Via Satellite’s 2001 Satellite Survey
The results are in for our annual satellite survey and the numbers look encouraging. Satellite industry revenues grew by a healthy 17 percent between1999-2000, topping $83 billion. The 238 Western-built geostationary communications satellites orbiting the Earth cost approximately $40 billion to build, launch and insure. Eighty-four more are under construction at the world’s top five satellite manufacturing companies. Last year was an excellent one in terms of launches, with 29 new birds being lofted into space. The number of new spacecraft ordered was also surprisingly high, with 35 satellite deals announced.
Recent trends indicate a dramatic transformation is under way in the satellite industry. Although they had record years in terms of launches and contract announcements, both the launch vehicle and satellite manufacturing sectors are suffering from a large amount of over-capacity and are struggling to survive financially. As a result, we can expect consolidation and/or a growing number of partnerships between competitors to occur over the next year. In the field of satellite operations, the big keep getting bigger. The world’s six largest global operators control more than 40 percent of the world’s commercial satellites, and have bought nearly half of those under construction. Consolidation is under way in this sector as well, most notably illustrated by the recent purchase of GE Americom by SES Astra. Many industry experts predict that further consolidation will take place in the field of satellite operations, and that eventually the majority of the world’s satellites will be controlled by a few huge operators.
Looking ahead, the satellite industry is unveiling and/or developing several new applications, including residential broadband services and digital satellite radio. Leading satellite experts predict that the market for residential broadband will be dominated by the cable industry, at least in the United States, although the satellite industry can expect to play a substantial role in this area. Digital radio, according to the Carmel Group, could break a variety of records for a new consumer electronics product. Over the next two years, we should know for certain the future course of this exciting new service.
Financially, the industry is rebuilding its credibility with Wall Street after the massive business failures of Iridium, Globalstar and Orbcomm left investors holding the bag. Coupled with the high-tech meltdown, the monies flowing into the industry of the mid- to late-’90s have largely dried up. Promising financial performances by large operators, including privatized inter-governmental organizations, along with the possible success of broadband and digital radio services, will go a long way in re-opening the doors to financial institutions.
The industry has managed, despite all odds against it, to expand its revenues, launch a record number of satellites, and bring in a large number of new orders. There is ample space segment to provide myriad communications services, from broadcasting to the Internet, via some of the largest spacecraft ever built. International regulatory barriers are slowly, but steadily falling away, creating huge regional markets. The year ahead presents a continuing set of challenges, but no doubt, the satellite industry will break new records and achieve higher goals than many of its critics think possible.
Commercial Geostationary Launch History
Overall, the 1990s saw the tripling of the launch rate from the 1970s, when an average seven spacecraft were launched, to 21. The first year of the new decade is off to a good start in this regard. The year 2000 saw the largest number of satellites launched since 1997. Recent trends in the late ’90s involving satellite delivery delays, launch failures and political instability resulted in a decrease in the number of geostationary platforms being boosted into orbit. Last year, however, the industry was strengthened by a banner year at ILS, which markets the Proton and Atlas launch vehicles, as well as the continued, successful introduction of new industry workhorses like the Ariane 5 and Sea Launch. The market for launch vehicles is highly competitive, however, and some degree of consolidation is expected among the world’s leading players, especially as the market for low earth orbiting satellite systems disappears at the same time that new launch vehicles come into play.
Commercial satellite growth over time
The world has experienced a vast surge in satellite capacity over the past three decades, as illustrated in this data from Euroconsult. The number of satellites in operation has grown by a factor of almost 10 and the number of transponders has multiplied nearly 20-fold. Until the mid-to-late-’90s, the number of operators grew nearly seven-fold. That rate has slowed and the overall number of operators is expected to decline by the end of the decade due to consolidation and the disappearance of small operators.
Satellite Industry Revenues
Despite the bad news facing the industry, including the loss of financing due to the high-tech fallout and the demise of the big LEO business plans, the satellite industry grew by an admirable 17 percent, compared to seven percent the previous year. A large amount of industry growth continues to come from the DBS/DTH sector, as satellite delivered television services proliferate in most parts of the world.
Since 1994, approximately $30 billion has been raised in the public capital markets for commercial space and satellite ventures, roughly evenly split between equity and debt financings, according to Credit Suisse First Boston.
The late ’90s (1997-1999) were the most active era, when billion-dollar-sized financings were completed for the big LEO constellations as well as several major DBS and FSS companies such as Echostar, BskyB and SES Astra. The majority of the funds raised publicly have gone to support the construction of new space assets and to fund subscriber acquisition and marketing costs. Traditional fixed satellite services and broadcast applications have garnered the majority of the public’s investment in space and have performed the best for investors. Innovative new services and applications have also met with some financing success throughout the years. Currently, both the public equity and high yield debt markets are closed to all but the most credit worthy and well-positioned firms in the industry.
Although $30 billion is a large number, that amount has probably been exceeded by the aggregate investments from satellite manufacturers and other strategic partners, bank loans and credit facilities and, more recently, investments from a growing number of private equity institutions. In the last three years, these private equity firms have invested over $3 billion in more than a dozen developmental-stage satellite companies, such as XM Satellite Radio, Sirius Satellite Radio, WildBlue Communications, Starband Communications and Astrolink. In addition, many of the industry’s past strategic sponsors are still showing an interest in supporting new ventures through vendor financing or direct investments.
U.S. Digital Satellite Radio Subscriber Forecast
According to the Carmel Group, Digital Satellite Radio (DSR) could be adding or changing several new records for the consumer electronics industry, including becoming the fastest selling consumer electronics product in U.S. history; the first digital service to successfully market in both automobiles and homes; the first audio service to offer a programming guide on the air and on the Web; and the first radio business model that is not dependent on advertising for its music content.
The proof, as they say, will be in the pudding. And, until the two major service providers, Sirius and XM Radio, are operational, the industry, as well as financiers, are holding their breath. The next year or so will prove whether DSR fulfills the promise it holds to become the satellite industry’s latest success story.
Over the past five years the Satellite Index of publicly traded satellite companies, tracked and analyzed for Via Satellite by Solomon Smith Barney, can best be summed up with one word, volatility. Since 1995 many of the companies that comprise the index have sprouted from the beginning stages of development, and they have endured both the hardships of failure and reaped the benefits of success. As can be seen in the graph, the Satellite Index did not reflect the dramatic jump that the Nasdaq did during early to mid-2000; however, over the past five years, the index has outperformed both the Nasdaq and the S&P 500, growing by more that 182 percent compared to 108 percent for the Nasdaq and 106 percent for the S&P 500.
The satellite operators in particular have been held back by the difficulties they have experienced in surviving the early stages of development when their market opportunity is not clear. Success stories like Echostar serve as a perfect example of the growth that satellite companies can achieve. However, there are companies that have not experienced such growth and have struggled to remain viable business entities such as Iridium and Globalstar. As the industry matures, Solomon Smith Barney feels that the most critical piece of the puzzle for the future of the satellite industry is its ability to attract customers while generating a reasonable return. Increased competition from within the satellite industry and from terrestrial service providers makes this goal much more difficult. However, satellite technology has some unique advantages, particularly for point to multi- point applications, and thus there are many opportunities where satellites will be highly successful.
DBS Subscriber Growth
In the next five years, Direct Broadcast Satellite (DBS) will reach an estimated 30 million subscribers, a monumental benchmark in the sense that the satellite industry will have amassed more than half the amount of total cable subscribers in less than half the time. According to the Carmel Group, the road to reach this milestone will be pitted with obstacles, issues and regulatory hurdles that include: 1) an increasing and highly competitive market; 2) a DBS market that could be nearing its peak for annual net new subscribers; 3) a growing subscriber acquisition cost for DBS subscribers; 4) a U.S. government and court system that will likely uphold the “must-carry” law; 5) a decreasing TV audience for major network programs; and 6) an ever growing DBS subscriber base that will force competing providers to place more resources toward customer service and integrating new technology, like interactive TV, Video On Demand, broadband, etc.
Content Delivery Networks
The Internet of today is not equipped to handle the new demands for rich media content and the ever-increasing expectations of its users. In their newest study, Broadband Content Distribution, The Internet & Satellites, Irwin Communications identifies the current and future global infrastructure necessary to support the delivery of broadband content for the Internet and enterprise markets.
In summary, content delivery networks (CDNs) provide an overlay network of servers and transport links designed to improve the performance experienced by the business or domestic end user. There are various approaches being used by the many companies now entering this sector. Some are seeking to move content closer to the edge of the network; others are creating data centers to reduce the number of steps in the transmission link; and all of them are aiming to reduce congestion and delay as the volume of traffic expands.
Satellite operators are increasingly the primary or secondary transmission medium for CDNs seeking to benefit from the point-to-multipoint capability of satellites. Only one- fifth of content delivery networks now operate exclusively on fiber and telco based facilities. Satellites play a dominant role in providing both network reach and cost-effective multicasting. Satellite CDN services provide augmentation capacity to existing facilities, and given the one-to-many multicast capability of satellites, they provide winning economics in terms of cost per delivered Mbyte. However, the satellite-based CDNs contributed only about 25 percent of total CDN revenues for 2000.
Another satellite application that holds great potential is broadband, and a variety of new satellite projects targeting both residential and business users are under way or seeking financing. As with any new application, the market size and adoption rate remains to be seen. Several studies have been done recently that attempt to quantify and analyze the future adoption rate of satellite broadband services. A recent study by C.A. Ingley and Co. predicts that, although satellites will play an important role in broadband services to consumers, the overall market will be dominated by cable companies.
By the year 2008, the broadband marketplace is expected to reach 126 million households worldwide, received into the home via a PC modem or via a set top box, according to C.A. Ingley and Co. The market will be divided among the following access technologies: 44 percent cable access (cable modem and/or set top box), 31 percent digital subscriber line (DSL), 19 percent broadband via satellite (fixed) and six percent fixed wireless terrestrial broadband. Consumers will be influenced in their choice of broadband by the type of entertainment-TV received into the home. Thus, the largest part of the market is forecasted to be cable access (via cable modem and/or set top box), given the proliferation of cable TV households globally.