Latin Transponder Market To Recover Gradually
By Patrick French and Karim Nour
With revenues dropping slightly from an estimated $887 million in 2001 to $877 million in 2002, the Latin American satellite transponder market is beginning a decline that will likely last until 2004 or 2005. Transponder prices have been decreasing in the region for the last year or two, at a rate of about 5 percent per year. The most significant inhibitor of transponder demand in Latin America is the region’s weak economy, which affects all commercial satellite communications applications.
Frost & Sullivan expects to see improved economic conditions in the region, and hence, stronger demand for satellite services, as countries stabilize their currencies, continue to repay foreign debt, and increase political stability. However, economic growth is difficult to predict, and no one can forecast with certainty the timing of Latin America’s economic recovery. Despite these unknowns, demand for satellite capacity is rising, and will continue to do so through 2009. Not only will demand increase, but it will increase at a faster rate.
Frost & Sullivan has recently completed a new study that examines the commercial geostationary telecommunications satellite market in Latin America by gauging both supply and demand for leasing transponder capacity. The transponder capacity market has been defined as satellite transponders leased by third parties for use in several applications, the most prominent of which are video broadcast, telephony, and networking. The transponder capacity market is analogous to the fixed satellite service (FSS) and broadcasting satellite service (BSS) markets.
Though numerous satellite operators competing in Latin America have suffered reductions in revenues over the last few years, most of these companies are still healthy relative to the broader telecommunications industry. Continued growth for operators in the region will depend upon identifying those applications that are most heavily demanded and those with the highest growth potential. Video services are by far the most important satellite application in the region, as is the case in the rest of the world. In 2002, video accounted for around 55 per cent of the transponder capacity market in Latin America, followed by telephony and networking, which each accounted for 16 per cent. Internet trunking made up only 9 per cent of the market. The remaining 4 per cent consisted of less frequently used applications such as location-based services (e.g., fleet tracking) or caching/streaming types of applications.
Market Opportunities and Forecasts
At the core of the Latin American transponder market research undertaken by Frost & Sullivan was our demand forecasts for various applications and frequency bands, market share analysis by operator, and qualitative discussions of factors such as the regulatory environment.
It is well known that transponder pricing for the region has dropped over the last couple of years, and will continue to drop somewhat throughout the forecast period. This drop in pricing translates into an overall declining to flat revenue growth despite the fact that the use of satellite capacity will continue to increase throughout the forecast period (Chart 1).
Of the four most heavily-demanded applications, we forecast that video service will have slow growth in the short term and then will accelerate around 2007. Networking, by contrast, will grow rapidly until 2007 and then slow. Because video is so much more in demand, that service will account for more than twice the number of leased transponders used for networking. Telephony will decline every year throughout the forecast period. Internet trunking will grow for a few years and then begin a decline toward the end of the decade.
One of the key findings of this study is that even taking into account fairly conservative estimates on increases in supply, the rate of supply growth is essentially double that of demand growth. As seen in Chart 2, this trend could put more pressure on operators to accelerate partnerships or consolidation, or at worst force a player out of the market.
With regards to market share, about 50 per cent of the leased transponder capacity in Latin America is held by two operators and the top four operators control 80 per cent of the market. This emphasizes the degree to which the market is dominated by a few players, yet it is clear that there are many players making every effort to both grow the overall market size and to take share away from other satellite operators.
Frost & Sullivan developed a number of key recommendations and strategies within the context of the research undertaken on the commercial satellite transponder capacity market in Latin America. Briefly, some of the recommendations proposed included:
Overcapacity of satellites in orbit is causing Latin American operators to waste resources. Though operators in every region are grappling with overcapacity, Latin America’s commercial satellites are among the most underutilized. Overcapacity will force the industry to become more efficient and may finally drive the consolidation that many operators seem set on avoiding.
In order to maximize profits, Latin American operators will have to identify those applications most heavily demanded in the region, as well as those with the highest prospects for growth. Frost & Sullivan has extensively estimated and analysed leased capacity for video, telephony, networking and Internet trunking, by both C- and Ku-band, and forecast demand for those applications.
Capital constraints are impeding some operators’ development in the region. Without the financing to build and launch satellites, a vacuum is created that can be exploited by market entrants or by operators already in the region. The successful operators will be those with access to capital and with extensive service offerings that address market demand.
The introduction of Ka-band services may be one way to broaden service offerings and stimulate demand in Latin America. However, launching Ka-band capacity in Latin America would be highly risky today given the lack of demand in regions where Ka-band capacity is already available and the still unproven nature of this potential market.
Patrick French is a strategic analyst at Frost & Sullivan who can be contacted at e-mail: Patrick_french@frost.com. Karim Nour is a research analyst in satellite communications at Frost & Sullivan who can be contacted at e-mail: Karim_nour@frost.com.