As we look toward 2005 in Latin America, the satellite industry will continue to suffer from the consequences of overcapacity created by “satellite providers and the thousands of miles of fiber optic networks deployed in the 1990’s,” said José F. Otero, president of Signals Consulting.

Added Erwin Mercado, vice president of Latin America sales at Intelsat: “oversupply, along with competition among operators, has created pricing challenges, such as decreased price/MHZ.” This trend will persist throughout the year.

It therefore seems that increasing utilization is a requirement for profitability. Favorable to such a reduction is the increase in Direct Broadcast Satellite (DBS), particularly in the programming sector.

“Those who own tele-programming or have the license to place it in local markets will grow; this in turn will open possibilities for sale of space by its owners” said Steve Blum, president of Marina, Calif.-based Tellus Venture Associates.

Along with oversupply, the industry’s required high ROI will continue to put on pressure to consolidate, particularly among local, small satellite operators. “The challenge of high price to the end user compared to his low income capacity is not a pressure to consolidate but the consequence of the general economy of the region and a satellite industry business model build on dollar debt [in Latin America],” said Mauro Wajnberg, director of the space segment business at Star One S.A., an Embratel company. For example, the average price of “broadband satellite services in Brazil starts at US$120/month, while the minimum wage is US$80/month,” according to Wajnberg.

Brazil Sets The Latin American Bar

Brazil is the largest satellite and telecommunications market in Latin America, it serves as a bellwether for industries in the region. Brazil points to the increasing difficulty of competing in an environment where investments are made in U.S. dollars but where ROI largely depends on cost of services, priced in local currencies, aimed at mostly low-wage consumers, and frequently bedeviled by government regulation or influence.

However, Wajnberg said there will be “limited but consistent growth in demand for space segment in the region” in 2005, although some services, such as video channels, will have high growth.” But this growth is likely to be tempered by “improved compression techniques that will require less bandwidth,” Wajnberg said. Limited growth and absorption of overcapacity will affect profits positively.

The telling sign for price competition will be what Hispamar (owned 20 percent by Telemar and 80 percent by Hispasat) does to increase its market share and Star One does to retain customers. Theirs is a technology-driven competition. Hispasat’s Amazonas satellite, which operates concurrently in the C- and Ku-bands, is bringing a new dimension to the market. Star One offers C-band service through its own fleet and Ku-band services through leased capacity. It seems ownership of Amazonas will give Hispamar considerable price advantage until Star One launches its CI Satellite in 2006. The new CI will be positioned at 70ºW and, according to Star One, will have increased power in the C-band and 16 transponders in the Ku-band. According to Wajnberg, StarOne’s “hot position at 70ºW already exceeds 15 million dishes. Star One expects to [surpass] this number with the new Star One C1.”

The CI location in the “hot spot” will enable Star One to capitalize on the market opportunities of satellite broadcasting: channel segmentation based on culture-specific programming aimed at given ethnic groups; religious; shopping; science, hybrids of analog and digital; video compression for higher quality transmission on less bandwidth; and multimedia content distribution.

Political, Economic Conditions Hurt By Lack Of Communications

A major drag on sustainable economic growth and political stability in the Latin American market, the two pillars of any business environment, is the lack of reliable communications in remote areas in each country. Land-based communications systems are unsuited to these areas because the capital expenditures they demand do not give the required ROI. Therefore, satellite-enabled, mobile digital communications points of presence seem ideal to connect rural communities with governmental authorities or with service providers. An example of the effectiveness of this solution is the Conectbus program of Brazil’s Agencia Nacional de Telecomuni-cacooes, sponsored by Star One, which has brought access to services, information, and recreation to isolated communities in Brazil.

As the Ku-band increases in popularity for access in rural areas, Intelsat is positioned to be a formidable competitor in this segment. “Latin America should be an attractive market for equipment manufacturers and satellite operators with powerful Ku Band converge, such as Intelsat,” says Mercado.

The success of Conectbus could be replicated in countries such as Colombia which needs to reinsert former irregular combatants into civilian life. This requires education, health services, and entertainment delivered to rural communities which would be better served by satellite rather than by terrestrial lines.

This is where China and Brazil come together in satellite technology. The Sino-Brazilian agreements will help both countries satisfy the emerging need for smaller, cheaper, and more versatile satellites such as the 02B, 03, and 04 planned for joint development by Brazil and China. According to the China National Space Administra-tion (CNSA), China and Brazil agreed to launch a new transmission-type Earth-Resources Satellite 02B in 2006 to replace Satellite 02, launched in 2003 on a China-made Long March 4B rocket, with a 2-year lifetime. But 02 may outsmart its makers as 01 did. Designed and built for two years, 01 lasted four.

The China Center for Resources Satellite Data & Application confirmed that Sino-Brazilian satellites are used for monitoring agriculture, environmental conditions, water pollution, deforestation in the Amazon Basin, erosion, urban development, forestry, land and mineral sources, disaster prevention, water conservancy, and mapping.

Because the world has more developing than developed countries, it is important to note the opportunities that agreements such as the Sino-Brazil present to the satellite industry. Prior to their agreement, Brazil and China had to depend on third-country transmissions from satellite. This meant it could take up to three days to receive needed information. With their own satellites, the information lies just a mouse click away. This is why countries such as Iran, Egypt, Canada, Nigeria, and Malaysia are reportedly negotiating for the purchase of satellite images from China and Brazil. Brazil has already distributed an estimated 30,000 satellite images for free within Brazil, a market previously dominated by foreign suppliers. Future satellites will have remote-sensing technology. Therefore, if your company supplies either country with this technology, it seems wise to make plans for their possible future independence from your services in this area.

Brazil and China’s space technology agreements will be monitored and coordinated by the Chinese and Brazilian Space Technology Co-operation Commission. It is co-chaired by Brazil’s Minister of Science and Technology and by China’s Minister of the State Commission of Science, Technology, and Industry for National Defense. One area of research of strategic interest to the commission is the “fusion of technology with land-based systems to enhance the fusion of television, radio, data, and Internet.” These technologies are key to the security of infrastructure, assets, transportation and energy grids; areas with ample room for growth in the satellite industry.

Discussing the possibilities the U.S.-Andean Free Trade Agreement – AFTA (Colombia, Ecuador and Peru) might bring to the industry, Blum indicates that “if the agreement brings a complete opening of the markets and establishes a climate favorable to foreign investors, this will create opportunities for local producers of DBS programming, similar to the domestic markets created by Asia Star TV.” Despite current setbacks in the negotiations, AFTA is likely to be signed in the spring of 2005. A prerequisite of the US for the agreement is that Colombia, Peru, and Ecuador free their telecommunications market from government control and direction, thus opening the long-distance and fixed line sectors to private investors, without any restrictions on prices or rates. If foreign investors are given a free hand, then the acquisition of Andesat by a larger operator seems highly probable.

War On Terror = Opportunity

It is becoming clearer that Latin America has a high probability of being the soft underbelly of the U.S.’ War on Terror. Surveillance and monitoring of three border areas: The Triple Frontier (Brazil, Argentina, and Paraguay), The Orinoco/Amazonas Basin (Brazil, Colombia, and Venezuela) and Tres Banderas/Three Flags (Belize, México and Guatemala) are key to the identification and control of security threats. Would it not be safer to know the type of cargo in any one of the average four containers per day that cross from the port of Paranangua in Brazil in transit to Ciudad del Este, in Paraguay, without inspection? Unchecked, terrorist-friendly cargo could move from Paraguay through Brazil’s Mato Grosso into the Amazon Basin, from which it could cross into Venezuela on its final destination to Belize, which frequently serves as a way station for contraband that enters the United States through México.

Satellite operators have a golden opportunity to supply upgraded services to prevent cargo theft or tampering, interception of and voice imprinting of ship-to-shore communications, biometrics freezing and matching, and border integrity.

Local armed and police forces are not the only organizations interested in these protections. Corporations, principally those in energy exploration, production, and commercialization, and public utilities must have this type of information to operate profitably and safely. A satellite operator that can provide this type of security using economic, off-the-shelf products will have an ever expanding market not only in Latin America, but worldwide.

Another area of growth is cellular backhaul. Although it is taking off slowly, “it will be an attractive and economic solution for the expansion of cellular networks in the region in 2005,” said Mercado.

With investment funds scouting for profitable opportunities in the telecom industry, “any link of a satellite company with a strong traditional telecom player could minimize the scrutiny of investors at the moment of making their decision on where to invest their capital” said Otero. An example of this might be the rumored purchase of Satmex by Mexico’s Constellation Group formed, among others, by Hispasat.

Mercado “expects that in 2005 Latin America will experience consolidation of some of the local or smaller satellite operators [which] will help with oversupply and price stabilization issues.”

But the largest gains will come when sustained economic growth “is achieved in the region so that a market of more than half billion people, hungry for new [communications] services, can fully [absorb existing overcapacity and purchase new services and programming]” said Wajnberg.

–Maria Velez de Berliner, President, Latin Trade Solutions Inc., [email protected].

(Jodi Katz, Intelsat, [email protected]; Jose F. Otero, Signals Consulting, [email protected]; Mauro Wajnberg, Star One, [email protected]; Steve Bloom, Tellus Venture Associates, [email protected])