By Cynthia Boeke and Rob Fernandez

Each year, Via Satellite quantifies the satellite industry. We look at how the industry is changing based on information from our own internal database, as well as numbers compiled by some of the industry’s leading experts. This data allows us to paint a picture of where the market is today and draw a broad outline of what it will look like in the near future.

As of April 1999, there were 199 Western-built, geostationary, commercial communications satellites in orbit carrying some 4,500 C- and Ku-band transponders. Fifty-six more satellites are on order that will add approximately 1,800 C- and Ku-band transponders to the mix. The world’s first two commercial LEO systems entered into operation, and a third was virtually completed, comprising 134 LEO satellites. In 1998, 31 commercial geostationary satellites were ordered and 22 launched. Total industry revenues reached nearly $66 billion, up 15 percent from the previous year.

Worldwide Satellite Industry Revenue

The satellite services segment, particularly the subscription/retail sector, is driving overall growth in the industry, according to the Satellite Industry Association (SIA). This sector includes global direct-to-home services and, to a much smaller extent, nascent mobile satellite services. Transponder leasing, comprising the traditional use of satellites by broadcasters, cable programmers, private networks and telephony service providers, increased slightly.

The SIA finds this growth encouraging, however, given the global economic crisis that affected much of the world last year and the continuing glut of satellite capacity in Asia. Much of the new growth is attributed to the rapid demand for Internet and data traffic. Although the satellite manufacturing segment grew by a healthy 10 percent, the SIA says several large government contracts provided the bulk of last year’s growth. In the ground equipment sector, the SIA has witnessed a rapid growth rate, not only in the consumer market for DBS/DTH dishes and set-top receivers, but in the more traditional markets for VSATs and large TT&C stations as well. The launch industry was the one satellite sector that showed a decline last year, due to technical delays in satellite programs that held up launch schedules and several high-profile launch failures.

Geostationary Satellite Launch Forecast

In 1998, 23 commercial geostationary communications satellites were launched, including one failure. The Commercial Space Transportation Advisory Committee (COMSTAC) had forecast 33 payloads to be launched in 1998. The difference, COMSTAC explains, is that the industry suffered from a record number of manufacturing and satellite processing center problems that resulted in significant delays of satellite deliveries to launch pads. COMSTAC predicts a total of 394 addressable payloads will be launched from 1999 to 2010, or an average of 33 payloads per year.

Leo Satellites in Orbit

For the past four years, low earth orbiting constellations have been touted as harbingers of what the industry will have to offer. Whether they are "big LEO" systems designed for handheld satellite telephony, such as Iridium and Globalstar, or "little LEO" systems for handheld paging and data services, such as Orbcomm, these constellations have raised some $13 billion to get off the ground.

Since last year’s survey, the number of LEO satellites in orbit has jumped from 87 to 131, and two LEO constellations, those of Iridium and Orbcomm, were completed. Globalstar, recovering from the fiery loss of 12 satellites on a single rocket last year, was on the verge of completing its system as we went to press. ICO, which plans to implement a medium earth orbit, or MEO system, will begin launching its 12-satellite system later this year. Not surprisingly, these systems constituted almost half of all commercial launches worldwide, according to COMSTAC, including 14 launches for the Iridium, Globalstar and Orbcomm systems alone. Over the next 10 years, COMSTAC predicts 975 LEO payloads will be deployed.

The financial picture for LEO systems was less stellar. Iridium, in particular, was in the hot seat for radically underestimating the number of subscribers and revenue that its system would garner and had become the target of multiple shareholder-led lawsuits, as we went to press.

Geostationary Satellite Manufacturing

The satellite manufacturing sector has been rocked by several trends that are affecting its overall growth rate and stability. In 1998, 31 commercial, geostationary satellite projects were announced, although this does not necessarily mean contracts were signed or metal was cut. Several highly speculative ventures were included in this number, along with a satellite program rescinded due to new, strict U.S. regulatory controls.

A new U.S. export licensing regime was implemented by the U.S. Congress in the wake of possible missile technology transfers to the People’s Republic of China during and after launches on Chinese rockets. Export licensing and controls are now so difficult to obtain that traditional U.S. satellite customers from around the world are openly stating they might buy European satellites rather than deal with the red tape. This trend could reshape satellite manufacturing market shares in favor of European companies during the next 12 months.

Satellite manufacturers’ excellent record of technical quality was marred over the past year when in-orbit anomalies reached record-breaking heights. One benefit for satellite manufacturers is that large operators are ordering more spacecraft for redundancy.

Transponders

The mix of transponders reflects several broad trends that have been taking place in the satellite industry over the past several years. C-band continues to decline slightly as a proportion of the overall mix, as more satellites are built and launched for DBS/DTH services using the BSS and FSS Ku-band. Also on order (but not shown here) are satellites carrying a small number of Ka-band transponders for commercial multimedia services, and L- and S-band payloads for digital audio services to users. The first digital audio satellite was scheduled to enter service at presstime.

Satellites By Region

Overall, virtually every region of the world is reached by a healthy amount of capacity, as the competition between large, commercial operators continues to heat up. Although some regions have few dedicated satellites, such as Africa, they are covered by the Intelsat, Panamsat and other global fleets, which have trans-oceanic satellites providing footprints of all or part of the various continents and regions of the world. Except for space on coveted "hot birds" providing video distribution and DBS/DTH services in the various regions of the world or during major news and sporting events, there appears to be an ample, if not an overabundant, supply of space segment.

FSS Transponder Leasing Revenue

C.E. Unterberg, Towbin (CEUT) believes that a large amount of FSS transponder growth in 1998-2000 may lead to a short-term, over-capacity scenario: "While worldwide demand is increasing gradually, supply is increasing in a step-like function." CEUT expects the mismatch between supply and demand to be the most acute in Asia and Eastern Europe. In the meantime, Internet services will become an important demand driver that CEUT says is expected to increase rapidly.

Broadband Satellite Projects

Satellite broadband projects continue to capture the imagination, but not the pocketbooks, of the industry. The chart below provides details of some of the recent broadband satellite projects, although their technical and financial details are subject to constant change, as system backers struggle to cut costs and make their programs more technically feasible.

Potential satellite broadband providers face numerous obstacles, says CEUT, including making the requisite hardware affordable to consumers using the Ka-band and raising billions in required financing. Over the past year, projects such as Motorola’s Celestri were dropped, Loral’s Cyberstar scaled back, and the Bill Gates/Craig McCaw 288-satellite Teledesic system was rumored to be radically downsized. This sector was given a boost, however, in recent months when Hughes and Lockheed Martin/Telespazio/TRW announced they would pump huge amounts of their own money into their respective systems. For Spaceway, Hughes will pony up $1.4 billion; and Astrolink, the Lockheed Martin-led coalition, will contribute $900 million.

Satellite System Financing

Since the mid-’90s, Wall Street has contributed $24.6 billion of capital for the satellite industry. Much of the money was used to fund new satellites, as well as new ventures targeting services never seen before on the satellite market. These systems, funded over the past several years, are now coming to fruition. All eyes are now on Iridium, whose stock has fluctuated in the past when technical and/or market-oriented milestones were met. Recently, the stock took a deep plunge when bankers realized they would not be paid, based on Iridium’s subscriber base of only 10,000 users and revenues of $1.45 million.

Over the past year, investors have come to realize first-hand the risks associated with the satellite industry, as emerging economies-which included a large potential market for satellite services-took a downturn; a large number of high-profile, in-orbit and launch failures occurred; and Iridium dramatically underestimated its early growth potential. Despite these factors, investors have continued to place large bets on the satellite industry, pumping more than $4 billion into it in the first three months of 1999 alone. They appear to be taking a more cautious approach to broadband systems, however, leaving vendors to contribute large amounts of their own money to jumpstart projects.

Regional Breakdowns

Asia Pacific
The Asia Pacific continues to lead the world in the number of satellites in orbit and on order, despite the ongoing economic downturn that has created a glut of capacity in the region. Some of the satellites on order were contracted before the downturn occurred; others have been put on hold for economic or regulatory reasons, creating questions about whether they will ever actually be launched. In addition, Japan continues to order a surprisingly large number of satellites for all applications, despite the country’s small size and advanced terrestrial infrastructure.

Europe
Europe has become the No. 2 region in terms of spacecraft in orbit, thanks to the launching of new generations of satellites for SES Astra and Eutelsat. These two operators are now joining their U.S. counterparts, targeting regions beyond their traditional territories. SES Astra purchased a major stake in Asiasat, and Eutelsat has announced plans to target North America with its services.

DBS/DTH/cable distribution are by far the biggest applications for European satellite systems, although a number of large VSAT contracts have been awarded in recent months. The region continues to rely on Ku-band for small-dish applications, with only a few C-band transponders in orbit and under construction.

Latin America
The Latin American satellite scene is changing dramatically, as domestic players auction off their systems to U.S. companies and expand their areas of coverage. Mexico, Brazil and Argentina are targeting customers throughout Latin America and, in the case of Mexico, reaching well into the United States. This region is a hotbed of activity, with more than 30 satellites providing some type of coverage of South America.

North America
North America, primarily the United States, used to have by far the largest number of satellites in orbit. With the gradual aging of the fleets of the former GTE Spacenet and others, the number has declined, especially as current operators decreased the amount of replacement satellites that were launched. This trend is being reversed in part due to the high number of partial or total in-orbit satellite failures. As a result, U.S. operators have purchased a large number of replacement or spare satellites to ensure redundancy for their customers. U.S. DBS fleets continue to expand as operators launch satellites for redundancy and spotbeam coverage that will allow local channels to be provided to viewers.

Middle East
With its deep ties to virtually all Arab nations, Arabsat continues to be a mainstay of satellite communications in the Middle East and is expanding the types of services it offers. The organization celebrated the launch of its first DBS satellite this year. Meanwhile, Israel and Egypt are expanding their respective Amos and Nilesat systems, and non-traditional players such as Eutelsat are extending their coverage into the Middle East.

Overall Trends

Many experts continue to predict a radical shift in the satellite industry from industrial to consumer applications such as DBS, DARS and mobile telephony. At the same time, predictions of the success of such services have not matched expectations, or in the best-case scenario, they have evolved more slowly than was foreseen. Traditional applications for video distribution, private network communications and rural telephony services are expected to grow at a more even pace.

Satellite manufacturing in particular was hit hard over the past year. Technical failures and, in the case of U.S. manufacturers, strict licensing controls are affecting the way in which these companies do business. In 1998, there were 24 in-orbit anomalies or failures, which resulted in about $1.4 billion in insurance claims. Added to these woes is a number of studies predicting a short-term decline in geostationary satellite contracts as systems are replenished and economic difficulties prevent some customers from ordering new birds. At the same time, LEO satellites for all types of applications-telephony, paging and multimedia-will comprise a growing number of satellite launches over the coming years, although financial setbacks to existing and proposed systems may affect the number of systems that actually make it into orbit. More often than not, these systems are becoming captive to manufacturers who now must invest hundreds of millions of their own dollars in order to build them.

Consolidation and expansion may both be used to describe what is happening in the field of satellite operations. Trends affecting satellite operators include the growth of commercial, mega-operators providing global coverage in competition to Intelsat; the merging of regional and domestic satellite systems with mega-operators through partnerships, auctions, investments and purchases; deregulation of telecommunications services that are allowing domestic satellite markets to open up to international competition (although these efforts sometimes move more slowly than planned); the continuing privatization of international, treaty-based organizations; and growth in the use of satellites for Internet and data traffic.

This past year has been one misfortune and great achievement for the satellite industry. Record-breaking satellite anomalies occurred in orbit, and manufacturers’ efforts to eradicate them led to a one-third decrease in the number of satellites launched. The U.S. satellite industry was embroiled in a national security scandal relating to technology transfers to other countries. New regulations implemented by Congress are crushing many U.S. companies’ ability to do business. Amazing technical feats were accomplished as two LEO systems went into operation; however, financial difficulties relating to service adoption have become paramount. New launch vehicles were introduced, although one, the Delta 3, has resulted in two major launch failures.

Despite such setbacks, the commercial satellite industry continues to play an increasingly important role in the way the world communicates. Satellites have extended the Internet into the farthest reaches of the world, and allowed breaking news and sporting events to be transmitted instantaneously across the globe. New digital satellite television offerings are being coupled with data broadcasting and Internet services, and DBS/DTH operators are partnering with the biggest names in the computer and Internet world to advance these new services to consumers. Entrepreneurial companies from around the world are developing and perfecting a bevy of innovative products for Internet and data broadcasting applications that will allow distance educators, businesses and people around the globe to learn, conduct business and enjoy themselves with the most advanced communications technologies the world has to offer.

Cynthia Boeke is the editor of Via Satellite. Robustiano Fernandez is the managing editor of Via Satellite.

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