AsiaSat Hopes For AsiaSat 4 Success

AsiaSat has had a tough first six months of 2003. It saw its profits and revenue drop compared to the first six months of 2002. However, despite tough market conditions, the operator still believes it is well-positioned to take advantage of the potential growth in Asia’s telecoms and broadcast markets. The operator launched its AsiaSat 4 satellite this year, and hopes to start filling capacity soon on this satellite. In an exclusive interview with Interspace, AsiaSat CEO Peter Jackson talks about his hopes for AsiaSat 4 as well as the new opportunities for the company in Asia.

Interspace: Your profits saw a 14 per cent drop compared to the first six months in 2002? How did you view this performance? What levels of profits are you looking for in the second half of this year? When do you expect to see profits increase again?

Jackson: It was a 14 per cent drop but half of that resulted from an increase in corporate tax here in Hong Kong. It is not just the tax we have to pay on this year’s profit; it is the increase in the provision for deferred tax for prior years. Excluding this impact, we actually went down 7 per cent. I think looking at the year we have had generally, and taking into account the economies of the countries in Asia within our footprints, obviously we are disappointed but not surprised. We anticipated a downturn at the end of last year and unfortunately we were right with our prediction. We saw a lot of capacity come on; in particular Ku-band, and we saw some businesses unable to continue. I think if you look at the combination of the new capacity coming online, the economic downturn and the lack of progress of the economies, we are not too displeased.

The issue for the second half of the year in terms of profits will be that we have to start depreciating AsiaSat 4 as the satellite commenced commercial service in July. We don’t think any additional revenue we get in the second half of this year would be larger than the additional expenses of depreciation and insurance from AsiaSat 4. We do not anticipate an increase in profits, and it will probably go down some more. Unless the economies of the region suddenly take on a huge upswing, which none of the analysts are predicting, we are unlikely to see any improvement this year. Going in to the first part of 2004, we probably won’t see a huge increase in demand. Remember we have got to see an increase in demand that will take up some of the spare capacity before the prices start stabilizing again.

Interspace: Could you tell us about your targets in selling capacity on AsiaSat 4? How much capacity do you hope to have sold on the satellite by the end of the year? When do you hope to have your overall transponder rates around 60 per cent? How difficult will it be to sell capacity in a market where there is excess capacity, particularly in the Ku- band space?

Jackson: We haven’t really made an estimate of that. It is going to be a relatively low number. However, we are not panicking, so we are not selling it at a too low price. We have reduced the price of AsiaSat 4 capacity but we would have done that anyway regardless of the oversupply situation, because as you know you have got a new satellite and a new slot. You have got to start offering good deals in order to get people to go on it; otherwise they will just go on your other satellites which offer an existing neighbourhood and penetration. The price of AsiaSat 4 is less than [AsiaSat] 2 and 3S, but we are not dropping to the rock bottom levels that we have seen our competitors doing. AsiaSat 4 has very good look angles on the Ku-band over Australia and China where we believe [there is] market demand for quality capacity.

I think we are reaching a position where customers are going to become a little more savvy in what they want. We have recently seen some television customers move from one of our competitors’ satellites to AsiaSat 3S, definitely Asia’s hot bird. I think customers are starting to realise that two satellites are not always the same even if the same manufacturer makes them. Discerning customers are now checking if you have good co-ordination and if the satellite has a history of interference. They are starting to realise it is worth paying a little bit more … The cheap ones are cheap for a reason. You don’t get a Rolls Royce for the same price as a Mini. It is the same with transponders. Transponders without any problems are always going to be more expensive than ones with problems.

Interspace: Could you tell us about your capital expenditure plans over the next 12 months? Are you looking to place any new orders for satellites?

Jackson: We are planning all the time. We always have a plan for our next satellite and what it will look like. We haven’t got any plans for capital expenditure this year. We really just want to finish off our new earth station here in Hong Kong. The building is up and most of the payments have been made, so no major capital expenditure is anticipated.

Interspace: In our interviews with satellite operators, we have talked about an evolution of strategy – hybrid fibre/satellite services, government services etc.? What would you say are the main areas of evolution for AsiaSat’s strategy?

Jackson: If I tell you, all of our competitors will know. I won’t be specific but I will give you some general areas. If we look at the VSAT market first – by the way, I think “VSAT” is a bad term; the industry needs to get together and change that. We are seeing changes in the types of networks being provided by satellites and they will continue to evolve. Price reductions in storage capacity will change the way people use satellites to distribute content. In the future content will be stored close to the end users, whether those end users are cable customers, 3G subscribers, or television viewers. I think you are going to see storage becoming more and more important to the content industry. That will change the requirements of satellites. We won’t just be looking at delivery to cable headends and DTH homes; we will be looking at other locations where content is being distributed. So, I think you will see a broadening of the market. We will also see a requirement for a low data rate return path from the broadcast industry for confirmation of content delivery and pull-type applications. That will create a new market for VSAT-type terminals in the content industry.

Interspace: What potential do you see for satellite broadband services?

Jackson: I think the satellite broadband industry is in its infancy. If you look worldwide, everyone connected to the Internet will move from narrowband to broadband. It will depend to some extent on the video content that is available and the ability to pay but the change is inevitable. However, there are many locations in every country where delivery of broadband over the physical terrestrial infrastructure is impossible. All of the terrestrial networks have geographical limits whether it is a telephone line with some kind of electronic enhancement (ADSL), a cable TV network or terrestrial radio. Therefore, as demand from the more remote areas develops you are going to see satellites used more for broadband distribution, whether it is two-way or one-way with a terrestrial return. It may also ride on the back of DTH operations where you bring in the signal and split it into two, one to the television system and the other the local wireless network for your computing needs. I also think you will see a low-cost return path solution for DTH systems either via satellite or the terrestrial network.

Interspace: In terms of geographic markets, which countries offer the most opportunities for growth for your company over the next 12 months? What are your prospects in India where the market is beginning to deregulate?

Jackson: India is a difficult market. It deregulates and then brings in more regulations. The latest issuance from India on the ownership of media companies is a good example. India wants to give you the impression of being deregulated and very open as long as it can choose who can operate. It is selective openness. But, it is a huge market for television, satellites and terrestrial networks and a country with some real communication needs that are going to be met by satellite. Australia is aggressively attacking the remote broadband market. It has a lot of remote locations, which need broadband, television and telecoms services and Australia has the disposable income to meet that demand by satellite. The Australian government is taking real steps to ensure it has true universal service. We see China as a major market for satellites in the future with it becoming possibly our biggest satellite market.

Interspace: Your company has a pretty solid balance sheet. Are you actively pursuing acquisitions or are you concentrating more on organic growth? Do you see consolidation taking place in the Asia-Pacific satellite market?

Jackson: Organic growth is not the way to go in the market at the moment. We are always looking at expansion of our own systems or replacement of our satellites. We have always been looking at acquisitions and that continues through good times and bad. You always have to keep a look out for companies you can buy at the right price that enhance what you are doing.

(Contact: Winnie Pang, AsiaSat, e-mail: [email protected])