Cover Story: Europe’s Pursuit Of Internet And Broadband Revenues
By Robert N. Wold
In its 15 member nations, the European Union (EU) has 375 million people, some 51 percent of Europe’s total, making EU-country the world’s largest economic superpower. Throughout the EU, where satellite-fed television is ubiquitous, major satellite operators now want to be the pervasive providers of Internet and broadband content as well.
Many Americans do not realize that the EU’s population is 37 percent greater than the population of the United States. If and when another 13 applicant nations are admitted to the EU, its population based on year 2000 statistics could become 547.6 million.
Thirty million EU households receive direct-to-home TV and companion services from the satellite fleets of SES Astra and Eutelsat. Half of these subscribers have already migrated from analog to digital reception capability. Another 50 million households receive their satellite-fed TV through local cable systems.
In the United States, direct-to-home satellite TV from DirecTV, Echostar’s Dish and C-band providers reaches approximately 17 million homes. Cable systems, which began relying on satellite program feeds in 1975, now serve approximately 69 million subscriber homes.
Europe’s “Broadband” Future
In an industry ripe with consolidation and globalization, satellite operators in the European community are nevertheless quite aware of the revenue and profit potentials for future deliveries to residences and small businesses of interactive, multi-channel broadband content services that include the majestic Internet, everyone’s coveted network of all networks.
Not unlike the United States, where satellite operators and their transponder tenants pursuing Internet subscribers must provide two-way virtual autobahns or lose out to terrestrial competitors, European companies are confronted with similar challenges.
Prospective customers, be they in the United States or Europe, and more than any other feature, want lightning speeds with which to prowl the Internet. On both continents, prospective customers are befuddled by the advertised speed claims of both satellite and terrestrial offerings. Somehow, any speed faster than 56 kbps has earned “broadband” recognition, which in the buyer-beware rule book is tantamount to calling a bicycle a motorcycle.
The telecommunications companies, known affectionately as “telecoms” in Europe and “the phone company” in the United States, are pushing Digital Subscriber Line (DSL) links, and the more expensive ADSL (asymmetric) alternative. Cable system operators market cable modems, and other providers offer fixed wireless access. In time, fiber-to-the-home will be economically feasible. The bottom line is, which technology is (a) fastest and (b) most dependable?
Arrival Of The Internet
From the get-go of the geostationary satellite communications industry in 1965, the technology’s principal commercial destiny has been the space-based transporting of electronic freight. At the inception, it was voice–as in telephony–that was expected to be the dominant business segment, to be followed in revenue volumes by data, video and a then-nascent technology called facsimile. Before long, however, it was the video segment–as in television–that clearly dominated.
Paris-based Euroconsult studies global transponder use. According to 1999 statistics, the number of active transponders, in 36 MHz equivalents, was 4,639. The primary uses were 58 percent for video, 37 percent for voice and 4.5 percent for Internet Protocol (IP) traffic.
In 2004 they estimate, the number of active transponders may be 6,032–an increase of 30 percent–and the primary uses could reach 61 percent for video, 24 percent for voice and 11.3 percent for IP. By then, they note, 193 of the 6,032 transponders will be used for “last-mile” traffic, delivering the Internet directly to the end-customer. (As we went to press, Euroconsult was updating these figures.)
Wholesale And Retail
Much of the current IP volume on satellites is considered “wholesale” traffic. Satellite carriers and fiber optic providers compete, and augment each other, to connect Internet Service Providers (ISPs), located on every continent, with the Internet’s backbone, most often in the United States. Wholesaling includes trunking to regional hubs that extend spokes out to ISPs, and extension links for ISPs seeking new territorial conquests.
For example, Intelsat is currently transporting seven Gbps of “wholesale” Internet traffic across its global fleet of 20 satellites to over 150 ISPs and carriers in more than 200 countries. Approximately 43 percent of this traffic is to and from Europe.
On the other hand are “retail” business models which compete for end users.
Several players will be using satellites to provide Internet services directly to residences and small businesses, the latter referred to as enterprises. A pioneer is Gilat’s Starband project in the United States where it’s already providing two-way Internet services using Ku-band transponders the company has leased on Telstar 7, a Loral Skynet domestic GEO satellite.
In Europe, Alcatel’s Skybridge is planning to lease GEO Ku-band transponders at least until its own low earth orbit satellite constellation is ready to proceed.
The first of Hughes Network Systems’ Spaceway GEO satellites will begin operations in North America during 2002, followed by expansions to other parts of the globe. Spaceway will use the very high frequency Ka-band technology, along with spotbeams, and will combine its services with Hughes Electronics’ DirecTV to market both television and Internet services.
Astrolink satellites, also in Ka-band, are also planned for GEO deployment but the first GEO Ka-band satellite might be Wildblue 1, under construction by Space Systems/Loral for launching during 1Q2002. As with Spaceway and DirecTV, Wildblue’s Internet services will be marketed in tandem with Echostar’s Dish DBS system.
Speaking Of Europe
During a Satellite Action Plan plenary in early July at Brussels, Belgium, Erkki Liikanen–a member of the European Commission responsible for “Satellite Communications and EU Policies”–said that “aside from the U.S. industry, the European industry is the only one in the world having the capability to develop complete turnkey satellite communications systems.”
Liikanen also described the EU’s growth in data transmissions, its difficulties experienced recently by “the constellation generation of mobile communications satellites,” the significant commercial successes of satellite broadcasting (a reference to Astra and Hot Bird), and “promising projects focusing on broadband, multimedia services.”
Among the attendees at Brussels was Connie Kullman, Intelsat’s chief executive. Eight days later, on July 18, Intelsat was privatized after 37 years as a treaty-based organization. Intelsat Ltd. was created with more than 200 shareholders comprised of companies from more than 145 countries. By the end of 2002, the company expects to sell about 15 percent of its shares to the public.
During 2000, Intelsat as usual had the largest revenue stream of any satellite carrier, approximately $1.1 billion. Of this amount, European traffic produced 28 percent, more than any other region. According to Graeme Kennelly, Intelsat’s Internet Business Line Manager, the company’s Internet traffic grew by 54 percent from 1999 to 2000, and represented 14 percent of the company’s total revenues in 2000, amounting to approximately $154 million. Voice (telephony) delivered 42 percent and video (television) provided 19 percent.
Intelsat has been involved with the Internet for a long time. Among the company’s many industry firsts, it claims the first international transmission of ARPANET, the Internet’s legendary predecessor. In 1978, the Intelsat 4A satellite connected earth stations at Etam, WV, in the United States, Goonhilly Downs in Cornwell, England, and Tanum in Sweden, accomplishing a 2.4 kbps link of three networks in the United States with Norsar in Norway and the University College in London.
On The Move
Like Intelsat, Eutelsat is metamorphosing in the 21st century. Eighteen years ago, Eutelsat began its satellite services by using Eutelsat 1F1 to broadcast Sky Channel’s daily five-hour schedule to cable networks in six European countries. On July 2, 2001, the Eutelsat intergovernmental organization was privatized under French law and became Eutelsat S.A. with a registered share capital of approximately $857 million. Its largest shareholders include France Telecom (23.1 percent), Telecom Italia (20.5 percent), British Telecom (17.5 percent) and Deutsche Telekom (10.9 percent).
As a satellite operator already a major factor in digital home entertainment and corporate networks via its Hot Bird fleet, Eutelsat is hard at work on new opportunities in broadband services as well as expansions into Africa, Asia and the Americas. Eutelsat’s revenues in 2000 were approximately $650.5 million at the year’s-end exchange rate, a 47 percent increase over 1999.
Its chairman and CEO, Giuliano Berretta, points out that Eutelsat’s fastest growing business segment is in IP transmissions, which used 16 percent of Eutelsat’s capacity during 2000. In fact, 40 percent of capacity is being used for multimedia networks including IP. “Our huge successes in providing instant television services,” says Berretta, “underscore our system’s potential for an airborne Internet.”
The company currently has 22 geostationary satellites, 19 of its own and three others leased, positioned from 15 degrees W to 48 degrees E. Seven new satellites will join the fleet during the next two years, including a unique Boeing-built 376HP “e-Bird” that’s scheduled for delivery in mid-2002. The e-Bird will be optimized for IP networks, providing satellite return link capabilities to accommodate the asymmetric nature of Internet traffic.
In 1999, Eutelsat established trans-Atlantic connectivity for video and IP traffic with Teleglobe of Canada. In February 2000, the U.S. Federal Communications Commission (FCC) authorized access from the United States directly with Eutelsat satellites. To enhance this route soon will be two new satellites, Eutelsat’s Atlantic Bird 1 at 12.5 degrees W, under construction by Alenia Aerospace, and Atlantic Bird 2 at 8 degrees W, under construction by Alcatel Space.
According to Berretta, “continued geographic expansion” is definitely in the winds.
The Big Little Giant
Eutelsat is not the only European satellite operator experiencing growing pains. Satellite industry followers will forever be amazed by the growth and success of the SES Astra enterprise that was born in relatively small Luxembourg (population 431,000) in the mid-1980s. During 2000 and 2001, according to the company’s 2000 annual report, SES “has pursued its transition from a European to a global enterprise.” They currently call it the SES Group, soon to be SES Global, and its “mission is to become the world’s leading international provider of broadband satellite communications services.” SES revenues for the year 2000 were approximately $792 million, an increase from 1999 of about 15 percent.
By the end of 2000, the report said, SES Group was reaching 79 percent of the world’s population via its “broadband satellite communications network that spans four continents.” The SES Group’s portfolio has a 50 percent equity stake in Scandinavia’s Nordic Satellite AB (NSAB) operating the Sirius satellite fleet; a 19.99 percent equity stake in Brazil’s Embratel Satellite Division, subsequently renamed Star One SA, operator of Brasilsat satellites; and 34.1 percent of the equity in the Hong Kong-based Asiasat satellite system.
On March 28, 2001, SES announced the creation of SES Global to acquire all of the assets of U.S.-based General Electric’s GE American Communications Inc. (GE Americom), in a $5 billion transaction consisting of $2.7 billion in cash and 15.4 million shares in SES Global. Regulatory approvals are expected no later than 4Q2001.
During 2000, under chairman and chief executive John Connelly, GE Americom had revenues of $522 million. GE Capital, the parent of Americom, has assets of more than $370 billion. The enterprise value of SES Global will be approximately $11.9 billion, according to the parties, when SES Global emerges with the worldwide industry’s largest fixed- satellite fleet, including 28 wholly owned satellites and 13 additional birds through partnership and investment interests.
The core business of SES is built on Astra, which SES contends in promotional materials is “Europe’s leading direct-to-home satellite system, with 11 active satellites transmitting in analog and digital format over 1,000 TV and radio channels as well as multimedia and Internet services to an audience of more than 87 million homes.”
Through SES Multimedia, a wholly-owned subsidiary, the company is developing an early rollout of satellite-based multimedia and two-way Internet broadband services via four Astra-Net platforms installed in Europe and across the world. A plan by SES, however, to develop two Ka-band satellites for broadband Internet traffic, called Pioneer, has been suspended but not cancelled, according to spokesperson Yves Feltes.
Skies Are Bright
Now in its third complete year of operations, New Skies Satellites, headquartered in The Hague, The Netherlands, is also continuing to grow stronger.
During 2000, New Skies had a 46 percent revenue growth from 1999, and 61 percent of its new business came from customers of its Internet services, branded as “IPsys.” The Internet-over-satellite traffic consists almost entirely of connections for ISPs with the Internet backbone.
Total revenues for 2000 were $198.3 million, with 56 percent coming from video, 24 percent from Internet traffic (ISP connections with the Internet backbone) and 20 percent from telephony and data. New Skies sold 500 Mbps of bandwidth to ISP customers in 2000, thus filling some 450 MHz of transponder capacity. The company reached 700 Mbps by June of this year. One new customer in Taiwan accounts for 65 Mbps. Seven DVB platforms and SCPC carriers cover India, South and East Africa, Central Africa, Asia and Latin America.
New Skies had an Initial Public Offering (IPO) last October, raising $256 million. On March 29, NSS was granted full, unqualified authority to operate in the United States and has already established a “mediaport” (a variation on “teleport”) facility in the Washington, DC, area. Unconfirmed reports from Europe have recently suggested that a strategic partnership is being developed between New Skies and Eutelsat.
The original five New Skies satellites obtained from Intelsat in 1998 are still in operation. NSS 7 is expected to be launched in 4Q2001 to 338.5 degreesE (21.5 degrees W) over the Atlantic Ocean, retiring NSS K.
New Regional System
London-based Europe*Star Ltd. launched its first satellite on October 29, 2000. Europe*Star 1 is in orbit at 45 degrees E. Also, the former Koreasat 1 satellite, which has a limited life expectancy, is at 47.5 degrees E with its new identity as Europe*Star B. In 2002, Europe*Star 2 is tentatively scheduled to be launched into the 45 degrees E slot alongside Europestar 1.
Europe*Star is a joint venture of Alcatel Space (51 percent) and Loral Space and Communications (49 percent). The Europe*Star birds are part of the Loral Global Alliance, which includes Loral Skynet, Satmex, Skynet do Brasil and Stellat, the latter scheduled for 2002. Space Systems/Loral provided the FS 1300 platform for Europe*Star 1. The company has listed its primary business targets as IP multicasting and Internet, digital TV broadcasting and large VSAT networks.
Meanwhile, at co-parent Loral Space and Communications in New York, it was announced in February that “the company has substantially revised its plan for participation in the broadband communications market.” Loral’s loss for the year 2000, before any Globalstar-related charges, was $142.5 million compared to a loss of $148.4 million in 1999.
Loral Chairman and CEO Bernard Schwartz said the company would “not deploy a proprietary direct-to-the-consumer broadband service, as previously planned” but would help Loral’s transponder customers pursue the “broadband” market opportunity.
Commission Member Says:
On July 9, Liikanen commented, “One figure should be enough to convince us that satellite communications are a significant sector for the European Community: 30 million households in the European Union receive satellite television directly…. In addition, TV content is also fed via satellites into cable-TV networks that reach some 50 million households in the European Union.”
The same satellite operators who deliver television, whether or not its content is important, will soon deliver the Internet, whether or not its content is important.
Robert N. Wold is based in California. His e-mail address is: email@example.com