Via Satellite’s Global Satellite Survey
After years of economic malaise, stalled business plans and a lackluster air enveloping the global commercial satellite industry environment, executives began to gain momentum as the economy strengthened, and business began churning again within the boardrooms.
One of the most important shifts toward positive business in 2003 came from the return of the financial market interest in satellite companies that previously had to struggle for investment funding. In fact, this was one of the major themes resonating throughout the halls of the new Washington Convention Center this past March at SATELLITE 2004. Peter Nesgos, partner at Milbank, Tweed, Hadley and McCloy LLP in New York, was quoted as saying, "In 2002, the total financing extended to the global satellite industry was $4.9 billion. One year later, this total more than doubled to $11.5 billion, with no signs of faltering in 2004."
J. Tracy Mehr, managing director of investment banking at CS First Boston echoed Nesgos, adding, "We’ve gone from one of the worst capital environments that anyone’s ever seen to one that’s fantastic."
This attention from the financial community materialized in some significant business ventures, including News Corp’s courting of Hughes Electronics and its satellite service DirecTV from General Motors, which finally culminated in a $6.6 billion deal months back. But 2003 brought actual results along with courtship as seen in the acquisition of Inmarsat by a pair of private equity firms.
Now while stronger financial business was taking shape, the bankruptcy of satellite industry stalwart Loral Space and Communications and the sale of its valuable North American satellite assets to rival Intelsat Ltd. for $1.1 billion ranked as one of the biggest business ventures of late. Other important stories included Cablevision’s launch of its Voom satellite TV business, aggressively entering the burgeoning North American HDTV marketplace. Finally, on the other side of the world, the war in Iraq spurred use of satellite capacity by the U.S. military and broadcasters worldwide. That increased demand, however, was insufficient to compensate for an overall sluggishness in demand for satellite capacity.
Once again, Via Satellite takes a closer look at the industry developments that shaped business endeavors in 2003. Allowing the numbers to tell the tale, the data research results, along with near-term projections, indicate the past year was indeed a period of time moving from the red back into the black. According to our numbers, by December 31, 2003, there were 261 Western-built, GEO commercial communication satellites in orbit and 49 more under various stages of construction.
Commercial In-Orbit Activity
Even though some of the Fixed Satellite Service (FSS) operators, a traditional source of industry strength, turned in an unexciting financial performance sheet due to overcapacity in key regions, they did not let that stall their ambitions with application offerings and growing hybrid services in 2003. Some applications indeed show promise for increased FSS activity. With Wildblue still slated for launch and operation, broadband remains on the application list. Ethnic programming and High Definition Television (HDTV) also hold business growth possibilities for the space segment providers. The major global FSS operators–Intelsat, Eutelsat, SES Global, Loral Skynet, New Skies and Panamsat– operate nearly 45 percent of the commercial satellite activity Via Satellite tracks and are bullishly increasing their broadband and broadcasting play.
And as far as these FSS executives are concerned, none of them are planning on diminishing their percentage. This message echoed during the SATELLITE 2004 show when these leaders denounced any notion of future consolidation among their respective fleets.
"What you are going to see is consolidation taking advantage of the strong markets and pulling back from the weak markets," said Panamsat President and CEO Joe Wright during the opening panel session. Conny Kullman, CEO of Intelsat added that what may materialize within this sector is a moving of unneeded regional satellites in light regions to cover busier regions.
Commercial Launch Activity
From 1993 to 2003, the launch services market has indeed been fluctuating. But even in its turbulent decade-long journey, 2003 garnered only five less launches than 2002 with dual payloads as a hallmark the year. And even in a less-than-impressive launch year, this segment still fared stronger than the 10 launches it successfully executed in 1993.
International Launch Services (ILS) launched four commercial payloads closely followed by Sea Launch, which lofted its Zenit 3SL rocket three times in 2003. Arianespace launched four times, orbiting seven spacecraft that qualify under Via Satellite’s matrix, plus one co-marketing launch with Starsem lofting Amos 2 into geostationary orbit.
But Ariane was also busy launching a different kind of business payload last year. In an effort to better serve its customers with a solid back-up launch plan, Arianespace spearheaded a business venture that now brings to the negotiation table launcher executives who have never shared this space.
Created in July 2003, the Launch Services Alliance combines the strengths of Arianespace, Boeing Launch Services and Mitsubishi Heavy Industries to provide customers with flexible, reliable and on-time delivery to orbit.
With regard to contracts, 2003 was a healthy year, bringing to the competition arena 16 commercial satellite launch contracts awarded to these providers. It is important to note, however, that three wild cards surfaced among the orders: the originally debuted Wildblue contract of 2000 is now slated for an Ariane launch after being renegotiated in 2003; DirecTV 7S, originally slated for Arianespace three years ago, was recently launched by Sea Launch; and Eutelsat’s W3A spacecraft went from Arianespace to ILS.
Commercial Manufacturing Activity
Without a doubt, there was significant momentum in 2003 on the side of the satellite manufacturers. Via Satellite counted 19 commercial communication spacecraft orders publicly awarded and announced by the major Western satellite manufacturers last year–14 more contracts signed than in 2002.
Lockheed Martin Commercial Space Systems (LMCSS) led this segment with close to 30 percent of the marketshare. In addition, analysts at Frost and Sullivan recognized LMCSS for its A2100 satellite platform last year. According to the company, the A2100 is "The most reliable and efficient of its class, and has held an outstanding on-orbit reliability record since it was first offered in 1996."
Similar to the launch contracts, there were some wild cards within the manufacturing arena as well. Space Systems/Loral (SS/L) was one such cardholder. Last year, Intelsat agreed to order an additional satellite from this manufacturer contingent upon the approval of the operator’s acquisition of Loral’s North American Satellites. Likewise, DirecTV gave authority to proceed with the other spacecraft in Loral’s high bay upon its completion of DirecTV 7S, which recently reached orbit. Therefore, there is a chance that SS/L’s marketshare for 2003 may be higher than indicated once the dust settles on some of these business initiatives.
But the CEOs within this market segment have asserted the satellite manufacturing market will remain as is, with many manufacturers chasing a handful of contracts until 2007, when they expect an increase in new satellite orders. At least that was the sentiment at the manufacturing panel during SATELLITE 2004. Depending on which CEO you listen to, the total number of new satellite contracts worldwide could be as low as 12 or as high as 20 throughout the next few years. Though rumblings continue within this arena, nothing definitive has yet surfaced. So will this flat growth market be able to sustain itself in its current state until 2007? This remains to be seen.
2004 And Beyond
So how is the near-term future landscape of the global satellite industry shaping up? Most executives will say they are operating under a veil of cautious optimism. Yes, there is resurgence within the satellite arena and the momentum has not wavered halfway through 2004, but neither has the industry returned to the glory days of yesteryear when aggressive, ambitious plans were the norm and somewhat uninhibited business flair was commonplace in the boardrooms. Only time will tell if this new-found grounding to an orbiting business pays off.
Meanwhile, some of the business areas to keep an eye on include the growing initiatives News Corp continues to make regarding key decisions on DirecTV, Panamsat and HNS; bold broadband services such as Wildblue and in-flight Internet access, which are putting the space sector to the test; the growth of HDTV and its market acceptance; the continued strength behind consumer satellite service such as radio and broadcasting; and the metamorphosis of ownership surrounding the FSS sector, either with public offerings or more sales to investors.
In addition to private equity firms purchasing the operations of some FSS sector members, it will also be important to note the continued change in business offerings from the major satellite operators. Customers continue to look for complete service providers. They also want carriers that are technology-neutral: that can carry whatever traffic the customer wants them to carry, as quickly and economically as possible. Therefore, a business plan that makes the best use of all alternatives would certainly seem more likely to be a business success, offering customers global, efficient networks. This is where the future of the transmission business lies, and where the satellite industry needs to go if it is to survive. These are interesting times indeed.
Nick Mitsis is editor of Via Satellite magazine. He also sits on the board of SSPI’s Mid-Atlantic chapter.