Shin Satellite Prepares For Critical Year

Shin Satellite, the Thailand-based satellite operator, hopes to gets its ambitious iPSTAR broadband program moving this year. The operator plans to launch iPSTAR-1 in the middle of this year as it aims to make satellite broadband far more of a commercial reality than ever before.

Over the last few years, Shin Satellite has looked to develop a high-capacity, low-cost satellite system to tap into the demands for broadband and multimedia services in Asia. The iPSTAR system will enable Shin to provide a nominal capacity of over 40 Gbps. This represents the equivalent of 1,000 standard 36 MHz transponders, a factor of 20 times more efficient than conventional satellite technology, according to Shin.

Shin Satellite hopes to change the face of satellite broadband communications with this innovative technology. It aims to be far more competitive and offer services at price points that are more in line with terrestrial counterparts.

The launch of iPSTAR-1 will mark a key milestone in the company’s history. It gained the financing for iPSTAR-1 in 2002 when it secured $390 million in financing for the project. Since then, the operator has been working toward the launch of iPSTAR-1 this year. In an exclusive interview with SATELLLITE NEWS International Editor Mark Holmes, Executive Chairman Dumrong Kasemset discusses the challenges facing the company and the opportunities in Asia once iPSTAR-1 is launched.

SN: The iPSTAR-1 satellite is scheduled to be launched early this year. Could you give us an update on the number of satellite broadband subscribers you currently have?

Dumrong: We now expect to launch iPSTAR-1 in the middle of this year. The sheer size of the payload is huge. We have to be cautious [about the exact launch date] when dealing with technology of this kind. There could be complications, so we have to tread carefully. I don’t think there will be any major changes in terms of our plans to launch the satellite. We have been working very closely with the satellite manufacturer to minimize any delay or any risks in terms of getting the satellite ready for launch. We are about three steps away from final performance tests. So, I am still cautious.

We started offering satellite broadband services in 2003. The broadband service has been launched in Thailand, Malaysia, Myanmar, Australia and New Zealand. We expect to launch in India in around two weeks. The first phase of the launch encompasses the SMEs [small and medium-sized enterprises] and the corporate side. In Thailand, I think that the overall broadband penetration is relatively low. Overall broadband subscribers in Thailand are around 20,000. We have around 3,000 to 4,000 of that.

SN: When we spoke last year you said you wanted to go after the market not being served by terrestrial broadband. In terms of numbers, what does that equate to? Which markets do you think offer the most opportunities for iPSTAR?

Dumrong: Firstly, China offers the greatest growth opportunity. The growth rate in terms of Internet penetration is the highest in the region. The growth has been very rapid in terms of narrowband and broadband. China still has a number of needs here, especially in areas outside the main cities. There is a lot of demand for broadband there. Recently, there has been an agreement between the Thai and Chinese governments, which will open up the Chinese market for us. China will be the most attractive market for us. Next to that, I would say it would have to be India. We are already operating there. We have existing infrastructure and a distribution network in place. It is more advanced than China in terms of the distribution network so we expect that India will be a very strong market for us. It will perhaps be the number one market in the medium term. Longer term, we think China will be the number one market. We also see good growth opportunities in Australia, with the high penetration of broadband. We also are quite optimistic about our prospects in Thailand. We expect the revenues to be similar in Australia and Thailand.

In terms of the number of customers we could have, we would be limited by the capacity we have in India and China. In China, we are looking at potentially around 5 million customers and in India about 4 million customers. I think we will have a very clear idea one year after the launch in terms of the success of iPSTAR. After that, the sky could be the limit.

SN: How much capacity have you pre-sold on iPSTAR-1? How much capacity are you helping to sell by the end of 2004? What do you see as your competitive advantages over other broadband providers in the region?

Dumrong: We have not launched the satellite yet. It is pure speculation at this point. We have interest from many operators in different territories who want to get X,Y,Z of capacity. I would say, given the existing commercial situation, we are looking around 30 percent of capacity that could be deployed on iPSTAR now, if you relate that to the interest being shown. We think there will be no problem selling the capacity once the satellite is launched. We expect to have sold 30 percent of the capacity 12 months after the satellite has been launched.

In terms of competitive advantages, from a technology standpoint, satellite is superior to ADSL, the dominant broadband technology today – in the sense that we provide both multicast and unicast services at the same time. Satellite is more like cable. We can provide broadcasting services together with two-way broadband services at the same time. Secondly, we are available everywhere where ADSL is not. In terms of price, we don’t have a competitive advantage. We are around the same level if not a little bit higher.

SN: Satellite broadband has a negative perception in the marketplace. What is Shin Satellite doing to educate the market about the potential benefits of satellite broadband? How will iPSTAR-1 demonstrate its value proposition to corporate customers in the region?

Dumrong: We already have credibility in terms of satellite broadband after launching a commercial service in Australia. We have seen various sectors of the market using applications provided by service providers. In the next few months, as the government contract awards begin to take shape in terms of broadband and educational projects, we think the possibilities for satellite broadband will increase. In Thailand, consumers are already enjoying the service. We have been using conventional satellites [to provide that service]. In some countries, we have been successful providing a telephone service. With our system, we can provide three to four [different types of] services as well as Internet service at the same time. Many of the key government projects around the region specify that you have to provide both telephone and Internet services at the same time. So, we are ideally positioned to serve that market. Existing satellite technology needs two sets of equipment, one for telephone and one for Internet access. Neither one was commercially attractive in terms of price point, that people could afford. That is why I think a satellite broadband service will take off because of the lack of competitive commercial technology. We look at iPSTAR as a very flexible platform. It can do many applications such as VPN, videoconferencing etc. The cost of equipment is much lower than the equipment of the past. We have more competitive tariffs, so we don’t envisage problems attracting customers in the corporate market.

SN: Could you tell us the significance of recent iPSTAR broadband deals with TIME dotcom in Malaysia and REACH Global Services in Australia and New Zealand? Have you got any other imminent deals in the pipeline?

Dumrong: We expect to announce some major deals shortly. We are also launching a satellite broadband service in India this month. There are some commercial agreements out there. TIME is an interesting proposition because they wanted to deploy us for their e-government learning project. In terms of REACH, they are a unit of Telstra [NYSE: TLS] and we have partnered them with on the provision of ground services. We provide the space segment and they provide the ground segment for an overall solution. The telcos and service providers are now vying for the major Australian government project to rollout broadband service across the country. We are well-positioned to do this even before iPSTAR is launched. Our relationships with telcos in this space have been very successful and we hope to make some major announcements soon.

SN: With iPSTAR-1 scheduled to be launched this year, what are the main capital expenditure challenges for the company coming up? What is your level of debt? When do you expect to be profitable with iPSTAR? What are the major financial challenges facing the company?

Dumrong: We have paid around 80 percent [of the total cost of] iPSTAR, so there is around 15 to 20 percent to be paid. The launch services will be the main cost this year. We also have to pay the insurance fee to guarantee the launch. This year, we are likely to incur another $100 million in terms of capital expenditure. Part of it will come from our existing cashflow and the other part from the financial package we closed for iPSTAR. As far as we are concerned, we have faced the major financial challenges. Our existing Thaicom satellite business is profitable. We also have profitable businesses in the group including the largest ISP in Thailand, which will go public in the next two months.

SN: What levels of revenue growth are you looking for in 2004? What are the main challenges for the company as we head into 2004?

Dumrong: We will see a healthy overall growth, at least 20 percent overall and maybe more, depending on how well we execute certain programs.

We have a lot of challenges in 2004. The main challenges will be commercial. We have 43 different territories to cover. We are building a foundation for the future. Our customer base in Thailand is very solid and not likely to be leaving us anytime soon. In India, we also have a solid customer base. We are looking forward to the commercial launches in India, China and Australia and the other territories. We are ideally positioned to lead the satellite industry out of the doldrums in this part of the world.

(Richard Jones, Shin Satellite, e-mail: [email protected])