Year in Review: 2008 Events Set Stage for 2009
While the satellite sector generally remains in good health, a financial crisis that has cast a huge shadow over the globe also threatens the necessary funding that many companies will need as they look to expand their operations and capitalize on new technology and initiatives. There are warning signs already present. WorldSpace, filed for Chapter 11 bankruptcy protection in October, and its future remains very much up in the air. "We are heading into a nuclear winter of funding," says Craig Moffett, managing director of Sanford Bernstein. "$1 trillion of funding has been wiped out. $15 trillion of lending capacity has disappeared." Against this turmoil, Via Satellite recaps some of the stories that affected various satellite sectors and will shape the industry in the coming years.
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With the demand for video on any screen seemingly knowing no bounds, mobile TV represents a serious growth opportunity for the satellite industry, however, the major story in 2008 was the scheduled shutdown of an established provider. In July, Toshiba Corp. announced it would close its satellite digital multimedia broadcasting business, Mobile Broadcasting Corp., in 2009. The service, which began operations in October 2004, had attracted only a fraction of the subscribers Toshiba had hoped for. "We had initially envisaged the subscriber base reaching 1.4 million in the first three years, but as of July 2008 the number of subscribers remained at 100,000," says Keisuke Ohmori, group manager, international media relations group, for Toshiba.
MBC could serve as a warning for operators in Europe, where progress in the mobile TV sector took a great leap. In August, the European Commission said it was putting mechanisms in place so that mobile services could be offered in a uniform fashion throughout Europe. Companies such as ICO, Inmarsat and Solaris Mobile — a joint venture of Eutelsat and SES Astra — have bid for a pan-European license. While this new licensing structure is not just about mobile TV, it will undoubtedly be a key component for these operators if they are successful in getting hold of a license.
In the United States, ICO launched its North American geosynchronous satellite, ICO G1 and began conducting alpha trials for its fully interactive mobile video, navigation and emergency assistance service to be known as ICO mim (mobile interactive media). The mobile television component of ICO mim will use the DVB-SH standard for trials are taking place in Raleigh-Durham, N.C., and Las Vegas.
There is little doubt that mobile TV is an exciting market, and progress was definitely made in 2008, particularly in Europe and to a lesser extent the United States. However, the failure of MBC in Japan as well TU Media’s struggle to profitability in Korea is proof that the mobile TV path is not necessarily paved with gold.
The biggest story of the year in the mobile satellite services (MSS) areas was the role of hedge fund company Harbinger Capital Partners Funds to consolidate the sector. Harbinger, which owns a 28 percent stake in Inmarsat, said it would look to acquire Inmarsat and combine it with SkyTerra Communications to create an even bigger player in the MSS space. "The combination of SkyTerra and Inmarsat would present an excellent opportunity to advance the realization of ubiquitous wireless coverage of the United States and Canada through an integrated satellite-terrestrial communications network," says Harbinger.
Inmarsat CEO Andy Sukawaty says, "We are profitable. We fund our own growth and we provide very healthy returns for shareholders based on dividend growth, cash flow growth and profitability growth. We intend to continue to do that. If someone like Harbinger, with whom we have a constructive relationship as they are a 28 percent shareholder, wants to make an offer to the other shareholders for the whole of the company, that is their prerogative. As long as that value and price exceeds what people feel they can get with us as an independent company, then we are open to that."
Iridium also was involved in a deal, which saw the company acquired by GHL in September. The agreement will eliminate Iridium’s debt of about $131 million and allow the mobile satellite service provider to develop its next-generation satellite constellation, Iridium Next. The trials and tribulations of Globalstar also remain a talking point, with some observers seeing continued trouble ahead for the operator. Thales Alenia Space has begun production assembly, integration and testing of the first Globalstar second-generation flight model satellites, which are scheduled to be launched in the second half of 2009 to replace the faltering first-generation spacecraft.
Technology development and creative strategies for delivering content were the key trends in the broadcasting arena in 2008. While everyone has been raving about the picture quality and potential business impact of high-definition TV for years, 2008 was the year, where some of that promise began to be realized more fully around the globe.
2008 also saw some telcos establish themselves more in the TV markets. Both Verizon and France Telecom (Orange) have led the way, and in their home territories, these two operators have a combined subscriber base for TV services of around 3 million. Orange also was among a number of telcos that launched services via DTH. Bharti Airtel, one of the India’s largest cellular operators with more than 50 million subscribers, is the latest player to enter the DTH market in India. Portugal Telecom also launched DTH services in Portugal.
Hybrid infrastructures also continued to grow in popularity as a way to gain access to the customers. 2008 introduced more evidence of telcos looking to use satellite to extend their reach, and blending the best of IP and satellite into one overall customer solution was a key theme. As customers want access to content on different screens, both at home and on the move, it is presenting new challenges to broadcasters in terms of coming up with new business models, both in terms of advertising and subscription revenues.
2008 was also the year that saw German pay-TV operator, Premiere fall from grace after issuing false subscriber figures. The scandal led to a number of the company’s top executives dramatically leave the company, and in what should be a big market for DTH services, Premiere has seen no real subscriber throughout the past few years. A seasoned group of News Corp. executives have taken charge of Premiere as the DTH operator looks to reverse its slide.
The longest-running merger proposal in history came to a close in mid-2008, as XM Satellite Radio and Sirius Satellite Radio became a single company in July, more than 17 months after the two companies announced their intentions. The two satellite radio operators convinced enough members of the U.S. Federal Communications Commission that the combination would not create a monopoly because their competitors were other forms of entertainment such as the Internet and portable music players. And so far, the new Sirius XM Satellite Radio has yet to capitalize on any perceived monopoly status, as losses continue to mount and the company’s stock has traded at less than a dollar since mid-September.
While Sirius and XM received most of the mainstream attention, the acquisition of Radyne’s ground equipment business by Comtech EF Data most likely will have a great impact on the satellite sector as a whole. The combination of Radyne’s satellite earth station business with Comtech’s offerings creates an equipment giant for the industry. There is some overlap in the product offerings, and Comtech will continue to offer Comtech and Radyne’s products. "Radyne products, specifically modems, converters and receivers, have a strong loyalty among its customer base and we highly value these customers," says Daniel Enns, Comtech’s senior vice president of strategic marketing and business development. "The Radyne products will maintain its separate existing Web site as is as an assurance to that customer base that it is business as usual under the Comtech umbrella."
"The larger operators will grow their businesses organically and look to find good opportunities to grow through acquisition as well. There are many compelling reasons to look to grow through M&A. A significant amount of value can be created. I think there is more of that to take place."
— Goldberg, Telesat
A big combination that did not occur also made news, as the Canadian government in May rejected Alliant Techsystems Inc.’s (ATK) bid to purchase MacDonald Dettwiler and Associates Ltd. (MDA)’s information systems and geospatial services businesses. Canadian Investment Review officials objected to potential extraterritorial application of U.S. export law. In the aftermath of the decision, ATK combined its Launch Systems and Space Systems groups into a single business, the Space Systems group, that will be the world’s largest solid rocket launch systems provider as well as a leading manufacturer of components and subsystems for satellites and spacecraft.
Other potential transactions that remain up in the air are the purchase of Gilat Satellite Networks by a consortium of investors. According to Gilat, the group sought changes to the terms of the deal in the late stages of the transaction, and Gilat is seeking a $47.3 million payment under a breach of contract clause. A deal announced in October for Sierra Nevada to acquire Space Dev could be held up by claims that Space Dev’s board did not agree to a price that is fair to shareholders.
However, on the FSS side, with a great deal of consolidation having taken place in recent years, there was very little activity. However, Dan Goldberg, Telesat CEO still believes that we could see some activity in the FSS sector in the near future. He said, "The larger operators will grow their businesses organically and look to find good opportunities to grow through acquisition as well. There are many compelling reasons to look to grow through M&A. A significant amount of value can be created. I think there is more of that to take place."
New Satellite Operators
While the largest fixed satellite services (FSS) operator continue to streamline their operations, a number of new players continue to emerge.
One of the most talked about players in the satellite sector is ProtoStar, an FSS operator targeting the growing DTH markets in Asia. The operator saw its ProtoStar-1 satellite launched in July, and in September, signed an agreement with the Intersputnik International Organization of Space Communications (Intersputnik) of Russia to provide for Ku-band and C-band services from ProtoStar 1 satellite from a position at 98.5 degrees East under the Intersputnik ITU filing. While other operators such as AsiaSat have been concerned with interference issues related to ProtoStar’s orbital location, it appears as though the operator is now ready to target Asia’s DTH markets and lease capacity to a number of DTH players emerging in the region. ProtoStar plans to launch another satellite in early 2009.
Another player to watch in Europe is Avanti Communications, which plans to launch its Hylas satellite in 2009 to provide high-powered BSS and FSS capacity across Europe. Avanti hopes this satellite can mean it can have more of an impact in the DTH and satellite broadband markets across Europe.
In April, Vinasat-1, Vietnam’s first telecommunications satellite, was placed in orbit. The spacecraft will be operated by Vietnam Posts and Telecommunications Group and provide radio, television and telephone transmission services over Vietnam and the Asia-Pacific region. China Aerospace Science and Technology Corp. launched Venezuela’s first satellite, Simon Bolivar (Venesat-1), in October. The satellite will be used for government and military communications and give remote areas of Venezuela access to telephone communications, fax, videoconferencing, high-speed Internet, radio, tele-medicine and tele-education.
Some new operators also are working to recover from problems. Rascomstar-QAF awarded a contract in September to Thales Alenia Space for the construction of the Rascom-QAF1R telecommunication satellite. The spacecraft will replace Rascom-QAF1, which was placed in orbit in December 2007 and suffered a helium leak that has reduced the satellite’s expected lifetime.
In August, Al Yah Satellite Communications Co. (Yahsat) secured commitments for $1.2 billion to finance its hybrid satellite communications system. In May, Yahsat said it planned to approach the financial market to raise public-private partnership-style project finance funding for its satellites. Yahsat plans to launch a pair of communications satellites to provide commercial and government services throughout the Middle East, Africa, Europe and Southwest Asia. Yahsat 1A is scheduled for launch in the fourth quarter of 2010, with Yahsat 1B to follow a few months later in the first half of 2011.
With WildBlue and Hughes Network Systems demonstrating that successful business plans could be forged in the satellite broadband arena, 2008 could turn out to be a pivotal year for satellite broadband as it proved its commercial viability, particularly in the U.S. consumer market.
In April, Hughes activated its first HughesNet consumer subscriber for broadband Internet service on its Spaceway 3 satellite. Hughes has more than 400,000 residential/SME broadband customers in the United States although not all of these are based on the Spaceway 3 satellite. With WildBlue also performing well and looking to expand its capacity, the U.S. market should continue to lead the way in the satellite broadband arena.
One player looking to capitalize on this market is ViaSat, which in January announced that it had signed a deal with Space Systems/Loral to build the ViaSat-1 satellite, which is planned as the world’s highest capacity broadband satellite. The satellite is scheduled for launch in 2011. Tom Moore, ViaSat’s senior vice president is bullish about the prospects for ViaSat-1. "When you total the capacity of all the other broadband satellites serving the United States — WildBlue-1, Anik F2, the Spaceway satellite — being used for broadband plus all the Ku- and C-band satellites, they add up to less than the capacity of ViaSat 1," he says. "… In the United States, there is a general belief that there are 15 million to 20 million homes with no other Internet alternatives other than dial-up or satellite broadband. At the end of this year, HughesNet and WildBlue together will have roughly 1 million broadband subscribers. WildBlue is selling out of their current capacity for Anik F1 and Anik F2 and as Hughes just added Spaceway 3, we feel it will fill up that capacity successfully in the next year or two. However, they still only have a small portion — about roughly 5 or 10 percent — of the market that is potentially out there."
In partnership with ViaSat, Eutelsat commissioned its first dedicated Ka-band satellite, Ka-Sat, as the fixed satellite services operator looked to expand its reach in the broadband space. "I think we are the only ones in Europe to really assert that this step is a revolution requiring an entirely new approach," says Giuliano Berretta, Eutelsat’s CEO. "What we have done is to commit to a satellite that will completely change the concept of satellite broadband, put satellites in a new league in mainstream consumer services and offer a solution to resolving the digital divide."
SES also did not stay still in this area. While so far it has not commissioned a dedicated Ka-band satellite, European subsidiary, SES Astra signed a slew of deals for its Astra2Connect satellite broadband service. In August, SES Astra also announced that it had created a new company bundling its broadband activities. The new company, Astra Broadband Services, is a 100 percent owned subsidiary that will further promote and enhance SES Astra’s portfolio of products serving the market for satellite-based broadband services. A main focus of the new company is the further development and roll-out of Astra2Connect, its two-way high-speed Internet service launched in April 2007 across several European markets.
"What we have done is to commit to a satellite that will completely change the concept of satellite broadband, put satellites in a new league in mainstream consumer services and offer a solution to resolving the digital divide."
— Berretta, Eutelsat
A new entrant, O3b Networks, intends to build a 16-satellite constellation to provide satellite broadband service to a market it estimates to be nearly 3 billion customers in developing markets. O3b, which has backing from Google, among others, plans to provide high-speed Internet through a trunking and backhaul pipeline. "It is a pretty cool system, however, there is really no new technology. It uses the best existing technologies in a way they have not been used before," says Greg Wyler, O3b’s CEO.
The U.S. Air Force awarded a contract in May to Lockheed Martin to develop the GPS 3 constellation. The system, which will be acquired in three blocks, will improve upon the existing GPS constellation by introducing a new civil signal as well as providing increased system security, accuracy and reliability for civilian and military users. Under the $1.5 billion development and production contract, Lockheed Martin Space Systems Co., ITT Corp. and General Dynamics will produce eight GPS 3A satellites, with the first launch projected for 2014. Eight GPS 3B and 16 GPS 3C satellites are planned for later increments, with each increment including additional capabilities based on technical maturity.
Europe made moves to put its planned satellite navigation system, Galileo, back on track, as the European Space Agency and European Union in September selected Astrium as a prime candidate for the Galileo space and ground control segment. The process for developing the Galileo system was reopened in July after a consortium of eight private companies charged with developing Galileo failed to agree on a funding plan. The system is scheduled to be operational by 2013.
The U.K. Ministry of Defence completed its next-generation military satellite communications system when Skynet 5C joined Skynet 5A and Skynet 5B in orbit in June. The unique aspect of Skynet is the management of the system. Paradigm Secure Communications, a subsidiary of EADS Astrium, will operate the satellites. While the U.K. military will be the primary customer for the satellites, third-party deals will be vital to justifying the investment in the spacecraft, says Paul Millington, vice president of business development, Astrium Services. "More than half of the capacity is available to third-party providers," he says.
The military developments come against the backdrop of the French government calling for greater use of space in France’s military objectives. France "will actively support the rationalization of the European space industry, with a focus on intelligence-gathering, navigational and communications satellites," the government said in a June white paper. There also are calls for the U.K. government to increase its use of satellites in security initiatives. UKspace, a trade association representing the British space industry, called for the government to "reinstate a robust national space program" in order to "guarantee national security in an increasingly complex international environment." The U.K. government in March published its first "National Security Strategy," identifying nine Critical National Infrastructure sectors that rely on space-based assets.
Arianespace continued to build on its strong position, and Sea Launch returned to service in 2008 after more than a year off, but International Launch Services (ILS) and the Russian Proton rocket seemed to make the most headlines in 2008.
In May, Proton manufacturer Khrunichev State Research and Production Space Center acquired a majority interest in ILS, buying the stake held by Space Transport Inc. The move came after a March Proton Breeze M mission left SES Americom’s AMC-14 short of its intended orbit, the second Proton failure in a six-month period. "For ILS employees and customers, there will be no change in operations or management, and we will continue our focus on performance," says Frank McKenna, ILS CEO.
Sea Launch returned to flight in January with the launch of the Thuraya-3 satellite, and performed two more missions before General Manager Robert Peckham was replaced in July by Kjell Karlsen, who was named president of Sea Launch.
Arianespace maintained a steady rate with its Ariane 5 and also continued preparations for Soyuz missions, which are scheduled to begin in the second half of 2009. Arianespace in September ordered 10 Soyuz launch vehicles from the Russian Space Agency, Roskosmos. The contract provides for the supply of Soyuz ST launchers (three stages, fairing and Fregat upper stage), along with the preparation and launch operations. It follows a contract signed in June 2007 covering the first four Soyuz rockets to be launched from the Guiana Space Center. The vehicles in the most recent order will be launched from either the Guiana Space Center in French Guiana or Baikonur Cosmodrome in Kazakhstan.
Outside of the big three launch operators, the biggest news of 2008 was made by Space Exploration Technology Corp. (SpaceX), which in September launched the first privately funded, liquid-fuelled rocket. After six years and three failed attempts, the Falcon 1 rocket, which carried a dummy payload with a mass of about 165 kilograms, reached orbit. SpaceX’s next Falcon 1 launch is scheduled for early 2009 and will carry a Malaysian remote sensing satellite, Razaksat, but the real test for SpaceX will be the much larger Falcon 9 rocket, the company’s planned entry into the geostationary launch market "The Falcon 1 is a smaller launch vehicle that competes in a different market — against primarily Russian vehicles for smaller payloads. The success of Falcon 1 will probably not see immediate reaction from larger companies. SpaceX’s Falcon 9 has the potential to become a major player in the launch business. If it successful, I believe we will see more of a market shift and readjustment from competitors once SpaceX starts going after some of the larger [geostationary] satellites," says Jeff Foust, an analyst with Futron Corp.
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