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Satellite SWOT Panel Predicts Industry’s Future

By | March 29, 2010
      By Jeffrey Hill

      The global satellite industry will experience a measured comeback after faring well in a tough economic environment, according to analysts and executives on SATELLITE 2010’s SWOT wrap-up panel session.
          Keith Volkert, CEO of Satellite Consulting, said the satellite industry rests in a comfortable position. “It’s quite clear that the industry is healthy, despite the economic downturn. I get the feeling from the big four [FSS operator CEOs] that we’re in good shape.”
          TelAstra President Roger Rusch said while satellite is poised for growth in 2010, the upswing would not be as dramatic as they have been in the past.“I think we’ll see a measured comeback, but the industry will have new issues and challenges to face. I think that we will have to be concerned about overcapacity problems in the future. When things are going well, satellite companies tend to buy more. I look at the recent orders from SES and Intelsat and it definitely looks like expansion. We don’t want a repeat of a situation where companies order too much and then realize it too late. That’s how we end up with shortage of orders for a year or two, which affects manufacturers,” he said.
           Gilat Network Systems CEO Erez Antebi, agreed with Rusch and said the health of the satellite industry differs between the space segment and sectors operating on the ground. “We have two different industries. The space industry has made a killing. The ground segment providers are actually part of the telco business, and we have not done as well as the satellite business. The question for us is, ‘How much longer will the ground segment overpay for overcapacity in the sky?’”
           For the U.S. satellite industry, panelists said the market’s health would depend on changes in government regulation, specifically, International Traffic in Arms Regulations (ITAR) laws. When it comes to ITAR, Volkert is skeptical. “I was disappointed with what I heard from the ITAR panel at this convention, because I don’t think we’re going to get the near-term change that we need. As an American, I believe in national security, but its absurd how ITAR laws are implemented and how they apply to our industry,” said Volkert.
           Brian Weimer, a partner of the Sheppard Mullin law firm, which specializes in policy and acquisition law, explained why the U.S. government might not budge on ITAR laws. “I don’t think we’re going to see ITAR changes, because nobody in Congress will want to be the one that publicly justifies [any relaxing of] national security. It’s not politically correct, whether you agree with national security or not. It’s the same situation for FCC indecency rules. Nobody in Congress will stand up and say ‘I’m for indecency.’ However, the consequences of not changing these standards are also the same. Both the FCC and ITAR regulations have driven business to other countries,” he said.
           Rusch believes ITAR laws can be adjusted outside of the legislative branch. “In the last 20 years, we’ve been engaging in globalization, and we see that every country’s interests go in different directions. To change these laws in order for the United States to compete, it is the responsibility of the administration that implemented ITAR, in this case, the president and the executive branch,” he said.
            While panelists agreed over the scenario of developed markets, the future of the markets in developing countries and the strength of the mobile industry prompted sharp debate. Antebi predicts that the mobile segment will thrive in emerging markets. “In regions like Africa and the Middle East, mobile is used as a viable alternative to fixed. It’s cheap and easy to deploy. We’re seeing that people will walk to a GSM location to use these services, and I think the fixed segment is too expensive and is going down dramatically.
           Richard Forberg, vice president of marketing for STM, warned panelists not to underestimate the economic potential of these regions. “In emerging markets, economics is the only barrier, but the economic driver has to be there. A lot of people in these markets don’t have their own computer, so we can’t keep thinking in terms of how a developed country’s market functions.”
      Rusch pointed out the similarities between the developed and emerging worlds. “The nature of the way the entire world communicates has shifted over the last 20 years. Every market seems to be shifting from voice services to texting. Just look at how some of the mobile companies are suffering because they keep focusing on voice. People, in general, are changing the way they communicate.”
           Panelists also discussed the potential shot in the arm that the FCC’s broadband plan could give the MSS sector. Weimer acknowledged that when it comes to broadband funding, satellite is at a natural disadvantage. “The issue for the U.S. government in the broadband argument has always been speed, and I think they look at satellite as not being able to deliver that. MSS and other satellite companies need to move the issue away from speed to ubiquity,” he said.
           Rusch believes the broadband plan does not fix other more important problems for the MSS sector. “I have been skeptical of the rapid MSS growth. The industry has only grown 2 percent over the last few years, and Inmarsat is the only profitable company. I think this is a limited market. I think there will always be a role for it, but I think there are too many players and too much capacity. I think terrestrial is going to roll out all over the world.”
           Volkert disagreed with Rusch and pointed to possible consolidations as a way to increase the room for growth, but Weimer said the FCC presents a serious obstacle. “I don’t think the FCC will allow consolidation right now. For example, look at the Sirius XM merger. If we’re talking about the possibility of TerreStar and ICO merging, the two companies will have to present themselves as a mobile provider with an ATC component. That turns the consolidation question back to the Sirius XM merger, where the competition was found to exist between mobile and terrestrial and not between mobile companies themselves,” he said.
          The panelists added that the impact of 40 flexible regulation in the FCC broadband plan have yet to be determined.

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