Khalid Balkheyour, CEO, Arabsat

Arabsat is one of the leading satellite operators in the Middle East and a key bandwidth provider to broadcasters, pay-TV operators and other businesses in the region. The dynamics of the industry landscape were directly affected by the January launch failure of NSS-8, a vital component of SES New Skies’ strategy for the Middle East and surrounding areas, yet as a strong pay-TV landscape with three direct-to-home (DTH) operators, the region remains a vibrant one for satellite communications.

Arabsat CEO Khalid Balkheyour spoke about the growth opportunities for the operator, the impact of NSS-8’s loss, as well as his overall views on the state of the satellite industry.

Satellite News: Could you tell us about any new initiatives that Arabsat is planning through the next 12 months?

Balkheyour: I can tell you that Arabsat has signed an agreement with a partner for direct-to-mobile services in the region. We will be a shareholder of that company. We also participate in terms of the services being provided by this company. We will have a 10 [to] 12 percent stake of the company. We are going to be part of a new direct-to-mobile company, broadcasting to mobile users in the region.

Satellite News: What are the major challenges for Arabsat over the next 12 months? Could you tell us about your capital expenditure plans in terms of ordering new satellites?

Balkheyour: We lost the [Arabsat] 4A satellite in 2006. We realized we were getting short on capacity on at least two satellites at the time. The failure had a big impact on Arabsat. We made an order for replacement satellites in May 2006 with EADS Astrium. Our board approved plans for the procurement of three further satellites. It is in place: We will have our next-generation satellites (Arabsat 5A, 5B, and 5C). 5A will replace the 2B satellite [and] 5B is a back-up for [the] 4B and 4A satellites.

Satellite News: What levels of revenue growth are you looking for through the next 12 months? What do you see as the major new market opportunities for the company?

Balkheyour: I have to say that 2006 was a bad year for us, because we lost a satellite and we were squeezed in terms of capacity. We expect to have a growth rate in 2007 of around 5 [or] 6 percent. We did not have a negative growth rate last year, but it was lower than expected as we really had filled up all of our capacity. We expect 2007 to be much better than 2006.

Broadcasting is our main revenue stream, and it is still growing. There has been a 4 to 5 percent growth rate according to the latest research I have seen. Our core market is Middle East, North Africa. The growth in broadband, VSAT, [and the] Internet is still going on, but it is not as strong as we expected.

Satellite News: What was your reaction to the NSS-8 satellite launch failure? What impact do you think this will have for the satellite industry in the region?

Balkheyour: The failure of NSS-8 really upset Arabsat and the whole industry, as well as the whole momentum of the satellite industry. We share our condolences with the Astra and Sea Launch people. We had a failure ourselves last year, so I know how they feel. It is a very painful experience. However, from the business side, I think it is only going to really affect the capacity available in the coming year, and secondly, it will affect the launch of upcoming satellites. NSS-8 had 90+ transponders [designed for] serving Asia, Middle East and Africa. It is going to affect Arabsat and others in terms of demands for capacity and the ability to be able to fulfil it. Prices of capacity, launchers [and] insurance might go up.

Satellite News: In light of the NSS-8 failure, do you still believe that going for the largest possible satellites is the right strategy?

Balkheyour: The cost of a satellite in total is relatively equal to the launch cost. One should go for as much payload as you can. Obviously, the risk is higher, but with a back-up strategy, that risk will be reduced. We have also learned from our mistakes. We previously were running satellites, as needed, in orbit, and maybe that was not the way to go. We now have a growth strategy in place. There are two limiting factors when talking about new satellites. These are orbital slots and spectrum. With our new generation of satellites, what we are trying to do is utilize the spectrum as much as we can.

Satellite News: What are the major challenges facing FSS operators such as yourselves through the next 12 months?

Balkheyour: We have seen satellite operators acquired by private equity companies and the private sector, and we are foreseeing more talk of profitability and growth. There is a shift between satellite operations to a more business-type-oriented focus. We are seeing this when we hear the executives of SES Global, Eutelsat, Inmarsat, etc., speak. There is always competition from the bigger players in regions such as the Middle East. The fact there has been more consolidation on their side will give them better strength to compete in terms of price, synergies, [and] scale. Of course, it has an impact on us. Customers in the Middle East [or] Africa are shopping around for capacity. People are asking for more from operators such as Arabsat.

Satellite News: How do you see the DTH markets developing in the Middle East? When can we expect to see HDTV offerings in the Middle East? How much of a growth opportunity is HDTV for Arabsat?

Balkheyour: In terms of HDTV, we see good growth in North America and followed up in Europe. We believe it will come to the Middle East, and we at Arabsat are teaming up with Arab State Broadcasting Union (ASBU) on an initiative to promote HDTV in the region. We are creating a platform to promote that with suppliers, major broadcasters in the region. We already have two HD channels on Arabsat. I cannot tell you how many HD channels we may have on Arabsat over the next two years. You have to remember, there is a whole chain of activity. I would expect sports and movies to be a strong area for HD in the Middle East. I think you will be able to see the next World Cup in the Middle East in HD in 2010. I don’t know how quickly it will develop before then.

Satellite News: How do you see the broadband access market developing in the Middle East?

Balkheyour: I don’t think there is much of a broadband play in the Middle East right now. The broadband market is not well developed but it is growing.

Satellite News: Finally, what role do you see the company playing on the satellite services landscape in the Middle East? Where do you hope to position the company?

Balkheyour: Over the next 12 months, I would hope to tell you that we have expanded services like broadband, HD, and [that] we have added a lot of broadcasting channels. We want to expand our geography to neighboring countries. If you picture the Arab world, we want to expand more in Africa, Turkey, Iran, and Pakistan. We are looking at not only broadcasting services, but also broadband and VSAT services. We share the same religion as those countries, so that is a factor. There is an interest from those countries to work with Arabsat. There have been no contracts signed as of yet, but this time next year, we would hope contracts to be signed."