Asian Economic Tigers Re-Awaken Satellite Industry Pounces On Market Potential
Asia’s economies continue to thunder back to life after the devastating recession that had obstructed the region’s growth in the late 1990s. In fact, as commerce in the area re-establishes its presence within the global marketplace, the satellite industry is eyeing the Far East, now more than ever, for bullish business growth and high investment return.
Even though economists and business strategists are carefully monitoring the region, the long-term outlook for Asia remains positive. According to the Asian Development Bank, regional growth as a whole was as low as one percent in 1998. Recovery started in early 1999 with growth accelerating to as high as 6.1 percent that year and 7.1 percent in 2000.
“We anticipate an overall growth rate of 6.4 percent in 2001, only slightly down on the 7.1 percent posted in 2000,” says Tadao Chino, president of the Asian Development Bank. Moreover, the continued replacement of red with black on corporate balance sheets has executives from satellite manufacturers, operators, launch providers and content distributors jumping to cash in on the continent’s rebound and build businesses that heavily include the Asia-Pacific region.
Positive Economic Impact
“The negative impact of the Asian crisis is mostly over,” says Kar-yiu Wong, professor of economics and director of the Research Center for International Economics at the University of Washington in Seattle. In fact, the economic problems that hit the region rippled from Japan to India. From canceled programs to decreased transponder sales, satellite executives working in the Asian sector found themselves in a quandary throughout the late 1990s.
According to Bethesda-based Futron Corp., there was a softening of transponder prices during the economic crisis. Prior to 1997, C-band capacity was averaging at a sales price of $2 million per year in the region while Ku-band prices steadied around $4 million. In 1999, the average price for C-band capacity fell to $1.63 million and Ku-band was slashed nearly in half, landing at $2.5 million.
“These prices reflect regional averages based on annual lease rates throughout various satellite systems,” says Linda Williams, senior analyst with Futron. “Price fluctuation is evident but prices depend on several factors such as contract terms and conditions and the specific satellite system characteristics.” In other words, even though transponder prices varied, a general downturn did occur within the satellite sector during the economic crisis.
“The Asian economic crisis was both good and bad for the satellite industry. It was good in the sense that it focused some business activities and it was bad because there was a slowdown on return with some systems,” says Tim Logue, space and telecommunications analyst specializing in the Asian region for the Washington DC-based Coudert Brothers law firm. “What [the Asian economic downturn] did not do was what everyone expected it to do. It did not force industry consolidation,” adds Logue.
In fact, a rethinking of business objectives ignited throughout the Asian satellite sector during the economic crisis. Shin Satellite Public Co. Ltd. in Nonthaburi, Thailand, for example, strengthened its focus toward its iPSTAR program. According to company officials, the iPSTAR program managed to progress through the early years of the economic crisis primarily due to its low research and development cost. “Thailand’s economy is on the right track [now, but] we can see that there will be ups and downs due to the influence of other economies,” says Richard Jones, investor relations manager for Shin Satellite. Shin officials claim that the lack of a strong telecommunications infrastructure within Asia should help iPSTAR “take off in the region.” In March, iPSTAR business developments accelerated when Shin Satellite and BayCom Sdn. Bhd. of Kuala Lumpur signed a major agreement for BayCom to use Shin Satellite’s spacecraft to provide Internet access throughout Malaysia.
“Shin operates three Thaicom satellites [Thaicom 1A, 2 and 3 located at 120 degreesE and 70.5 degreesE respectively]. With the introduction of iPSTAR, [the company] now will have more capacity than all of the three Thaicoms flying together,” says Dan Collins, senior vice president of worldwide marketing and sales for Space Systems/Loral (SS/L).
The iPSTAR spacecraft SS/L is building will be a 1300S bus and is slated for launch in 2002 to its orbital slot at 120 degreesE. The satellite carries a mix of 87 Ku-band spotbeams, 10 Ka-band spotbeams and 3 Ku-band shaped beams.
“The growing trend within the satellite industry is a move toward higher capacity satellites and there is definitely a place in Asia for the same thing to occur,” adds Bill Wright, president of Loral-Asia Pacific. “We have the capability of refining our client relationships as we meet the project’s objectives. [Attention to relationship-building] is going to be a discriminator in doing business in the region.”
Another instance where close attention to relationship-building paid off for SS/L came in January when it signed a contract to design and build the Apstar 5 satellite for APT Satellite Company Ltd. The new spacecraft will operate a total of 54 transponders, 38 C-band and 16 Ku-band. According to Futron, 15 C-band transponders out of Apstar 5’s 38 C- band total are already leased by Singapore Telecom for an estimated $112 million. The spacecraft will replace Apstar 1 at 138 degreesE, providing voice, video and data service to China, Hawaii, Australia and East Asia when launched in 2003 on a Long March rocket.
Building Apstar 5 on time, however, is only half the battle for the manufacturer. SS/L is under pressure to obtain the necessary U.S. government export licenses required for delivery of the satellite. According to industry analysts, SS/L must obtain the documents within six months of the signed contract or face returning the revenue collected plus accrued interest to APT.
“The State Department has said that currently there is no ban on U.S. satellites launched in China,” says Clay Mowry, executive director of the Satellite Industry Association. SS/L officials say they are currently pursuing the export license per normal business procedures. Beyond that, company officials are not speculating what alternative steps they may take if obstacles arise within the application process.
Focus On China
If, indeed, warmer relations continue to germinate between China and the United States, satellite executives may start to view this part of the world less as a headache and more as a lucrative business prospect. “You can already see a better political and regulatory environment surfacing in China,” says Michael Williams, president and general manager of Lockheed Martin Global Telecommunications Systems & Technology.
Therefore, business deals with a Chinese focus may propel China into the forefront of Asian satellite activity. “One of the positive outcomes of the economic crisis was that it imposed discipline on financial practices,” adds Michael Williams. In fact, financial discipline within the country has already started to leave its economic mark. According to the Asian Development Bank, China’s real GDP growth rate for 2000 decreased to 6.5 percent compared to its 1998-percentage rate of 7.92.
But one area where China continues to struggle is within its launcher industry. The U.S. export licensing regime significantly sliced China Great Wall Industry Corp.’s global market share. According to industry analysts, not only must common ground be met in regard to the export control issue for China to achieve a minimum of four flights per year, they also will have to overcome the impact of project risk.
“Even though the U.S. State Department would resume processing export license applications involving launches on the Long March 3B, there remains the potential for schedule interruption and consequent financial loss from any deterioration in political relationships which will be perceived by customers as project risk,” says Bruce Middleton, consultant with Asia Pacific Aerospace Consultants Pty Ltd. Middleton also adds that production capacity of China’s Long March 2C could be as high as 10 per year, but a more realistic estimate might be eight per year given the time required to process each commercial mission.
Like China, a handicapped launcher industry also plagues Japan. Throughout the late ’90s, launch failures and a global slowdown in launch contracts forced the island nation to re-evaluate its system. Now, Japan hopes to enter the 21st century with a viable global launch option. “Japan is developing its H2A with its first flight slated for the third quarter of this year, making it commercially available in late 2002 after the third proving flight,” says Middleton. “But, an agreement with fishermen has limited the number of launches possible from the Tanegashima launch site and the H2A will only be capable of six to eight launches per year.”
But as Japan refurbishes its launcher industry, other Japanese business segments continue to hold strong promise for profitable satellite industry growth. One area where Japan is emerging from the Asian economic ashes as a strong contender is within the satellite broadcast community. According to Merrill Lynch, the recent acquisition of DirecTV Japan by SkyPerfecTV, along with programming changes to include more content targeted toward women and children’s education, should pick up Japan’s subscriber growth. Industry estimates from Futron indicate Asia, Asia-Pacific and the Middle East will experience about 10 percent growth through the next 10 years with Asia-Pacific holding the highest demand for new direct-to-home (DTH) satellites, calling for almost seven more satellites by the end of 2010.
And global satellite manufacturers are taking notice of Japan as they continue building a business within the Asia-Pacific region. “Japan is clearly booming,” says Ronald Maehl, senior vice president of business development for Boeing Satellite Systems Inc. “The Asian region has become much more competitive and we are now having to compete with large European companies [Astrium and Alcatel] for the projects within this region.” According to Maehl, Boeing’s business executives are honing in on the international arena. In fact, 55 percent of the company’s satellite business in 2000 came from outside the United States.
This business strategy is paying off for Boeing, and, last year the company landed two significant contracts within the Asian region. In April 2000, Jsat Corp. awarded Boeing its Jcsat 8 contract. The satellite will replace Jcsat 2 at 154 degreesE, and will carry 16 Ku-band amplifiers and 16 C-band amplifiers that will provide communication services to Japan, East Asia, Australia and Hawaii.
In September 2000, Boeing continued its relationship with Asia Satellite Telecommunications Company Ltd. (AsiaSat) of Hong Kong when it signed the AsiaSat 4 contract. The satellite will provide broadcast, telecommunications and broadband multimedia services to the Asia-Pacific region, along with DTH broadcast services to Hong Kong from 122 degreesE. The payload will carry 58 transponders, 28 active and six spares in C-band, and 20 active and four spares in Ku-band.
Even though AsiaSat’s fleet may be growing, concern is rising that its market may not follow suit, according to C.E. Unterberg, Towbin. Management indicated that after having finally emerged from the effects of the Asian economic crisis, AsiaSat’s market may now suffer from the global reverberations of the slowdown in the U.S. economy.
“Although the business case for AsiaSat remains very strong, we feel that the opportunity in AsiaSat shares is constrained by the company’s ability to secure contracts with India and China DTH service providers,” says William Kidd, satellite analyst with the Wall Street firm. “Likewise, the demand for Ku-band capacity in the Asian market continues to be weak.”
Strengthening Business Relationships
With larger, higher-powered satellite construction underway, satellite operators are also increasing their presence within the Asian region, focusing on business deals primarily surrounding content distribution and communication services. Like satellite manufacturers, satellite operators understand that solid business relationships within the Far East region must top the list in order for the Asia-Pacific to play a significant role to their bottom line. “Relationships in this area are ongoing all-day events,” says Larry Valenciano, group director for sales and customer support in the Asia-Pacific for Intelsat. He adds that unlike other regions where contracts are sealed within two hours, Asia requires a more “personal level” of negotiations.
“We are focusing a great deal on strengthening our presence in the region,” adds John Stanton, vice president of sales and marketing for Intelsat. “There is a very strong demand for video services in China and India, and a resurgent strength in demand for Internet connectivity via satellite to many other Asian nations.” In fact, more than $200 million of the company’s 2000 revenue came from satellite applications within this region. In addition, Intelsat is currently carrying the equivalent of 2 Gbps of IP traffic over the Pacific. This is equivalent to four billion e-mail messages or 200 million Web pages per day.
Nurturing this strong presence in Asia continues this year for Intelsat. The company has recently opened offices in Australia and Hong Kong, as well as strengthened its presence in India and Singapore in an effort to get closer to the customer according to company executives. In addition, the international communications provider formed a strategic relationship with Sinosat, the Chinese satellite operator in February. Sinosat will use six transponders on the Intelsat APR 3 spacecraft slated for launch in 2002. Orbiting at 85 degreesE, the satellite will give Intelsat strategic landmass coverage of China, Russia, India and the Middle East. APR 3 will provide service to corporate Very Small Aperture Terminals Networks (VSATs), video distribution to cable head-ends and Internet connections to ISPs.
Further serving regional needs, Intelsat restored Internet service to China following a February cable failure between Shanghai and the West Coast of the United States. Using its 174 degreesE satellite, Intelsat provided a Duplex OC-3 link between the Verestar Satellite Network Access Point in Brewster, WA, and China Telecom’s Beijing earth station.
Broadband Remains Hot In Asia
Another satellite owner/operator increasing its presence within the Asia-Pacific region is New Skies Satellites N.V. Based in the Netherlands, New Skies executives are providing the region with much-needed broadband service. The company currently offers approximately 650 Mbps of IP traffic in the Pacific through its NSS 513 spacecraft. “After the economic crisis in Asia during 1997/1998, most of the satellite users in the Asia-Pacific region scaled down their business plans,” says Eui K. Koh, New Skies’ vice president and managing director for Asia-Pacific. “But even during this period, China, India, Korea, Japan and Taiwan showed a great demand for IP traffic.”
This demand, though being served, does pose some challenges for New Skies. “The most difficult challenge facing us is not having enough capacity to meet the demand. This will continue to challenge us until we can re-deploy our NSS 803 satellite to 183 degreesE, replacing NSS 513 in 2002,” adds Koh.
In addition to NSS 803, New Skies plans to more than double its satellite capacity for broadband content delivery for the Asian market throughout the next two years through fleet expansion, acquisition of mediaports and expansion of regional offices. The company will be well situated to meet the broadband demand when it launches its Asia broadband multimedia satellite, NSS 6, at 95 degreesE with six broad Ku-band beams over China, India, Northeast Asia, Southeast Asia, the Middle East and South Africa, and Australia. The satellite will have 12 super high-gain uplink spotbeams in the Ka-band, 10 of which can be used at any one time.
One content distributor who is responding to the promise broadband is forecasting for the region is Orblynx Inc. Close to half of the company’s contracts rest within the Asia- Pacific. “Korea is really a hot spot for content distributors,” says Nicholas Soo, Orblynx’s managing director for Asia-Pacific.
The company addressed that hot spot in December 2000 when it launched its IDS2000 platform and content delivery services in the Asia-Pacific region. The service distributes Web-based content, which, among other things, allows service providers to specifically request regional content, such as Korean or Chinese language Web sites. The system operates off Intelsat’s 704 spacecraft located at 66 degreesE and Cable & Wireless’ Optus B3 spacecraft located at 156 degreesE serving Australia and New Zealand. Likewise, the IDS2000 platform reduces bandwidth costs in the region. “The average cost of terrestrial bandwidth service within the Asian region is approximately $28,000 per 1 Mbps,” says Dave Dobel, senior vice president of marketing for Orblynx. “When Orblynx comes around, we provide a 30 percent to 70 percent bandwidth reduction.”
Another service provider in the Asian region increasing its presence is ATCi Inc. The company plans to expand into the Asia-Pacific market to establish voice, data, video and digital satellite communication services.
“ATCi sees a tremendous opportunity for growth in the Asia-Pacific market with satellite communications systems. We plan on targeting areas in need of the last mile connection, VoIP networks and ground-based commercial satellite communications solutions,” says Gary Hatch, ATCi’s CEO. “The crossover to another market, especially the Asia-Pacific, is a timely process due to deregulation, but we see satellite broadband services as an integral part of the progress in voice, data and video communications.”
In fact, bandwidth demand in the Asia-Pacific region has spurred a new business development. Dubbed “the soft alliance,” terrestrial fiber executives may explore possibilities in working more closely with the satellite sector. “Satellites remain the best solution for multicasting content on a global basis,” Orblynx’s Dobel adds. “For example, if you are a fiber-based content distribution network, you are probably looking at satellite multicasting very seriously.”
Others directly working in this field stress that some sort of ground-space partnership must be formed for all parties to succeed. “Unless you get fiber combined with satellite, your content is not going to get there, particularly in the Asia-Pacific or Latin American regions,” says Barry Pasternak, president and CEO of SunGlobe Fiber Systems Corp. “In most of the third world countries, you can get to a major hub on glass, but if you want to go anywhere beyond that, you have to jump to satellites because fiber does not reach most rural areas.”
So, whatever the 21st century brings to the Asia-Pacific region, satellite business executives will continue to monitor the area’s strengthening global presence. Even though economists say that Asia’s financial animal is not quite ready to attack in full force, the forecast continues to look good. This means that the Asian economic tiger may soon roar again and a prosperous Far East business arena rests well with satellite executives.
Nick Mitsis is Via Satellite’s Associate Editor.