by Theresa Foley

Latin America remains one of the world’s hottest satellite markets despite economic problems in two of the largest nations, Brazil and Argentina, that have put the brakes on growth in the last year. The governments of the region continue their steady march to deregulate at the same time Internet/data traffic is climbing, which has counter-balanced the negative impact the weak currencies have had on satellite development. With new satellites constantly being launched and more competitive licenses being handed out each month, the market is being reshaped from one of mostly isolated national areas into a truly pan-hemispheric base.

Frost and Sullivan expects to see Ku-band capacity have a compound annual growth rate of 13 percent in 1999-2005 over Latin America, going from 300 to 504 transponders in that time frame. For C-band, the CAGR is much lower at 0.7 percent, going from 392 to 446 transponders in 1999-2005.

The growth in Latin America has not met everyone’s expectations. Hughes Aircraft Co., for example, tied layoffs of 450 factory workers in late summer to the fact that expected competitions from Nahuelsat of Argentina and a group of Andean telecom operators planning a "Simon Bolivar" satellite did not materialize when expected. But on the positive side, Orion and Panamsat are both getting ready to launch more capacity over Latin America, and Loral and MCI/Embratel are planning to order new satellites to fill Brazilian slots to serve the region.

"Even if the Brazilian crisis and the impact on its neighbors, in particular Argentina, has delayed the strong growth of satellite communications, many players are entering the market with more and more capacity, and with platforms shared with services for the northern hemisphere, the United States and Canada, or Europe," says Eckart Schober, president of Creotel Comunicaciones y Satelites S.A. of Buenos Aires.

Recent deregulation in Brazil and Argentina has replaced monopoly service companies with multiple competitors who need satellites to run their businesses. Internet usage is on the rise. Nahuelsat’s statistics say that 25 percent of Internet backbone access in Latin America is over satellite, compared to 5 percent in Europe and 0.5 percent in the United States. And the real impact of the Internet is yet to come in places such as Argentina, where only 200,000 users are connected to the Net out of a population of 34 million.

Brazil

Brazil, the largest national market in Latin America with a population of more than 165 million, has finally begun to open after decades of being closed. In 1998-99, Brazil’s telecom authority, Anatel, took steps to allow competition and outside operators to provide satellite services in the country. First, the Brazilian government sold off its Brasilsat fleet to the giant telecom carrier MCI. MCI’s main interest was in Embratel’s long-distance business, but in a package deal that cost $3.2 billion for a 52 percent stake of the Brazilian company, MCI ended up with five Brasilsats: two first generation satellites, A2 and A3, which are near the end of their life times, and Brasilsats B1 through B3. The fleet carries only C-band transponders, and thus Brazil has relied on outside firms to supply Ku-band capacity for years. Another spacecraft, B4, is under construction by Hughes for launch by year end. Embratel’s 100 transponders are almost fully occupied, says Amancio Pulcherio, general manager of Embratel’s satellite business unit. The company is investing more than $500 million in satellites in the next three years. The new B4 satellite will have better coverage outside Brazil, allowing services to start there in mid-2000. Inside Brazil, Embratel projects a 20 percent increase in the satellite market in 1999 over 1998.

Now MCI is looking to join forces with an international strategic alliance in order to develop the domestic and international business and form part of an expanding global network.

"MCI is known for not having kept space segments for long under its own control, so it was no surprise to learn that also in the case of Embratel, the company started investigating what to do with the inherited space and ground segments," Schober says. MCI is expected to keep the satellites but look for an alliance with an existing satellite operator. Potential partners include Hispasat, Telesat Canada, or a Latin American group with Alcatel and SES/Astra of Luxembourg.

Embratel/MCI also is preparing an RFP for next-generation satellites at the same time it seeks an international partner. The new satellites would include Ku- and possibly Ka-band frequencies. Bids should be due around year end, with selection in early 2000, and launch 24 months later.

Also in 1998, Anatel awarded the rights to a Brazilian registered slot, at 63 degrees W, to Loral, which bid $18 million in an auction for the position. In September, Loral’s strategy for filling the slot was still taking shape. The company had established a local firm, called Loral Skynet do Brasil, Ltda., and was expected to announce a plan for acquiring a satellite to put into the orbital slot by year end. Loral’s Mexican affiliate, Satmex, won permission to sell services in Brazil in September, and Satmex CEO Lauro Gonzalez says the Loral alliance members were working together to determine the best way to fill the new orbital slot.

In 1999, the list of operators and smaller service companies with permission to sell inside Brazil continued to grow. Brazil’s phone service is divided into regions, and where each previously had one monopoly service provider, now a second "mirror" company has been authorized to provide competitive service. In the ISP arena, more companies are allowed to sell services and the number of Brazilian ISPs is increasing.

Sky and Galaxy Latin America have permission to provide DTH service from DirecTV and Panamsat satellites. Telesat Canada has a license to operate the old Anik C1, which used to serve as a precursor Nahuelsat spacecraft, for Brazilian customers. Intelsat provides 18 Ku-band transponders to Embratel for telephony and Internet services.

Intelsat has been able to broaden its Brazilian customer base this year after the government decided to allow direct access customers. Brazilian satellite users no longer are required to access Intelsat through Embratel, and as a result, by fall Intelsat had six new customers there. Ruben Levcovitz, Intelsat’s group director for Latin America, says many companies created by the privatization of Telebras, for example Intelig, a new domestic and long-distance telecom provider, are becoming customers.

The deregulation of fixed telephony has created four big companies in Brazil instead of one. Each of the phone companies is expected to have an Internet services arm with a requirement for satellite capacity. New competitors to Embratel, such as Global One Brazil, an Internet services company owned by the telecom joint venture of France Telecom and Deutsche Telekom, have become Intelsat customers as well.

While Brazil has vast natural resources and a size that makes it attractive, the customer market is depressed due to an 80 percent devaluation of the Brazilian real last year. Brazilian customers need twice as many reals to pay a bill in a foreign currency after devaluation. Nahuelsat in particular has been hurt by the currency situation.

"Nahuelsat had planned to sell about half of the capacity of Nahuel 1 in Brasil, but failing projects and the difference in prices to be paid in reals make it very difficult to maintain or conquer part of the market," Schober says.

More competition in Brazil is on the way. GE Americom applied for a license in the fall, and Loral Orion received one. Orion had pre-launch contracts from Brazilian customers for Orion 2 capacity to provide ISP, business TV, Internet access and other services, although the company would not name the customers. "Latin America is considered the hottest region in the world for the growth of the Internet," says Erwin Mercado, Orion’s director of sales for Latin America.

Orion Cyberstar believes its satellite services can be very affordable for ISPs, costing $2,000-$4,000 for a C-band antenna and less for Ku-band, he says. Initially in Brazil, Orion is providing the ISPs with basic backbone connectivity but Ed DiCarlo, Orion vice president of sales for Latin America, says that will soon expand to other Internet protocol-based services, such as business TV, distance learning and newsfeeds, which are already rolled out as Orion brand name services in the United States and Europe.

The number of computers in Latin America doubles every year. In 1999, Orion will have 18 Internet customers in Latin America, up from zero in 1997, when it first got into the market. Orion’s goal for 2000 is to have 50 Latin American Internet clients.

Satmex also is a new player in Brazil, having won authority in August to provide services there with three satellites: Solidaridads 1 and 2, and Satmex 5. Satmex, which is part of Loral’s Global Alliance, worked for five years to get access to the large Brazilian market.

The one operator who appears to be locked out of Brazil is Panamsat. "We’re currently in the midst of a difficult situation with Anatel," Alvaro Gazzolo, senior vice president of sales for the Atlantic region, says in September. Panamsat is working through the U.S. government to try to get Brazilian landing rights, but Gazzolo says Anatel is protecting Embratel and its Brasilsats.

Besides the big operators, smaller companies are making inroads in Brazil. Linksat Group, for example, is targeting the teleport market. "We have a very small capacity today because the services began in July 1999 and we are contracting on demand according to the needs of our customers. But we foresee quick growth when the teleport in Sao Paulo begins the operation in early November," says Jurandir Pitsch, vice president of the Linksat Group. Pitsch, who says that Linksat Group’s expected revenue for the year will be $20 million, explains that Linksat contracts for space segment on a case by case basis. Linksat currently uses Intelsat 805 and Intelsat 801, and is installing antennas that will access New Skies 806, Satmex 5 and Brazilsat. "The average price per MHz is $4,100," he says, adding that "our actual capacity at this time is only 1 MHz, but that will increase quickly by the end of the year to a quarter of a transponder (9 MHz)." Brazil is the primary focus for the company, he says, since Linksat has a license to operate in Brazil and provide international circuits in and out of the country. "We also provide integration and installation services in other Latin American countries," he adds.

Globecast, the broadcast services unit of France Telecom, provides program origination, uplink and satellite capacity to major Latin American programmers, including Sony, HBO Ole, Hallmark, Cisneros, MGM and Gems. The company has a network of satellite and fiber systems.

Robert Behar, president and CEO of Globecast America, sees tremendous growth in Latin America in the areas of ISP, Internet and data delivery. "There is already a huge need for bandwidth and capacity for Internet-related services. Globecast is making capital investments in its infrastructure to be able to handle the backbone," he says.

Argentina

In Argentina, market access for outside operators has increased in the last year following a bilateral agreement with the United States in June 1998, covering satellite services. At the same time, deregulation inside Argentina is creating more service providers on the ground who need satellite services.

Nahuelsat, Intelsat and Panamsat are the established operators in the country, with Intelsat and Panamsat having provided Argentina for years with Ku-band. Both were allowed to expand into C-band with the U.S. trade accord, which also allowed other U.S. operators the right to get into Argentina. Panamsat provides DTH services into Argentina for Galaxy Latin America and Sky. Orion is just coming into the market after having obtained a license for Argentina in September 1999. Orion will offer high-speed Internet, broadband, business TV and data services. Brazilian, Mexican and Spanish satellite operators also have approval to sell services in Argentina. The result is that Nahuelsat of Buenos Aires is facing more competition.

Nahuelsat, which is 28 percent owned by GE Americom, is deferring the start of Nahuel 2 until the Latin American economy improves and interest rates drop. Nahuel 2 will augment Nahuel 1 and be located at 81 degrees W. It will have C- and Ku-band capacity to cover both North and South America.

Nahuelsat has found new data customers due to Argentina’s deregulation of both the domestic and international service markets, according to Daniel Salzer, Nahuelsat S.A.’s general manager. In 1999, Argentina’s domestic market for data networks was opened, and the number of providers grew from two to four companies. Today, Nahuelsat carries data traffic from companies in Argentina, including Advance and Telecomunicaciones. Advance and Telecomunicaciones are companies recently created by the new telephone operators there, Telefonica Argentina (owned by Telefonica of Spain) and Telecomuniciones Argentia (owned by France Telecom and Telecom Italia). In November 2000, the international data market will be opened, and more providers will join the two that are currently authorized for the service: Telintar Norte and Telintar Sud.

Nahuelsat also carries traffic from other customers, including a two-transponder DTH service, occasional use customers and customers in Chile, Bolivia and Paraguay.

Salzer says competition from Intelsat and Panamsat inside Argentina is strong. Nahuelsat, on the other hand, had tremendous difficulty breaking into the U.S. market, to which it gained theoretical access for the first time after the reciprocity agreement was signed in 1998. But it took a year to get the U.S. FCC to approve Nahuelsat’s request to put a dish on a customer’s premises to receive the Nahuelsat signal. Delays were attributed to technical questions and bureaucratic processing. Salzer expresses strong dissatisfaction with the process, saying that Nahuelsat lost several customers when it became apparent how difficult and lengthy the U.S. licensing process was. Now that the first U.S. customer, who still has not been identified, is signed on, he is hoping Nahuelsat can get easier access to the U.S. market.

"I had much high hopes for the reciprocity agreement, but it did not operate the way I hoped it would. It took one year to get the authorization for an antenna for our customer," Salzer says. "It was very different from what U.S. operators get in Argentina. They have no difficulty in getting their licenses here."

In Argentina, Intelsat provides four 36-MHz transponders for Internet services. Intelsat expects new customers to come with the end of Argentina’s international telephony monopoly in November, and by September, already companies anticipating getting licenses were reserving capacity on Intelsat, Levcovitz says. Most of Intelsat’s Argentine business focuses on voice and data, since the satellite it used for video services was transferred to New Skies Satellites NV last year.

New Skies has three satellites serving Latin America: the NSS 806 at 319.5 degrees E, the NSS 803 at 338.5 degrees E and the NSS K at 338.5 degrees E. Video services are concentrated on the NSS 806 satellite while Internet, data and voice are on the 803. A new satellite was ordered this fall and will be positioned at 338.5 degrees E in third quarter 2001 to improve New Skies connectivity between Europe, Africa, the Middle East and the Americas.

"The Spanish speaking Internet market is booming, with almost 34 million users this year," says Delores Martos, vice president of Latin American sales and marketing for New Skies. "The Internet market is growing in Central and South America, which leads to a new era of interactive services, better infrastructure, as well as market deregulation in the region. By early next century, most of the switched telephony market in Latin America will be liberalized due to the introduction of competition in this market."

Mexico

In Mexico, deregulation has not moved anywhere near as far as in Argentina and Brazil. The satellite market remains closed to foreign operators unless they have a reciprocity agreement between governments and also establish a local company that is more than 50 percent Mexican-owned. Gazzolo says Panamsat is locked out of Mexico, since it can’t get permission to land its signals because it does not have a majority-owned local partner.

Loral, on the other hand, has a major presence there through its holdings in Satmex, the private company created when the Mexican government sold 75 percent of the equity in its satellite system to Loral and Principia. And Satmex appears to be successfully transforming itself into a regional player by expanding its customer base north and south with the help of the Loral Global Alliance.

Satmex landed a string of new contracts this fall, taking the load factor on Satmex 5 up at the astonishing pace from zero to 75 percent in about seven months. Gonzalez says the new business is the payoff for restructuring from a government-owned entity into a commercial operation armed with a new, more powerful satellite, Satmex 5, designed to break into new markets. The spacecraft is a high-powered HS 601 with 48 transponders in C- and Ku-band, launched in December 1998, and stationed at 116.8 degrees W. It covers the whole American continent from Canada to Patagonia. The Solidaridads were launched in 1994 and 1995 and should last until 2007-2008. Each has a 34 transponder payload and covers a more limited area than Satmex 5 with lower power levels.

"Satmex 5 gave us the ability to go after the continental markets. The Solidaridads’ coverage was more limited," he says. The mix of Mexican and non-Mexican traffic for Satmex has shifted dramatically this year with the new contracts, from 5 percent non-Mexican usage to 30 percent.

Among the new customers is Latinet, which signed on to provide high-speed Internet access and for private line service throughout the Americas through two C-band transponders on Satmex 5. ICG Satellite Services of Miami also contracted to use two Satmex 5 transponders for its international voice and data services. Caprock Services contracted with Satmex as well for capacity to use for oil and gas network customers. Interlink Communications, a North American high-speed Internet access provider, contracted to use Solidaridad 2 for asymmetric backbone connections to the Internet and corporate data network service coverage of Central and South America.

Mexico lags behind North America in adopting digital transmission and in developing its Internet economy, but Gonzalez says the market is changing to resemble the United States. The traffic mix on Satmex is about 55 percent broadcast and 45 percent data and telecoms. Despite the growth in data and success in filling up Satmex 5, Satmex is not yet ready to order another satellite. Satmex does not have the rights to more slots, while Loral does through Brazil, and Satmex is assisting in the plan for the new satellite to fill Loral’s Brazilian slot, Gonzalez says. Nor will Satmex look to put transatlantic capacity up, remaining instead focused on becoming the leader of Latin American satellite markets.

Markets Abound

In addition to the three big markets in Latin America, the smaller national markets and cross-border international customers are served by Panamsat and Intelsat, with other operators fighting to take a share of the market. Schober points out the irony of Panamsat’s complaints of being closed out of Brazil and Mexico. "The rest of Latin America has no domestic operators and is using largely Panamsat capacity. With its 20 satellites, the organization is approaching, in any case, the dominant competitive position they always attacked so hard in the case of Intelsat," he says.

Gazzolo readily admits Panamsat’s big success in the Latin American market overall, with its six satellites that illuminate the region. "I wish I had more satellites over Latin America because today they’re full," Gazzolo says. Panamsat desperately needs the new PAS 1R satellite, due for launch in April 2000, to both replace the aging PAS 1 and to provide high-powered services that can cover the whole hemisphere, a la Satmex 5. Gazzolo says the company will throw a big retirement party the day PAS 1 is replaced, as the electronics are on their 11th year, which is a year longer than they were designed for, and nervousness about the health of the satellite is growing.

Panamsat has pre-sold 80 percent of the C-band capacity on PAS 1R, but the Ku-band capacity remains available. "It’s ideal for Internet," says Gazzolo, especially for a new service to be introduced next year that will focus on the Latin America market. Panamsat will improve the current Spotcast product by adding content, higher speed and a focus on corporate customers. A one-way antenna for receive-only service will cost about $1,000; while a two-way over satellite dish at about $3,000 is another option.

Intelsat has 10 satellites with coverage of Latin America and is planning to put up more. Levcovitz says the satellite at 29.5 degrees W, which is used for restoration services, will be replaced with a bigger, more powerful satellite that can provide more C- and Ku-band capacity for telephone and Internet services to the region. The satellite, which will be proposed to the Intelsat board in December, will have two beams for Brazil and the Andean nations. On the ground side of the business, Intelsat has been working on an interactive multimedia terminal that will be demonstrated in Venezuela after it completes testing. Intelsat will have revenues of $168 million in 1999 from Latin America, only a slight increase over 1998’s $164 million, which included revenue from satellites that have been transferred to New Skies.

Intelsat is still waiting for a demonstration, conducted in 1998 in Peru, of a satellite/wireless local loop rural telephony system to result in orders. The Peruvian government is interested in the system, and the tests are complete, but nothing is being installed. Intelsat is surveying its customer base, trying to determine what is needed to get this niche market moving.

For two years, Loral Orion has used leased capacity from its sister company Satmex to start services in the region, but Orion will be able to establish its own identity in the region after the launch of Orion 2 this fall. The satellite will have 38 transponders in the Ku-band with 54 MHz bandwidth each. Orion 2, at 12 degrees W (where it has a coordination conflict with Eutelsat at the present time), will have a wide vantage point in space to provide coverage reaching from Latin America all the way east to Russia. The satellite allows Latin American connections into Europe and South Africa.

"We expect extremely high demand in the region," says Michael Carfley, president of Loral Cyberstar Americas. "Ku-band will allow us to operate with a DVB platform and use smaller antennas. Our expansion plans are very aggressive."

GE, like Orion, has used capacity from an associated company to get its foot in the door in Latin America but will have its own satellite-GE 4-up over the continent soon. GE and Nahuelsat both are secretive about the identity of their Latin American customers. However, Andreas Georghiou, GE American Communications senior vice president of global satellite services, says the Ford Motor Co. Fordstar network is one of GE’s clients, and GE 4 may deliver services to its dealerships in Mexico.

The GE 4 satellite will be launched by the end of 1999 with a payload of 28 Ku-band switchable transponders to 101 degrees W. Further ahead, GE is planning to put new satellites that will be ordered before the end of 1999 into the Atlantic Ocean region to put the operator into the trans-oceanic services business for the first time, according to Georghiou. The new satellite will have Latin American coverage.

A new operator, Bolivarsat, also may get into business in the region as the result of an agreement between Alcatel, Alsthom and Andesat, a company set up by five Andean pact nations with the intent of building a satellite called Simon Bolivar to serve their markets. The Andesat members are Bolivia, Colombia, Ecuador, Peru and Venezuela.

Comsat International began offering an interconnected regional Latin America networking service, called Globalway, in October aimed at serving businesses. The venture started in Brazil, Colombia and Venezuela through Comsat’s subsidiaries in those countries. The network allows direct connections to 6,000 places that already have Comsat access in a configuration called a "mesh" network, eliminating the need for a "hub and spoke" configuration of ground sites. Globalway can function with a variety of network protocols, including IP, frame relay and older protocols. James Welch, president and general manager of Comsat International, says that customers in emerging markets often use protocols that may look like they are from the "buggy whip days" from the outside, but that they need to be supported.

Welch says Comsat surveyed the Latin American client base and found great demand from customers, more than 20 in each country, for international "mesh" connectivity in a network. Customers wanted to connect city-to-city inside Latin America, rather than having their traffic routed through a hub, which slowed down the transmission. Latin America has no cross-continent fiber. "Satellite is the only way to do a true mesh network in Latin America," says Welch. Besides local networking, Globalway can provide access into the U.S. Internet backbone. Welch says Globalway should add 30-50 percent to Comsat International’s revenues in the next 18-24 months.

With the new capacity, more companies on the ground licensed to provide services and the unabated interest in delivering new services to the region, Latin America promises to be a solid market for the satellite industry during the next few years.

Theresa Foley is Via Satellite’s Senior Contributing Editor.