By Theresa Foley

The face of competition for satellite services in Latin America is changing. Restructurings at Satmex and Embratel are transforming those companies into more effective players. At the same time other companies are maneuvering to become new satellite operators in the region.

Satmex and Embratel both report major progress in their transition from the cumbersome management methods of government-ownership into streamlined, agile private operators.

“Satmex is a remarkable turnaround story. From commercial parameters, organizationally and financially, we’ve turned the company around,” says Satmex CEO Lauro Gonzalez. “Our [satellite transponder] contract length is now to over 40 months on average, up from 11 months average before privatization. Less than 5 percent of our sales were outside Mexico, and that’s now up to 35 percent. The backlog is up; the quality of contracts is up. We have brought management in that is multi-cultural, multi-lingual and able to branch out beyond our home continent.”

Like Satmex, Embratel is becoming a regional player with plans to expand outside Brazil with the launch of its new Brasilsat B4 satellite this summer. In addition, Embratel will order a new satellite this summer that will take the company into the Ku-band market in 2003. And in 2002, government restrictions that keep Embratel’s satellite unit of the company out of value-added services will expire, providing another area to expand the offerings, according to Lincoln A. Oliveira, head of operations and engineering for Embratel’s satellite business unit.

As Satmex and Embratel metamorphasize into bigger operators that are more capable of challenging long time regional leaders Panamsat and Intelsat, more prospective operators are trying to get into the game, attracted by a market that is growing at 20 percent per year. The hopefuls include Telemar of Brazil, Loral Skynet do Brasil Ltd., which had not yet ordered its new Brazilian satellite by our press time, and Andesat of Cali, Colombia.

Frost and Sullivan reports that in 2000, service revenues throughout Latin America could surpass $1 billion for the first time, a 20 percent increase this year over 1999 revenues of $840 million. The number of transponders in use will reach 248, a 27 percent increase over the 195 in use in 1999.

Embratel and Satmex are both in improved positions but not able to rival Panamsat or Intelsat, says Greg Caressi, Frost and Sullivan research manager for satellite communications. “Satmex is doing better, but the financial results have not been great. Satmex 5 has been the hottest property around in satellite. Embratel is going to go beyond C-band to offer more competitive services, and will do well there.”

The great success of Satmex 5 bodes well for two new high-powered, wide-coverage satellites, PAS 1R and Anik F1, which will be launched later this year. Across Latin America, Internet services continue to be the fastest growing segment, and DTH also has done well, Caressi says. “But there is a limitation to the market given the cost and income per capita.”

Mergers and acquisitions among the many companies competing in Latin American satellite services could change the scenario somewhat in the future. “Embratel and Nahuelsat are the most likely ones to be gobbled up. Having fewer players could be better, but it’s not good for the region to have only big players that are external to the region controlling the market,” Caressi says.

Embratel

Currently, Embratel, the domestic satellite operator in Brazil that is now owned by MCI Worldcom, uses its fleet of four Brasilsats to provide limited services, only space segment and only within Brazil, but all that is about to change. With the launch of Brasilsat B4 on an Ariane rocket in summer 2000, Embratel will be in position to cover most of South America. The satellite’s footprint reaches from Chile and Argentina to Venezuela. Embratel is opening satellite sales offices and distribution networks in the major Latin American capitals with the assistance of parent MCI.

“Our current four satellites are fairly full. B4 will bring relief,” says Oliveira. Like the other Brasilsats, the new B4 is all C-band. Embratel will add Ku- and possibly Ka- band capacity with a new satellite called Brasilsat C1 that will be contracted for in summer 2000. The satellite should be in orbit by fall 2002 and in operation by early 2003.

“Some transponders will be higher power, making them ideal for broadband….We are also looking ahead at Brasilsat D1 satellite with some onboard processing capability for delivery around 2005, and this will be a ramp-up to have experience in running a more sophisticated system later,” Oliveira says. Embratel has applied to Brazilian regulator Anatel to use existing slots to collocate C1 with one of the C-band birds.

The government restrictions that prevent Embratel from offering value-added or end-to-end services will expire at the end of 2001. Embratel’s space business unit, formed in summer 1999, is preparing to add new end-to-end services to its offerings starting in 2002 or 2003. Oliveira says value-added companies like Impsat, Comsat and Vicom buy transponders from Embratel now. Thus Embratel could end up competing with some of its customers.

Embratel is examining broadband opportunities and may add a service for direct access to the Internet for consumers. The company already provides backbone connections to ISPs by satellite.

For a year, MCI has been seeking another satellite operator as a strategic partner to help the satellite business unit become more of a global player, and in 2000, the search continued, Oliveira says. The ninth largest economy in the world, Brazil rivals the United States, China and the European Union in terms of its size, wealth and population, generating 25 percent of the Latin American economy.

“Fiber is being deployed aggressively in Brazil but we still see opportunities for satellites,” Oliveira says. “Companies like Telemar need infrastructure and can’t wait a long time for deployment. Fiber is not keeping pace with the demand here.”

Telemar, a company that was a member of the Telebras family but is on its own following deregulation and privatization changes in Brazil, has a license to launch a satellite into 61 degreesW for C-band services. Telemar handles local telephone traffic in Brazil in the region that goes from Rio de Janeiro through the coast to the Amazon region and plans to buy its own satellite, but before that will contract for interim capacity from an existing operator. Intelsat has been selected to provide some of the capacity, and Embratel was hoping to sell to Telemar as well. “They have issued an RFP for 100 earth stations. They will need a good amount of space segment,” says Oliveira.

Growth markets in Brazil will focus largely on networking and Internet services, rather than direct-to-home (DTH) television services, Oliveira says. While the number of large DTH players is probably fixed, the demand for TV distribution services also is high in all Latin American countries except for Argentina, which has higher cable penetration rates. But Internet and PC ownership is on the rise. International Data Corp. reports that in 2000, Latin America has 9.8 million Internet users, of which 4.2 million are in Brazil. Those figures ramp up steadily over the next few years, going from 12.7 million in 2001 in Latin America and 5.4 million in Brazil to 19 million in the region in 2003 and 7.5 million in Brazil.

Satmex

Since fall 1999, an impressive list of new players in the Latin American Internet-services business have become Satmex customers. The new Satmex 5 satellite is loaded with Internet-related customers, who have taken up the entire spacecraft in less than a year. The customers include Tachyon, Hughes Network Systems (HNS), American Multiplexer, Interpacket, ATC Teleports, Satcom Digital Networks, Interlink Communications, Netsat Express and ICG, according to Gonzalez.

“Internet is the core story behind most of them. They became a growth engine in the latter part of 1999,” Gonzalez says. HNS, for example, has signed up for 10 transponders to be used to deliver the upgraded version of the DirecPC Internet-access satellite service throughout Latin America next year.

Only short-term capacity is left on Satmex 5, and on the two Satmex Solidaridads, the load factors are rising. Despite that, Satmex still does not plan to acquire more satellites, but instead will offer capacity obtained through the Loral global alliance satellite family, which includes the Skynet satellites and the future Europestars.

Gonzalez points to several signs of the greater strength Satmex has achieved through privatization. The client base for Satmex now consists of many triple A companies and the contracts are “take-or-pay,” meaning there’s payment by the customer, even if the contract capacity is not utilized. This is more favorable to Satmex than earlier deals that could be more easily broken. The workforce that ran the government-owned company is 98 percent gone, replaced by multi-lingual, hard-driving executives, Gonzalez says. In late February, Satmex renegotiated its debt with creditors and signed a new covenant with its banks, putting the company in a better financial position.

Expansion in new geographic markets and into services also is under way. In fall 1999, Satmex was licensed to serve in Brazil. Gonzalez says no obstacles exist for business there, although he declined to identify customers. More recently, Satmex received a concession in Mexico to begin offering value-added services, such as teleport operations, occasional use and private networking through Ensat, a new unit set up to handle theses services. “Ensat will serve Mexican and multinational users. It will be done in a way to complement current resellers,” he says.

A trend that Gonzalez says will impact Satmex this year is better enforcement of regulatory laws by Latin American countries. In Mexico, for example, he says the government has begun closing down companies that use satellite services without proper licenses. The end user is shut down by Cofetel, the Mexican regulatory agency for communications, if it is caught using satellites illegally.

Gonzalez also is CEO of Globalstar de Mexico, which activated its service in March. The company had a distribution agreement with two important cellular telephone service providers in Mexico that gave it 1,200 points of sale and 1,000 trained sales agents. However, no sales figures or other data on subscribers was being released. The Mexican government was considering use of Globalstar de Mexico fixed telephones to provide some rural telephony services but no decision on whether to proceed had been made as of press time.

Nahuelsat

Nahuelsat S.A., the Buenos Aires-based Latin American satellite owner, cleared another hurdle toward extending its presence into North America this year when two teleports received U.S. licenses allowing them to connect to Nahuel 1. Nahuel 1, with three high-power beams, was launched in January 1997.

Williams Vyvx Services became the first teleport company to get access to Nahuelsat from the United States. A second teleport operator, World Wide Wireless Web Corp., also was authorized. The licenses came after a long campaign by Nahuelsat to win U.S. access. In May 1998, market access to the United States was agreed upon bilaterally, but the issuing of licenses by the Federal Communications Commission (FCC) took far longer than the company anticipated. Now, Daniel Salzer, Nahuelsat general manager, says more requests to use Nahuelsat from the United States will be coming to the FCC.

Nahuelsat is expanding in Latin America, both in region one, the large southern cone Ku-band beam of Nahuel 1, and by developing a presence in the Andean Pact nations and Mexico, according to Salzer. In Brazil, Nahuelsat was authorized in mid-1999 to offer services. This year it signed its first contract, but the customer’s name was not disclosed.

Salzer says the data services and video transport markets can be strongly supported by satellites, and while Internet services are growing, the market will not mirror that of the United States. “For multimedia services, new ideas are popping up, coming from the United States, but they haven’t been developed in Latin America. It’s a question of paying for them,” he says. “The Internet model in Latin America is different. Free Internet access is the main development.”

Because service providers give Internet access away, small ISPs have a hard time staying in business. The result will be future consolidation into fewer, larger ISPs.

Later this year, the long distance telephony business in Argentina opens for competition, and that may bring some new customers into the market. In Brazil, the telephone market also is growing and newly open to competition, but the new systems are primarily terrestrial and have not been buying up satellite capacity, he says.

Another factor affecting the Latin America market is the huge amount of fiber being installed, Salzer says. Billions of dollars are being invested in Argentina and Brazil to bring fiber to the big cities. That said, the last mile service to end users is still a problem. “That’s where satellite has a big role to play.”

In the spring, Nahuelsat was still in the process of deciding how and when to procure a new satellite to expand its businesses. GE, with currently more than 28 percent ownership of Nahuelsat, seemed to be prepared to buy up a larger stake in Nahuelsat in the spring from two of the other shareholders, according to news reports in Argentina.

Intelsat

Intelsat’s Latin American sales were off to a strong start in 2000, surpassing the first quarter projection of one-quarter of the budget forecast for 2000 in Latin American revenues, according to Ruben Levcovitz, Intelsat’s group director for Latin America.

Intelsat has signed up several new customers this year due to continued deregulation in Latin America. In Brazil, Interlig had accessed Intelsat through Embratel for international connections but in March started direct access through its own earth station near Rio de Janeiro. Interlig has taken four Intelsat transponders and is expected to begin competing with other Brazilian players.

“The whole region wants more capacity for Internet services. We are being very creative in configuring satellites and freeing up capacity” to fill requests from current customers in Argentina, Chile, Peru and Brazil, Levcovitz says. For example, a satellite in an inclined orbit at 330.5 degreesE is committed to providing cable restoration services until year end, but then will be used to provide Internet services for customers who use the tracking equipment on the ground for inclined orbit birds. Levcovitz says the satellite’s capacity is being offered at a 50 percent discount.

Intelsat is expecting interactive services and rural telephony to bring in more business in Latin America. Intelsat demonstrated terminals for both at the America’s Telecom show in Rio de Janeiro in April. A second generation VSAT system was demonstrated that can support three-way videoconferencing, voice over IP, voice over frame relay and thin route Internet access. The interactive multimedia terminal was a joint demonstration with Alcatel and ATC Teleports. With Gilat and ATC, Intelsat demonstrated a rural telephony VSAT for voice and IP services.

Rural telephony has proven to be a difficult service to take beyond the demonstration phase. An Intelsat demonstration carried out two years ago in Peru in a small number of villages has not resulted in commercial deployment. “We have talked to manufacturers on a cost effective solution, but a system is not up and running yet,” Levcovitz says.

Interactive services also need development to take hold in Latin America. “Telemedicine and tele-education projects also have to be developed. The drawback for both is economic. These areas are not very profitable and have to be subsidized,” he says.

Panamsat

Panamsat Corp. has two launches of new satellites for Latin American services in 2000, PAS 9 and PAS 1R, according to Alvaro Gazzolo, senior vice president of the Atlantic region for Panamsat Corp. PAS 1R was scheduled to launch on an Ariane 5 in the second quarter of 2000, but the PAS 9 launch plan was being reevaluated following the failure in March of its intended launch vehicle, Sea Launch. Panamsat was considering moving the satellite to a different launcher, but had not made a decision on how to proceed by press time.

A few months prior to launch, PAS 1R had nearly sold out its C-band capability. The powerful satellite’s Ku-band capacity likely will be used, at least in part, to support the company’s new broadband service offering, Net/36. A single transponder on the satellite will be able to reach all the major cities in Latin America and North America with a powerful 51 dbW strength signal that should be ideal for Internet, Gazzolo says.

PAS lined up a major new broadcasting customer, Pan-American Sports Network, a $500 million venture, in April. The network took one transponder but if the business succeeds, it could grow to use four. Gazzolo says this new Latin American broadcast customer was a bit of a surprise, since the general assumption has been that the key broadcasting players had already cornered the Latin American market. PAS won the contract because its PAS 5 satellite already carries an attractive neighborhood of cable operators. The PAS 5 programming will be transferred to PAS 9 once it is launched, to allow the broadcasters to distribute their signals beyond Latin America to major U.S. cities like Houston, Miami and New York, where sports audiences want Latin American events via the new satellite.

Gazzolo does not expect many more large broadcast customers to emerge in the region. “We have hit a threshold with a few exceptions. The cable industry is not sufficient to support the amount that is there,” he says. The number of channels available is 180, but the cable operators can only support 80, leaving 100 channels undelivered in many places.

After a long campaign to enter the Brazilian market, PAS was ready to launch Ku-band services there following negotiations with Brazilian regulator Anatel. “This should be a major event for Panamsat because one-half of the gross domestic product in Latin America is in Brazil,” Gazzolo says.

Smaller countries, like Peru, also were opening the doors wider for Panamsat to sell its services. In late December, Peruvian regulations changed so that Panamsat will no longer have to steer its customers through Intelperu, the Telefonica company that held a five-year monopoly under its license. In February, PAS was licensed to offer IP and telephony services direct to the end customers there and began building an earth station which should be completed by fall. Then Peruvian customers can access PAS satellites directly.

Mexico has been another market where Panamsat has been stifled due to a regulatory requirement that operators be 51 percent locally owned. Gazzolo says meetings had been held with a potential partner in Mexico that could help to change that situation. He declined to elaborate.

Loral

Loral Cyberstar uses the Telstar 12 satellite (formerly known as Orion 2) for data services in Latin America. Ed DiCarlo, Cyberstar vice president and general manager of sales for Latin America, says sales have been so successful that Cyberstar may need additional capacity and is working with Loral Skynet to get more, and may even go to other operators, such as Intelsat or New Skies.

Although satellite operators are generally reluctant to specify the number of ISPs each serves, it is generally believed that Cyberstar, which has been in the Internet-related services business for about five years, leads in the number of ISP clients using it to connect into the U.S. Internet backbone. PSINet, one of the biggest tier one ISPs serving a worldwide customer base, uses Loral Cyberstar to carry some of its traffic to Latin America and Cyberstar offers services like media streaming over satellite into Brazil and other countries.

Building on this experience, Loral Cyberstar is expanding into “infomedia” services such as distance learning and business TV for customers like U.S. corporations with operations in Latin America, DiCarlo says. Cyberstar had yet to announce its new customers for these services by the time we went to press, but had strong hopes of starting this end-to-end service by year-end.

DiCarlo says pressure to drop prices for satellite Internet services in Latin America is growing because of a trend by regional ISPs to offer free services. Satellite operators are being asked to lower their prices. Cyberstar has responded by trying to differentiate itself by putting caches and servers at the ISP sites.

Galaxy Latin America

Galaxy Latin America (GLA) serves 27 countries with DTH services, covering 95 percent of all of Latin America, according to Consuelo Sanchez-Octavio, GLA’s senior vice president for business development. With such strong territorial coverage, expansion for GLA will have to come from new services rather than new geographical markets. Later this year, GLA will expand the number of channels and introduce interactive television.

Compression technologies will be used to increase the number of channels GLA carries on the Galaxy 8i satellite, launched in 1997. In spring 2000, GLA carried 267 channels of video and audio, with plans to increase video by 20 and audio by 30-35 channels by year-end.

Latin America is expected to have more than 100 million TV households by 2006, with Argentina, Brazil and Mexico dominating the market. GLA had 804,000 subscribers in Latin America at the end of 1999, after adding 136,000 net new subscribers in the fourth quarter. GLA’s drive to increase subscribers was helped in 1999 by exclusive programming deals with HBO and Disney, Sanchez-Octavio says.

An emphasis on standardizing customer care across the region will further build the subscriber base. “Excellent service is a competitive advantage in Latin America,” Sanchez says. Individual national markets often have a wide variety in the quality of support, and GLA’s pan-regional nature is an advantage here, she says.

An initiative to begin interactive services, likely to resemble DirecTV’s interactive services in the United States, will be announced during the second half of the year. Recently, OpenTV and GLA announced an agreement for OpenTV to provide interactive software solutions to GLA for its DirecTV Inc. satellite television service in Latin America and the Caribbean. GLA envisions the move as a first step in deploying an interactive strategy for its rapidly growing DTH service. However, the degree to which GLA will offer Internet services and e-commerce is still being examined, according to Sanchez-Octavio. “We think we will provide Internet service but we don’t think all our subscribers will need to be on the Internet. In other markets, Internet on TV has not been so successful and we want to be careful. In the living room, people want something more exciting [than email or information services].”

E-commerce also is tempting, but Sanchez cautions that GLA wants to be sure that delivery companies are up to the task in Latin America before GLA begins carrying a lot of Internet-based sales to consumers. “The problem is choosing the right partners in the right territories. Latin America is a marketplace that is country specific, and we are looking at it country-by-country,” she says. Fulfillment is far more complex there than it is in the United States, where private delivery companies reach virtually every home on a daily basis.

Telesat Canada

Telesat Canada’s Anik F1 satellite will begin to serve Latin America after launch this summer and a test period that will end in October or November. The spacecraft is the Canadian operator’s first foray into that market. Dennis Billard, Telesat’s vice president for business development, says sales offices have been established in Buenos Aires and Sao Paulo, plus three teleports have been constructed in Brazil. “Anik F1 will have full coverage of South America in C- and Ku-band,” Billard says.

As of April, no contracts had been signed but numerous proposals were out to major Internet companies, satellite suppliers and to mirror companies set up to provide rural telephony and Internet services. Billard was expecting announcements of customers in the next few months.

The Market Heats Up

Latin America is mid-way through its transition to a more competitive free market for satellite services. The number and quality of the operators in the region is rising, and the added competition promises to bring better prices and more services to businesses and consumers throughout the continent in the next few years.

Theresa Foley is Via Satellite’s Senior Contributing Editor.

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