Europe: The Continent Beckons
By Theresa Foley
Europe, the home of the third and fourth largest satellite operators in the world, continues to grow in demand and attract new players to its satellite services business. While the region may not be growing as fast as others, a steady increase in demand in the next decade, fueled by Internet traffic and DTH expansion, should result in a large capacity shortage by the end of the decade.
There is a big need for satellites in Europe, first for Internet growth, but mainly for DTH type platforms,” says Ilhami Aygun, CEO of Eurasiasat, a new satellite operator based in Monaco with its first spacecraft due to be launched this fall. In Turkey last year, for example, Internet usage doubled every six months, and in 2000 it is doubling every two months.
“The European market, outside of the United States, is the heart and soul of the industry. It’s where content originates, where the sources of data and the Internet that other regions want to tap into are located,” says Jon Kirchner, senior vice president of marketing and sales for Europestar, another operator with a new satellite to be orbited in the next month or two.
Roughly 97 satellites with regional or international coverage were serving Western Europe in 1999, earning $1.8 billion in revenues in 1998, according to Euroconsult. Western Europe was served with 1,100 transponders by 1999, 11 percent more than in 1998, and with 111 of them, or 11.2 percent, categorized as excess capacity. Internet traffic is only taking a modest 27 transponders in 1999, but by 2009, some 343 transponders should be required for both backbone trunking and Internet access. Euroconsult predicts that more capacity will be needed over Europe by 2004 and a big shortage will develop by 2009 unless more spectrum is located and more satellites procured. Besides the established operators, SES Astra and Eutelsat, new operators and service providers such as Europestar, Eurasiasat and Station 12 are getting into the business in the region.
European satellite operators continue to struggle with the question of whether to join a global system or remain localized and play on the advantages of knowing the clientele more intimately. Eutelsat is not yet global but is growing east, west and south.
SES Astra has been trying to expand into North America through an alliance for several years now but a partnership has eluded the biggest European operator. However, in July, SES agreed to buy a 50 percent stake in the Nordic Satellite Co. (NSAB) of Scandanavia for 125 million Euros, which gives SES an expanded geographic market in the Nordic regions and will be an element in spreading Astra Net broadband services throughout Europe. Most recently, SES took a 20 percent stake in the satellite division of Brazil’s Embratel.
SES director general and chairman of the management committee, Romain Bausch, had hoped to sign a North American partner last year but has not been able to close such a deal. In an interview, Bausch said one reason is the differences in the structure of SES’s DTH business versus the DTH operators in the U.S. SES does not get into packaging of content for delivery to subscribers as its U.S. counterparts do, thus substantial differences exist between SES and some of its more obvious potential partners. But another factor–the high increase in valuation of U.S. DTH companies in 1999–also closed the door on some partnering opportunities, he said. “Opportunities that were open in the beginning of the year became less convincing by the end of the year” because the investment cost of such an alliance had become less attractive.
SES continues to look for a partner, but now is more focused on “the Americas” as opposed to the U.S. market. Bausch says new developments in the market and changes in company valuations continue to present new opportunities to find a partner across the Atlantic, such as Embratel.
Eurasiasat likes the market advantages from being regional, says Aygun: “We know the market, know the customer, and are creating a hot bird position at 42 degreesE, which gives us strength.” That said, Eurasiasat has made an arrangement through Alcatel, its investor and satellite supplier, to have capacity access in both directions with the Loral global alliance, with which Alcatel is affiliated.
Europestar is inter-regional, with beams designed to connect five separate regions (Europe, South Africa, the Middle East, Indian region and South East Asia), rather than being focused on service within a particular region. “We don’t see ourselves as a competitor to Eutelsat or SES Astra,” Kirchner says. “Our core focus is on the business-to-business domain–networked applications. We offer high power to small dish networks within multiple regions or to a single dimension.”
SES Astra is the third biggest operator of satellites in the world by revenue, despite the fact that it has not been able to break out of its status as a regional operator. The Luxembourg-based operator earned 725 million Euros ($695 million) in 1999 revenues, an increase of 40 percent over 1998. Operating profits were up 47 percent to 407 million Euros ($387 million), and earnings per share were up 14 percent to 5.41 Euros.
“Europe today is by far the market with the highest DTH penetration. Other places may be perceived to be more exciting, but that is only by those who want to enter a new market,” Bausch says.
Bausch goes even further out on a limb with his vision of the future for satellites in Europe, predicting that “because of the established penetration, we will see in Europe the highest growth rate of broadband satellite services in the world.” Even in the well-established European DTH sector, Bausch says countries like the United Kingdom are seeing steady growth from smaller independent broadcasters, and in Eastern European markets and places like the Baltic states, the market is still emerging and growing from the introduction of digital services. Furthermore, he “believes that digital TV programs will be enhanced by IP-based content being transmitted in connection with the digital programming” to enlarge the market even more in 2000-2001. First, bundled programming with IP services will be offered for PC users by the end of this year, followed by packaging for TV viewers by the end of 2001. “A multimedia server/cache in your home will be used for more interactive services” for consumers, he predicts.
SES operates nine satellites located at 19.2 degreesE and 28.2 degreesE. Four satellites are in development for launch by 2001. With its nine satellites, Astra transmits more than 950 television and radio channels, multimedia and Internet services to nearly 78 million homes.
The strategic investment in NSAB, which owns three geostationary satellites, Sirius W, Sirius 2 and Sirius 3, will enable geographic market expansion into the Baltic states and Eastern Europe, as well as into the Nordic countries. The NSAB satellites are at 5 degreesE and 13 degrees W and have a total of 52 Ku-band transponders. Swedish Space Corp. is the other 50 percent owner of NSAB, having joined with SES to buy out the 25 percent that had been owned by TeleDanmark A/S. SES also bought the 37 percent interest of Teracom AB’s interest in NSAB. The partners plan to cooperate to further develop NSAB’s markets and possibly launch an IPO.
Bausch says the new orbital positions that become available to SES through its NSAB investment are an interesting avenue to increase Astra’s transmission capacity over Europe as SES looks for further expansion. He expects a decision soon on procuring a fourth NSAB Sirius spacecraft, and also predicts that SES will announce contracts with large international broadband customers that will motivate SES to procure additional satellites as well.
In July, Astra opened a gateway in Cyprus with Asiasat to connect Europe to Asia in a single hop. European-based broadcasters and multimedia companies who want to distribute services in Asia, Australasia and the Middle East can use the gateway to link signals from Astra satellites at 19.2 degreesE and 28.2 degreesE to the Asiasat 2 satellite at 100.5 degreesE for retransmission throughout Asia. Astra owns 34 percent of Asiasat.
SES had not announced the first users of the Cyprus gateway in mid-summer, but Bausch said several customers wanting to transmit programs needing 4-5 Mbps capacity were in final negotiations. He expects broadcasters and broadband service providers in Europe who want to deliver their content throughout Asia to sign contracts with SES and Asiasat for the “one-stop shop” service.
The opening of the Cyprus gateway is one of the keys for SES to realize value from its investment in Asiasat. Through its presence in Hong Kong, SES has established an Astra Net multimedia platform on the Asiasat 2 satellite to deliver multimedia services. Phoenixnet, a recently created company that is 42 percent owned by Asiasat, is using the Hong Kong Astra Net platform to serve 50 Asian ISPs with broadband multicasting of Internet content to their points of presence throughout the region, Bausch says.
Bausch is strongly optimistic about the development of SES’s broadband services in Europe as well, despite the delays that have plagued the two-way Ka-band multimedia service, formerly called ARCS and now renamed Broadband Interactive (BBI). Prototype terminals were demonstrating the service in summer, he says, and showing an ability to function during rainstorms, which has been a concern to the Ka-band community.
“By the second half of this year, we can test the product and the terminals, and give terminals to a limited number of users. Commercial launch of the full-fledged BBI service should start by the beginning of next year. Basically, we have lost a year, but that is not uncommon in this business,” Bausch says.
Eutelsat, the third ranked operator, is profitable and growing, and has had more visible success in expanding toward global services than its rival SES Astra. With 17 satellites in orbit as of June, the organization matches Intelsat in the number of spacecraft in its fleet, although Intelsat, with bigger spacecraft, has more transponders. Eutelsat, as of mid-June, had almost 300 transponders in orbit, covering all of Europe and Africa, plus parts of Asia and North America.
Eutelsat Director General Giuliano Berretta says that Eutelsat’s new satellites are selling out as quickly as they are launched, and he plans to procure more satellites in short order to allow more growth as Eutelsat prepares to privatize next year. Eutelsat launched Sesat on April 17, W4 on May 24 and took over Telecom 2D on June 8, bringing it a 20 percent increase in capacity. Sesat and W4 are positioned at 36 degreesE, allowing Eutelsat to expand its service into Eastern Europe, Sub-Saharan Africa and Asia.
Major customers are coming from the new markets, Berretta says. For example, Media Most of Russia and South African DTH service provider Multichoice Africa joined the roster of Eutelsat customers this year, taking most of the capacity on the new W4 satellite to serve Russia and Africa. Media Most is taking 16 transponders on W4 for Russian television distribution, and Multichoice will use up to seven transponders for satellite TV in Africa on the fixed and steerable beams.
Sesat, with 18 Ku-band transponders at 36 degreesE, has Euteltracs, the European satellite-based fleet management system, as one of its customers. The spacecraft has two beams, a widebeam covering Europe, Western Siberia, North Africa and the Middle East, plus a steerable spotbeam over India. For Sesat, all 18 transponders have been leased, but there is available bandwidth in some of the transponders, says Eutelsat.
With the Eutelsat fleet at 85 to 90 percent overall loading, it is procuring two more Hot Birds, 8 and 9, later this year, in addition to the Hot Bird 7 ordered in June from Astrium. Six new satellites were on order as of June, including new Hot Birds and satellites for the transatlantic positions opened last year. The new Hot Bird 7 will replace Hot Bird 3 with more capacity, and allow Hot Bird 3 to be moved to another position. Eutelsat also is developing a strategy to augment the capacity for the Eastern European market served by Sesat. Berretta says the expansion over Eastern Europe could involve putting a satellite into the 48 degreesE slot, where an inclined-orbit spacecraft now serves, or using a nearby slot registered by another country.
Berretta says the European satellite market is very healthy. On the television side, Eutelsat has more than 40 customers, ranging from large players like Canal Plus to smaller single-channel users like Monte Carlo Satellite TV. Hot Bird 6 will allow microtelevision broadcasters to begin using newly created 2-Megabit MPEG 2 channels from Eutelsat. Marketing efforts for the new service, which uses low power transmission and small antennas, will begin in the fall about a year before the satellite is delivered.
Two new players, Europestar and Eurasiasat, will join the European satellite scene this fall with the launch of their first satellites. Europestar is a joint venture between Alcatel Spacecom and Loral Space and Communications. It plans to use two collocated Ku-band satellites at 45 degreesE to serve five interconnected regions: Europe, South Africa, the Middle East, the Indian region and Southeast Asia. Eurasiasat, based in Monaco, is owned by Turk Telecom and Alcatel Spacecom.
The launch of the first Europestar satellite is planned for the September-October time frame, a delay of a few months due to a repair to a tower used in vibration tests of the satellite, according to Kirchner.
Europestar’s first announced customer was Globecast, which will use the first satellite to provide Internet and broadband services into India and Pakistan. Customers will need 1.2-1.8 meter dishes for the service. Globecast, the France Telecom satellite services company, says only 100 cities are connected to the Internet in India. Globecast has teleports in France and the United Kingdom, and is expanding into the Americas and Asia. It offers broadband and broadcasting services.
“We have something that is highly differentiated, not just by power but in technical capability and in covering five regions in the world,” Kirchner says. “This satellite was designed to serve the markets of today, it wasn’t designed with just thoughts of yesterday’s analog video.”
Europestar wholesales space segment and is forming partnerships with other companies to deliver end-to-end solutions to ISPs, Kirchner says. The partners will provide gateway connections, uplinking, fiber, connection to the Internet and production facilities. Europestar is part of Loral’s global alliance, and has an agreement with Loral Skynet under which the companies can access each other’s capacity, which Kirchner says helps overcome the disadvantage of being a regional company rather than a global one.
Eurasiasat will launch its first satellite into 42 degreesE in the fall to serve a market primarily of Turkish broadcasters who want coverage in Turkey, Europe and Central Asia. Three Turkish broadcasters account for most of the customer base on Eurasiasat 1, according to Aygun. Digital Platform, a Turkish conglomerate, has leased 10 transponders for its Digiturk bouquet of programming, which is using Eutelsat capacity to prepare its infrastructure for services on Eurasiasat after launch. Digiturk has 50 channels on Eutelsat and will expand to 70 once it transfers to the new satellite. Digiturk’s target audience is Europe, Turkey and North Africa.
Another customer is Uzan Group, a large media and GSM operator in Turkey, which will offer the digital service through a company called Star Digital. Currently carried on Turksat, the 25-channel Star Digital package will be expanded to 70-75 channels using 11 Eurasiasat transponders to serve Europe, Turkey and Central Asia.
The third large customer is Dogan Group, another large media company in Turkey, which will use seven Eurasiasat transponders for its Canal D Digital TV bouquet, which also covers Europe, Turkey and Central Asia.
The three DTH companies have taken 28 of Eurasiasat’s 32 transponders prior to launch, and the remaining transponders are being reserved for Internet services, to be leased out after launch, Aygun says. “There is a big fight now to get hold of these transponders,” he said in June. Turk Telecom will get part of the capacity and three of Turkey’s ISPs each want two transponders, meaning that demand exceeds supply. Eurasiasat will set in motion the manufacturing process for its second satellite as soon as the first is orbited, with hopes of having the second bird in space within two and a half years. Aygun expects the second satellite to be 60 percent occupied by data or Internet traffic.
A new service company, Eurasianet, has been established within Eurasiasat to provide end-to-end connectivity for ISPs. The services started using Turksat and Intelsat capacity and will expand with the new satellite.
Broadband Global Service
Inmarsat Inc. in London has been steadily profitable for many years. CEO Michael Storey says that the advent of 3G high speed mobile services in Europe and elsewhere bodes well for Inmarsat later in the decade, when its BGAN (Broadband Global Area Network) service will become available on the Inmarsat 4 satellites around 2004. “GAN is a nice way of extending the continuity of the 3G offering to broader markets without additional investment (by mobile operators),” Storey says.
BGAN will use a laptop-sized terminal to connect at data rates of 432 kbps, which is comparable to the terrestrial mobile data rates that will be introduced as 3G technologies are introduced on the ground. If the BGAN terminal is too bulky, users will have a smaller alternative, which is a PDA-sized satellite terminal (PDA stands for Personal Digital Assistant, the size of a typical palm handheld device) that can be used to connect at a 144 kbps speed. “The market we’re aiming at is companies requiring their employees to be active on the corporate WAN, on the Internet, or to transfer large data files,” Storey says.
If the Inmarsat 4 system is in operation by 2004 as planned, Inmarsat will come head to head with ICO Global Systems, the London-based mobile satellite company rescued from bankruptcy in the last year by investors led by Craig McCaw and Subhash Chandra. ICO has not revealed much about its business strategy but is expected to launch very similar products to Inmarsat’s BGAN offering.
If ICO sticks to this plan, “we will have for the first time global mobile data competition,” Storey says. “This is good news…since competition benefits the business user. I trust McCaw will do it, and I wish him well.” That said, Storey adds that New ICO has a huge job ahead of it in building a sales, marketing and distribution network, in addition to getting its ground system and satellites finished.
Inmarsat is increasingly after the business user rather than the remote village and rural visitor market. During the last year, Inmarsat has started a service called GAN (Global Area Network) for ISDN-like data rates of 64 kbps using a notebook-sized satellite terminal, and before the end of the year, Inmarsat will start a packet data service. Both new services are aimed at corporate multinationals with sizable numbers of employees who must communicate to their home bases while travelling.
Storey took over at Inmarsat last October, seven months after the organization privatized. An IPO is planned for 2001. Part of Storey’s strategy for Inmarsat is to expand beyond its previous mission of operating mobile satellites and into the value-added services side of the business, and Inmarsat in 2000 began acquiring smaller companies that specialize in niche markets. Inmarsat will expand to fixed satellite services in addition to higher bandwidth speeds, Storey says. To that effect, Inmarsat acquired EAE Ltd., based in Aberdeen, Scotland, a VSAT services company that specializes in providing 2 Mbps connections to the oil, gas and maritime industries from fixed or mobile terminals.
Another acquisition, of Rydex, based in Vancouver, Canada, supports the goal of improving the interface between the “celestial and terrestrial” networks by getting the satellite data rates up to where the terrestrial networks are, Storey says. A third acquisition, as yet unannounced, also is in this vein and will provide Inmarsat with technology to broadcast live TV signals to wideband communications systems already installed on aircraft. Further expansion will see Inmarsat setting up a business-to-business commerce exchange for the maritime industry called Setfair.com. A software platform that uses the Inmarsat network will be used to reach ships, suppliers and ship operating companies with an e-commerce trading platform, Storey says.
Serving Latin America
Hispasat, the Spanish satellite operator, is expanding with new satellites and increasing its presence in Latin America, but has no plans to move into Northern Europe to grow its businesses, according to Jacinto Garcia Palacios, Hispasat’s CEO. With Astra and Eutelsat dominating the business in northern Europe, Hispasat’s “main objective is to go to Latin America, serving Spanish and Portugese speaking people,” he says.
With the new Hispasat 1C launched February 4, the objective is to earn 30 percent of the revenues from the new satellite from new customers. Telefonica is Hispasat’s largest customer presently, using the satellites for DTH and Internet-broadband services. Telefonica awarded a contract in June for seven Hispasat 1C transponders to develop its Internet services with the newly acquired Internet company, Terra. With this contract, Garcia Palacios says, Hispasat 1C is 60 percent occupied and should be 80 to 90 percent full by year- end.
Hispasat is close to ordering another new satellite, Hispasat 1D, to be launched by mid-2002 to replace Hispasat 1A and 1B, ensuring continuity of service to its anchor customers. The coverage would reach Europe and across the Atlantic, with a few transponders available for service within the Americas. Beyond Hispasat 1D, another satellite, Hispasat 1E, is being studied, to fill a slot at 30 degreesE with the possibility of adding Ka-band transponders to it to serve Internet backbone and direct access services. Hispasat will decide by mid-2001 whether to commit to a manufacturing contract for Hispasat 1E.
Another new spacecraft, with the internal working name of Amazona, will be ordered by the end of September to fill a Brazilian slot at 61 degreesW with C- and Ku-band capacity. Hispasat was awarded the slot from Brazil after making a commitment to launch a satellite there within three years. “It would be useful to have a partner there, and we are talking with many potential ones,” Garcia Palacios says, mentioning MCI, the owner of Embratel’s Brazilsats, as one suitor.
Hispasat also is talking with bigger operators, like SES Astra and Loral Space and Communications, about strengthening its ties with other regions, although it remains outside of any formal alliance that makes it part of a global system. A board meeting in September will be presented with options for an alliance, and Hispasat could enter negotiations with one or two of the operators, he says.
Garcia Palacios would like to see his company rise from number 19 in Euroconsult’s ranking of satellite firms to around 6. “For our customers, we need a global association. We should become part of a global operation. We have good capacity to add to a system reaching from the Americas to Europe,” he says.
Data Drives Expansion
Although not a satellite owner, Station 12, the 65-35 joint venture between KPN of The Netherlands and Telstra of Australia respectively that was formed in April, has ambitious plans to raise its $215 million annual revenues to $500 million in the next three years by expanding its mobile and VSAT satellite services. Station 12 is the largest customer of Inmarsat and holds a 24 percent market share of the competitive market for Inmarsat services. One of the Inmarsat services Station 12 sells is the new GAN data offering. Station 12 was serving an estimated 200 GAN users in June.
Approximately 60 to 65 percent of Station 12’s business is in Europe, according to Charles van der Mee, Station 12 director of communications. “In Europe, we see a change from voice to data communications, and by 2004, 70 percent of all Inmarsat’s traffic will be data. Use of Internet also will grow, and 10 percent of all Internet traffic will be handled by satellite in the next three to four years,” van der Mee says.
The expansion strategy is to acquire value-added service companies that have applications expertise, content or software. Station 12 aims to grow sales by 30 percent a year and have operating margins of at least 10 percent. The increased use of data services is expected to drive the expansion. As of June, no acquisitions had occurred, but Station 12 was shopping for content and applications companies, van der Mee says.
New Hopefuls Spring Up
Another massive satellite company with global operations is being set up by London-based News Corp. Ltd., Rupert Murdoch’s satellite TV company, which filed for an IPO in June to raise money, perhaps as much as several billion dollars, for Sky Global Networks Inc. Sky Global is a new company that will combine Murdoch’s satellite holdings. The IPO money was to be used to repay News Corp. debt and for other general purposes. Sky Global had $793 million in revenues in 1999 and $156 million in operating losses. The satellite assets controlled by Murdoch include BskyB in the United Kingdom, Star in Asia, Italy’s Stream, Sky Brazil, Sky Mexico, Sky Multi-Country Partners and Sky PerfecTV in Japan.
Besides the firmly established operators, Europe continues to generate a crop of hopeful operators, many of whom have been in the development stage for years without launching satellites. These include Euroskyway, a broadband satellite venture backed by Alenia Aerospazio; Mediastar, a $1 billion digital radio satellite concept from Daimlerchrysler Aerospace; WEST, a multimedia Ka-band system proposed by Matra Marconi Space; Cyprusgem and Kyprosat, fixed satellites proposed by the Cyprus Development Bank; Hellasat, a proposal from the Greek Ministry of Transport and Communications; and Maltasat, an ITU filing from Malta.
As demand climbs steadily upward in the next ten years, old and new operators in Europe will be challenged to manage risks, follow the telecom, Internet and broadcast markets, and build their businesses into billion-dollar ventures that rival those based in the United States.
Theresa Foley is Via Satellite’s Senior Contributing Editor.