By Peter J. Brown
The satellite industry continues to stay focused, doing a few things better than its terrestrial counterparts. Some regions enjoy relative stability with respect to both the transponder pool and the pricing of available capacity, while in other parts of the world things are seriously askew with a significant surplus of capacity leading to underused assets and a general lack of stability.
North America and Europe are mature satellite markets that have a limited pool of satellite operators serving large customers with a variety of point-to-multipoint service menus. Even though Africa and the Middle East are stable, these two regions continue to challenge business initiatives. Those seeking further satellite services in these regions seem be awaiting further consolidation as well as a better balancing of supply and demand.
Philip McAlister, MD-based Futron Corp.'s director of space and telecommunications, points to a current overcapacity of roughly 40 percent globally. "Certainly, there are pockets where the supply/demand equation is not so out of balance, and satellite operators can still sell capacity at decent prices," says McAlister. "But globally, it is a significant problem and it is not forecast to abate until around 2008-2009."
Asia: Too Much Capacity, Too Many Operators
The Asia-Pacific region grapples with an awkward and unbalanced supply/demand scenario. Economic recovery has not reached all countries, although some companies in the satellite sector have achieved profitability. There is a high demand for new applications, but making these a reality is a challenge, given a prolonged price war.
"The satellite capacity providers are being impacted mostly through low lease prices, and higher sales/marketing costs. The regions hardest hit are Asia and Latin America. Latin America will probably get better before Asia," McAlister adds.
China, Japan and Korea comprise a relatively stable regional sector with a steady growth curve, and yet within the footprint of each country are large satellite markets that are almost completely isolated from adjacent ones. Any sharing of satellite assets and bandwidth across borders, such as the case with the recent MBSAT joint venture involving companies in Korea and Japan for example, represents an exception rather than the rule. India may soon fit this model as well.
"Most of the Asian economies are still recovering from twin economic shocks throughout the last seven years. [Even so] recovery is very country specific. Some markets are still tough to enter directly, especially China, the hottest regional economy," says Timothy Logue, space and telecommunications analyst with Coudert Brothers LLP's Washington, DC, office. "In orbit, there are a lot of satellites, meaning there is a lot of choice, but also a lot of coordination problems, which can make it difficult to fully exploit the capacity of the satellites already there or planned."
Logue also points out that it does not appear that any significant mergers within the Asia-Pacific region will occur that could lead to an actual reduction in capacity in orbit. "It is making operators think carefully about what course regarding new capacity they will follow. Some have slowed down expansion and are reconsidering replacement strategies," Logue says. "In short, they are back to looking at business cases, rather than simply launching satellites on the theory that the users are out there. Prices are still soft and are likely to improve only slightly this year. There is a lot of C-band capacity in use with a lot of legacy systems looking at it, and we are starting to see more expansion C-band capacity planned for launch," he adds.
In Logue's opinion, the most aggressive operator at the moment in the Asian region is Shin Satellite Public Co. Ltd., which is slated to launch its IPstar satellite this year. "It has tremendous capacity and potential. Everyone is watching them," he adds.
Karim Nour, an industry analyst at CA-based Frost and Sullivan covering space and communications, views Asia slightly differently than Logue, emphasizing that while overcapacity does lead to inefficiencies, it is not as big a problem as it seems. In other words, operators only need to achieve a 60 percent utilization rate on a satellite in order to break even on it, according to Nour. "Asia is likely to see more consolidation among operators in the next few years, but overall we do not expect to see a tremendous reduction in overcapacity over the next few years in any region," adds Nour. "It is much more in the operator's interests to have a satellite 60 percent filled than to have it 100 percent filled and have to turn away customers. Overcapacity is driven by several factors including competition among operators, not only for business, but also for orbital slots."
Another factor fueling connectivity competition within the satellite industry is lead by established terrestrial and wireless networks. But how is terrestrial wired and wireless technology in Asia contributing to the problem, if at all? This factor may not be as pronounced in the Asia-Pacific region as in others. "Certainly that is a challenge everywhere, though in many parts of Asia these technologies do not reach much beyond the major urban areas," says Logue.
Asia has too many country-specific operators and so does Latin America to a lesser extent. Logue likes the long-term prognosis for Asia, although he admits that it may be years before a clear trend emerges. Nour, on the other hand, says that Asia is likely to see more consolidation among operators in the next few years, but overall, does not expect to see "a tremendous reduction in overcapacity in any region." Latin America, however, does not cope with as many operators as Asia, according to Christopher Baugh, president of FL- based Northern Sky Research LLC. Both regions are overserved and badly in need of consolidation. Satmex in Mexico for example, is in a very awkward financial situation and facing a difficult set of choices. Likewise, some new satellites in Asia are experiencing extremely low utilization rates with below -market pricing becoming the norm, according to Baugh.
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