2010 In Review: Active Despite Economic Issues
2010 proved to be a solid year for the satellite sector during an economic pe riod that has curtailed many other business around the globe. Satellite companies remained active in all areas, introducing new business and growth initiatives that could prove noteworthy in the future.
Broadcasting Changes
2010 was the year that the momentum behind the move to 3-D TV became overwhelming. The push began in the first week of January, with initiatives unveiled by ESPN, DirecTV and Discovery that would make them the early leaders in bringing 3-D TV to audiences throughout the United States. “Myself and a number of my colleagues believe this is going to be a very important space for ESPN,” Chuck Pagano, executive vice president, technology, ESPN, said in January. “We think live events will play a key role for 3-D TV. It is a new way of telling the story and reaching audiences that are intrigued by this new way of watching a story unfold.” ESPN launched its 3-D channel in June with coverage of the World Cup and is on pace to produce 100 events in its first year of operations, but Anthony Bailey, vice president, emerging technology for ESPN, says, “This is still a science experiment, and we are still learning.” BSkyB launched its 3-D channel to U.K. audiences in October, and other satellite pay-TV operators such as Sky Deutschland and Foxtel (Australia) also launched 3-D channels before the end of the year.
SES World Skies took the lead on the satellite operator side, launching an effort in April to work with broadcasters, programmers, TV manufacturers and technology providers in a series of tests aimed at accelerating the delivery of 3-D TV. The effort includes eight areas of the value chain, from content production to acquisition to programmers. “SES put together a test platform for the rest of the chain to simulate all methods and standards,” Alan Young, CTO of SES World Skies, says. “It’s easy to produce 3-D content. It’s hard to do it well. It’s impossible to be perfect. It’s not as simple as 3-D needs ‘x’ times more bandwidth than HD. It can turn into bad 3-D by overcompressing it. … The level of standards is the real problem. Industry needs to get together to figure out common standards, and the sooner the better.”
While 3-D TV dominated the headlines in 2010, the reality is that in many markets around the globe, HD penetration remains low, and in some countries, there is very limited amounts of HD content available. For many pay-TV operators around the world, the focus is on expanding HD offerings and searching for a way to convert this into revenue rather than rush into the 3-D market.
Business Expansion
Marked by a resurgence in financing and debt markets, 2010 generated favorable market conditions for satellite companies looking to finance new ventures. “There has been $5.7 billion raised in the high-yield market since the market crashed two years ago,” says Fred Turpin, managing director, JP Morgan. “Intelsat has done two issues, for example. The high-yield market has become substantially healthier. Over the course of the recovery, investors have got more excited about the satellite industry. The satellite high-yield market is 50 percent better then the actual market today. People have been willing to come back. The market has improved. … Certainly, for satellite operators, there are also a wide variety of options for financing. It is a good time to raise additional capital or refinance debt. The index is very attractive for new financing/issuers, however, the markets are not as deep as they were a few years ago. The conditions are exceptionally good right now. Markets are very focused on liquidity.”
The improving financial environment also provided satellite players with a greater range of options for funding ambitious projects. Export credit agency (ECA) financing has become increasingly fashionable, and among the companies taking advantage of these offerings within the last year were: Inmarsat, which completed a credit facility from the European Investment Bank to build the Alphasat satellite; Hughes, which will use Coface funding to finance up to 85 percent of the launch of the Jupiter satellite aboard an Ariane 5 rocket; Iridium Communications which awarded a contract to Thales Alenia Space for the design and construction of satellites for the Iridium Next constellation after Iridium secured financing through Coface; and Russia’s Gazprom Space Systems and Russian Satellite Communications Co. also are dipping into the ECA market to finance new spacecraft. “Before the [economic] crisis, ECA financing was for emerging markets,” says Philippe-Olivier Rousseau, a senior banker for BNP Paribas. “Then ECA has opened up to new opportunities in the industry. There has been a cultural shift. In the past three years, ECA became a great contributor to overall financing.”
The takeaway for the satellite sector is that its performance through the worst economic environment in the past several decades has impressed the investment world. “Investors like the satellite sector. It is something they have gotten comfortable with no matter what the times,” says Omar Jaffrey, managing director and head of satellite at UBS. “The satellite sector has proven itself to be reasonably resilient to economic swings. … As the markets dislocated, everybody suffered, but as they came back, the strongest benefit was to the satellite sector.”
Consolidation
In the fall of 2008, just after international economists hit the panic button on the future of the globalized market, a majority of satellite industry analysts agreed that the ground segment providers and manufacturers would face the hardest struggle. To secure the future of these companies, analysts predicted that these businesses would experience a surge of acquisitions and consolidation. Two years later, that prediction remains true. 2010 saw a number of acquisition deals involving ground segment technology providers, satellite and network component manufacturers and developers.
Orbital Sciences made a move to enhance its position in the national security space systems market by purchasing General Dynamics’ spacecraft development and manufacturing business GD Advanced Information Systems/Spectrum Astro. In its third quarter financial report, Orbital Sciences credited the acquisition with helping drive revenue growth in the company’s satellites and space systems revenues. In May, Harris Corp. acquired CapRock Communications, a global provider of managed satellite communications solutions for the energy, government and maritime industries, for $525 million in cash. As a result of the combination, Harris acquired CapRock’s end-to-end managed communication service customers in the government and enterprise sector. The following month, U.K.-based electronic components and subsystems provider Teledyne acquired satellite and microwave systems designer and manufacturer Intelek.
Multiple manufacturing and technology developer acquisitions were in announced in October: Astrium acquired German space sensors and optical systems specialist Jena-Optronik; Israel’s Gilat added Raysat Antenna Systems and solid-state amplifier manufacturer Wavestream; U.K. satellite broadcast technology developer Pace acquired 2Wire, a U.S. provider of advanced residential gateways and associated software and services from co-owners Alcatel-Lucent, AT&T, Telmex and Oak Investment Partners for $55 million; and Microsemi Corp., a manufacturer of analog mixed-signal integrated circuits, semiconductors and RF subsystems, entered into a definitive agreement to acquire Actel Corp. for about $430 million.
A number of acquisition moves were made during the year to create new service offerings. In October, ViaSat announced it purchased the SkyLink airborne broadband service from Arinc in order to grow ViaSat’s Yonder mobile Ku-band satellite broadband services portfolio. ViaSat, which will transition the SkyLink customers to the Yonder service, says the move intends to target business jet customers with the ability to send and receive high-speed data, connect to a virtual private network, use VoIP equipment for voice calls, and access the Internet using portable devices via an in-cabin Wi-Fi network. Another in-flight service acquisition was announced in August, when wireless satellite broadband provider KeyOn acquired a major portion of SouthWest Wireless Net’s broadband assets from New Vision to help extend KeyOn’s network footprint.
Investors like the satellite sector. It is something they have gotten comfortable with no matter the times. The satellite sector has proven itself to be reasonably resilient to economic swings. —Omar Jaffrey, UBS
Perhaps the year’s biggest service acquisition move occurred in July, when Harbinger Capital’s acquisition of SkyTerra led to the creation of LightSquared to provide service for wireless providers via a 4G LTE satellite and mobile broadband network. While satellite may serve as just a peripheral part of the network, LightSquared triggered a cooperation agreement signed with Inmarsat in December 2007 to increase the contiguous spectrum available to support the deployment of 4G ancillary terrestrial component services and protect the continued deployment and growth of MSS activities in North America. The SkyTerra 1 satellite was scheduled to be placed in orbit in mid-November, and LightSquared selected software management firm Siterra to manage the deployment, installation, operation and maintenance of the LTE 4G network. LightSquared plans to launch in its first markets by the middle of 2011 and aims to provide coverage to 92 percent of the United States by 2015. The company will raise up to $1.75 billion in debt and equity before service launch.
The mobile, hybrid and terrestrial markets also saw consolidations in offshore telecommunications and network services. In June, Broadpoint was acquired by Cellular One, a provider of nationwide GSM/EDGE voice and data communications services. In September, Miranda Technologies, a Canadian provider of infrastructure, playout and monitoring systems for the cable, satellite and IPTV broadcast industries, acquired IT-based media management and delivery solutions provider OmniBus Systems from Palamon Capital Partners for $47.1 million in cash. Other acquisitions were based on financing and investment. A Permira Funds-backed equity firm reached an agreement in September to acquire Kingsbridge Ltd., the holding company for Asia Broadcast Satellite (ABS), which will result in Permira becoming the majority shareholder of ABS. In January, Broadcast Facilities Inc. (BFI), a media services company, acquired Crawford Communications’ satellite services division, which immediately followed iDirect’s acquisition of Parallel Ltd., the U.K.-based developer of the SatManage network management software suite.
In-Orbit
One of the most widely watched events of the year took place in geostationary orbit, as Intelsat lost control of its Galaxy 15 satellite in April after a solar flare instigated an anomaly. Galaxy 15, still operational, posed a potential threat to other satellites and led the media to refer to the spacecraft as “Zombiesat,” but Intelsat worked with other operators to keep Galaxy 15 from creating any problems for other satellites. “We communicated our situation with everyone involved from day one,” Intelsat CTO Thierry Guillemin said. “We worked with both SES and customers and had several options to prevent any service disruption. Some of the claims that were floating on blogs and media sites outside of the satellite-specific press painted a completely inaccurate picture, considering that we have experience dealing with these situations and have been successful in the past with similar service transitions.” Guillemin said Intelsat’s wider sensitivity range on its satellites provided an advantage to the operator when dealing with potential interference to other spacecraft. “When one of the satellites has a problem, we always have the ability to increase the sensitivity of the other active satellites. We decrease the uplink power we transmit to them and minimize the power that the disabled satellite would receive in any event. This is a big factor in minimizing interference now and in the future.”
On the launch side, Arianespace and International Launch Services continued to dominate the market, through SpaceX, Orbital Sciences and Sea Launch made headlines as the U.S.-based commercial launch market continued its push to compete internationally.
In June, SpaceX reached orbit with the first test of its Falcon 9 rocket, which carried the Dragon vehicle qualification unit. SpaceX will perform two more Falcon 9 flights carrying the Dragon spacecraft under NASA’s Commercial Orbital Transportation Services contract to demonstrate delivery of cargo to the International Space Station as well as returning cargo to Earth. Following those flights, SpaceX will begin the NASA Commercial Resupply Services contract. SpaceX also wants to bring Falcon 9 to the commercial market, and following its test launch, the company received a contract from Iridium to carry multiple Iridium Next constellation satellites on Falcon 9 rockets, adding those flights to its commercial manifest along with contracts signed with Space Systems/Loral (SS/L) and Spacecom and Israel Aerospace Industries.
Sea Launch emerged from Chapter 11 bankruptcy in October, restructured as Sea Launch SARL under majority owner Energia Overseas Ltd. (EOL) of Russia. Energia’s U.S. affiliate, Energia Logistics, will manage rocket assembly and satellite integration operations at Sea Launch’s Long Beach, Calif., facilities, while another Energia affiliate based in Moscow will manage supply chain operations of all CIS-based primary and second-tier suppliers for the Sea Launch system. While not performing a sea-based mission since 2009, Sea Launch won launch contracts from EchoStar and AsiaSat during 2010. The launch provider plans to return to service in the 2011 first quarter with a Land Launch mission carrying the Intelsat-18 communications satellite, while the next mission from Sea Launch’s equatorial launch site is planned for the third quarter.
Political Developments and Military
A shift in U.S. government space policy and the eventual retirement of the space shuttle dominated the government developments. U.S. President Barack Obama’s new National Space Policy (NSP) contains measures to double the available amount of spectrum for wireless communications over the next 10 years and establish grounds to seek international partnerships for civil space and space situational awareness programs. The overall goal of the NSP, which supersedes space policy directives issued in 2006, is to provide guidance on the use of space for U.S. security, economic, civil and environmental concerns. The new policy’s focus on the extension of broadband access via wireless networks to rural and underserved areas may positively impact the future of U.S. mobile satellite service providers. The U.S. Department of Agriculture unveiled $1.2 billion in broadband access and adoption grants in the second funding round of the $7.2 broadband stimulus package passed in 2009, and while satellite players received a small percentage of the total, Hughes Network Systems, ViaSat, EchoStar and Spacenet all will work on projects funded by the program.
For civil space concerns, the NSP contains language that commits the United States to more partnerships with other governments and also engages NASA to expand programs such as human and robotic exploration of the solar system and affordable human exploration beyond the Earth as well as to seek partnerships with the private sector to enable commercial spaceflight capabilities for the transport of crew and cargo to and from the International Space Station and begin human missions to new destinations by 2025. The Obama administration previously voiced support for commercial launch companies such as COTS contract winners SpaceX and Orbital Sciences to take on a share of NASA’s future launch developments.
While there are concerns that overall U.S. military spending may be curtailed in the future, the need for communications support from commercial operators looks to keep that section of the budget secure, and in February, DISA and the GSA issued solicitations for the $5 billion, 10-year Future Commercial Satellite Communications Services Acquisition (FCSA) award that will support the military’s acquisition of commercial bandwidth and services. Prominent contracts awarded during the year included: an Air Force contract for Raytheon for first two development blocks of the GPS advanced control segment, which will include anti-jam capabilities and improved security, accuracy and reliability; an Army award to ViaSat to supply the next generation of Blue Force Tracking equipment; and separate awards from the U.S. National Geospatial-Intelligence Agency to DigitalGlobe and GeoEye to develop and launch next-generation imagery satellites under the EnhancedView program.
The one area of U.S. space policy that remains relatively stagnant – much to the dismay of the aerospace industry – is the ongoing debate over strict technology export laws. However, the year saw an increased focus on the discussion of these policies and some acknowledgement of their impact on U.S. space industry competitiveness. The U.S. Center for Strategic and International Studies (CSIS) released a report in July urging U.S. policymakers to extend assured access to space privileges enjoyed by government-owned spacecraft, to commercial satellites. The report, “National Security and the Commercial Space Sector,” asserts that an overhaul of the U.S. Air Force’s relationship with its principal launch-services provider, United Launch Alliance (ULA), is an important part of its overall strategy and would help drive more business to U.S. commercial space launchers by providing commercial operators with more options.
The Obama administration also completed a Category 7 U.S. Munitions List review of tanks and military vehicles in August, which determined that about 74 percent of the 12,000 military items licensed last year could have been processed under the United States’ less restrictive Commerce Control List. The review generated a positive response from the Aerospace Industries Association (AIA), which has worked to ease U.S. export controls and expand business opportunities for space-related U.S. exporters. AIA CEO Marion Blakey says the restructured list shows “great promise” in assigning appropriate protection to technology exports across various levels of risk and is a significant step in solving International Traffic in Arms Regulations (ITAR) and other export control-related problems faced by the industry. “The clarification and eventual consolidation of the Munitions and Commerce Control lists will have a dramatic impact on small- and medium-sized companies. These companies rarely have the resources to ensure compliance with the current export control regime. Simplifying the system offers them the opportunity to be more competitive in the international marketplace.”
Europe also saw its civil space and government landscape change. In March, the U.K. space agency was launched as the U.K. government made declarations of the importance of space. The creation of an International Space Innovation Centre in the United Kingdom also was unveiled. In September, the role of satellites in bringing broadband all across Europe was bought into sharp focus. The European Commission (EC) outlined moves to bring fast and ultra-fast broadband throughout Europe, however, satellite solutions barely were mentioned as options in the proposals outlined in September. Aarti Holla-Maini, secretary general, European Satellite Operators Association (ESOA), said, “The Commission’s 2013 objective of ‘Broadband for All’ can only be met if satellite plays an integral role: satellite operators are already connecting thousands of users per month to broadband Internet. Satellite operators are also capable of providing 30 Mbps services if market demand supports it. It is unfortunate that the Broadband Communication did not recognize that only through satellite coverage, can these services be extended to all citizens in Europe, a strength which is by contrast, well-recognized in the RSPP (Radio Spectrum Policy Programme) Communication.”
Market Trends
While the major FSS operators still generate most of their revenues from broadcasting, growth opportunities in satellite broadband and maritime were hot topics. SpeedCast CEO Pierre-Jean Beylier says the maritime business is providing huge growth for the service provider. “Maritime represented a minority of our revenues in 2009 but was growing rapidly.”
In terms of satellite broadband, Hughes and ViaSat continued to make strong progress in the United States, combining for about 1 million subscribers. In Europe, the market is beginning to heat up, with Eutelsat’s Ka-Sat satellite Avanti’s Hylas-1 slated to be operating in 2011. In August, Inmarsat announced that it planned to invest $1.2 billion launch a three-satellite, Ka-band network in cooperation with Boeing. Inmarsat CEO Andy Sukawaty, says the move was driven by a desire to serve government and maritime markets with new service offerings.
 Nicole Stott logged 91 days on the International Space Station (ISS) in 2009 and was part of STS-133 in November — the final flight of Space Shuttle Discovery. Stott speaks with Via Satellite Editor Jason Bates about the future of NASA and human spaceflight.
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