t know how long it’s going to stay in a good mode." While it does, Macarron believes that Fixed Satellite Services "will continue to play a key role in the buildup of regional communications." He also expects Hispasat to experience growth in providing backhaul services for mobile and fixed telephony, broadband Internet access, VoIP, distance learning, corporate networks and new direct-to-home services. Macarron adds that military and government will increase their use of satellite services in the near term, which will also boost the balance sheets of regional satellite operators.

Gilat Network Systems also sees lots of possibilities in the Latin American market for VSAT services, says Philippe Schleret, the company’s senior director of sales. "There’s been a high growth in VSATs from 2003 to 2005," he says. Among the popular Latin American applications are "the convergence of voice, video, and IP on one system," along with broadband Internet access and transactional business networks for point-of-sales banking and business virtual private networks applications over satellite. Also showing promise are broadband for schools and voting via satellite, as was recently deployed in Haiti for collecting votes during the presidential election. In all these instances, success is dependant upon having "a local presence to support all these large customers and large networks on a daily basis," Schleret says.

Comsat International is providing extensive satellite connectivity to Latin American governments and "corporations from the domestic level all the way up to Fortune 50 companies," says Kappaz. In addition, Comsat is helping to deploy a 4,000-site distance learning network to Colombian schools, post offices, and government entities, with 90 percent of the project already in place. Comsat also is helping to deploy a 9,000-site lottery network in Brazil which also will carry state bank transactions. When complete, "it will have more transactional financial volume than any other network in South America," he says.

Star One’s opportunities are in telecom, says Wajnberg. One of the most important is due to Telmex’s takeover of Embratel. This deal will benefit Star One as Telmex’s service area expands because "we have been selected by Telmex to be the satellite arm of the group," he says. Another possible growth area is television carriage: Although "only 26 percent of the population has a [personal computer] at home, 97.5 percent have a TV set," he says. "The numbers show where the opportunities are."

Finally, there is Cuba. With U.S. trade restrictions in force, there is no real chance for satellite operators to make money in the market. But once Fidel Castro has moved on and a new government takes power, things may change for the better. "There’s a lot of pent-up demand in Cuba," says de Berliner. "People are being to draw up scenarios as to what may happen there" once the regime changes.

The Big Picture

As in years past, Latin America remains an enticing market for satellite operators. In fact, its attraction just continues to grow, as new applications such as broadband Internet access and VoIP gather steam.

The growing maturity of Latin American society, at least as far as investors are concerned, is mitigating the risks of investing here. Still, Latin America is not a place for operators looking for a quick turnaround on their investment, as companies may have to operate in the red for months or even years as they wait for events to turn in their favor.

For those willing and able to take on the risks, the reward goes beyond sheer profits. It also includes developing the trust and support of Latin American clients, who have seen far too many North American vendors turn tail and run when the market goes south. Their loyalty is easy to understand; having had to endure this region’s economic storms personally and professionally, it is not surprising that Latin Americans expect the same persistence from their suppliers.

Is the reward worth the risk? That’s a question whose answer varies from satellite operator to satellite operator. However, there is no substitute for being on the ground through the bad times in order to share in the prosperity when the good times return. And make no mistake, the good times always return to Latin America eventually. How long they will last is another question.