The World’s Hottest Real Estate: Orbital Slots Are Prime Property
By Theresa Foley
What is the world’s most valuable orbital slot? DirecTV’s 101 degrees W appears to be at the top of the list, bringing in more than $4 billion a year from three satellites located at the position over the United States and generating more revenue than any other.
Trailing behind is a pair of slots, 119 degrees and 110 degrees W, shared by Echostar and DirecTV. Together they brought in $2.7 billion for Echostar in 2000. And, while DirecTV also has satellites at that location generating revenue, they are not DirecTV’s core money-producing spacecraft. Next in line is SES Astra’s 19.2 degrees E position, where seven satellites reside, generating the majority of SES’ $735 million in revenue last year. Other runners-up for the short list of the world’s most valuable orbital real estate are Eutelsat’s 13 degrees E slot, the company’s premier Hot Bird position, holding five satellites and bringing in $263 million in revenue in 2000, and Intelsat’s 335.5 degrees E, a historically valuable slot in use since the mid 1960s that generated $111 million in 2000.
Each of the operators controlling the most valuable pieces of orbital real estate has used a unique strategy to create a premier slot, but several common themes still arise in slot development. For example, the most valuable slots usually have multiple satellites collocated in them. The services carried tend to be TV and radio-oriented, but more importantly, reach into massive audience bases of the world’s most affluent consumers. And the slots usually have taken two or more decades of effort and $1 billion in investment to reach critical mass. The other theme is the tenacity, deep pockets and a willingness to stick with it on the part of the operator. These may be big bucks, but they are not quick ones.
Location Is Key
Location is the most important feature in trying to develop an orbital slot into a gold mine, says Jimmy Schaeffler, chairman and CEO of The Carmel Group. “The most valuable slots are measured in terms of the number of people under the footprint and the number of birds there,” he says, adding that “you then have to ask about how it’s being used. Are they maximizing the bandwidth?”
Schaeffler prefers positions over land masses like the United States, with a homogeneous culture and language and an audience of huge size with a lot of spending potential. Services to a place like South America, where two languages are used in an audience of 400 million, are another good option, he says. In Asia, slots over the land masses of the People’s Republic of China and India reach three to four billion people. But, he says, “if a satellite dish costs $400 in a country like Albania, where people don’t have $400, it doesn’t matter that you have potential growth there.”
David Baylor, DirecTV executive vice president, says 20 years and nearly $1 billion has been spent developing 101 degrees W since the slot was obtained from the Federal Communications Commission in 1982. The investment includes the cost of the three satellites at about $200 million each, plus a fourth that is to be launched later this year, and two supporting broadcast centers on the ground at $100 million each.
The availability of technology is often the key to timing.
“It took until ’94 to launch the business because the technology and the business opportunity had to converge,” says Baylor. First the company waited for a higher-powered spacecraft model to be available, the HS 601 from Hughes, and then for improvements in digital compression that allowed the satellites and frequencies to provide 150 channels. Because DirecTV intended to take on the cable industry, power and compression technology allowing it to beat cable’s standard 50 to 60 channel offering had to be available for the business plan to work. The slot will be further improved with the launch in October of a more advanced satellite, DirecTV 4S, with spotbeams and frequency reuse capability that will allow DirecTV to broadcast additional local channels to urban areas by reusing frequencies in places that are not adjacent.
Eutelsat has a long history of developing 13 degrees E, starting in 1984 when a limited number of services were launched there, just 15 TV and radio channels. Again, technology was central to improving the slot. In 1990, the new Eutelsat 2 (F1) at 13 degrees E allowed DTH reception with 60-cm dishes, and changed the nature of the services that could be offered. In 1992, the introduction of double feed antenna technology allowed Eutelsat to offer customers simultaneous reception from 13 degrees and 19 degrees E with a single dish, further increasing the value of 13 degrees E. Then in 1995, Eutelsat entered the digital era by launching Hot Bird 1 to 13 degrees E as the first of the five Hot Bird satellites to be collocated there.
“We have invested quite a lot in this orbital position,” Eutelsat CEO Giuliano Berretta says. In 1995-99, Eutelsat began spending $21 million a year to promote the spot, over and above the $848 million investment in the satellites there. Today, Eutelsat is budgeting close to $315 million more to improve 13 degrees E with Hot Birds 6 and 7, which will be launched in 2002. Hot Bird 6 will have a Ka-band payload and the capability for microbroadcasting. Hot Bird 8, soon to be ordered, will further improve the position. “We’ll put the best Ferrari we’ve got there,” Berretta says. The new mix at 13 degrees E will reduce the number of satellites from five to four and the frequency mix from pure Ku-band to Ka- and Ku-band.
Are all the good locations locked up? “Within Ku-band spectrum, it’s hard to come in now as Johnny come lately,” Schaeffler says. The solution is either to partner with an operator that has access to good Ku-band real estate, or to move on to Ka-band or other frequencies, he adds.
New high value locations can be developed through planning, as Intelsat has done with 328 degrees and 305.5 degrees E, John Stanton, Intelsat’s president of global sales and marketing Ltd. says. “If you can predict with accuracy the development of customer needs, and get in place a spacecraft with the right power and connectivity, market it right, it is possible to develop strategic locations. Competitors like Panamsat have done that,” he adds. “It can be hit and miss. If the planning is not correct and the marketing is poor, you can put up spacecraft that will struggle to generate a strong community. The factors that come into play are pricing and distributor relationships. It’s not just luck.”
SES Astra spokesman Yves Feltes says SES’ success cannot be easily replicated. “It is very difficult to build the value of an orbital slot from scratch. Besides the time it takes to build and launch a satellite to physically get into the market, you have to create a consumer proposition market attractive enough for end consumers. If you will be in direct competition with existing operators, then it is even more difficult….You need a full line up of public and private broadcasters in each country to make it attractive enough to the general public. The message is that hardware, spectrum, and a slot is worth nothing if the content isn’t attractive to the consumer.”
Other constraints are getting access to all the frequencies at a slot, or coordinating with the other nearby satellites that have them. An operator also has to worry about how to back-up the satellite and frequencies once they become so highly valued.
Baylor says the affluence of the individuals served is a key differentiator. Services also need to be different from whatever the competition is offering, either in terms of quality or cost. “You have to develop a realistic business plan that looks at all ups and downs, not one that just says, ‘If we get three percent of the market, we’ll be golden,'” Baylor says. “Will you really get three percent? You need to apply some rationality toward assumptions of the business plan.”
A good position will need to be defended, says Baylor. “If you are an early pioneer, realize that a second or third competitor is going to come in….You need to factor in how strong competition will be and how you can differentiate yourself.”
Smaller companies are at an automatic disadvantage in creating hot slots because of the tremendous investment required. Besides marketing costs, a company faces the expense of setting up global offices, paying for publicity and supplying customers with antennas, as Eutelsat is recognizing as it tries to break into the Brazilian market with 12 transponders at its 8 degrees W slot, where its Atlantic Bird 2 will be. “If you have to buy an orbital position, it is even more difficult to create a hot slot,” Berretta adds.
It’s Not Just The Money
Kim Degnan, a CA-based consultant who has been involved in satellite regulatory affairs since the 1980s, says there are a number of ways to define a hot slot other than by the revenue it produces.
“Regulatory and policymakers have a real different perspective on what is a hot slot from a company,” according to Degnan. A slot’s importance from a cultural and political influence standpoint can be just as significant as the billions of dollars it earns, she believes.
Degnan counts at least 30 slots that have more than 100 filings from multiple countries, indicating an intense interest in developing them. Another group of slots have multiple fully loaded satellites in them that have several owners. For example, the 91 degrees-92 degrees E slot has two Brazilsats, two Galaxy satellites and a Canadian Nimiq in it. At 43 degrees W, Panamsat operates three satellites, PAS 6, 6B and 3R. A slot at 30 degrees W holds three Spanish Hispasats and two Intelsats, and the 26 degrees E slot is important to the Middle Eastern region with two Arabsats in it that have been under development for many years.
Other slots have been mined by certain countries for years. “For example, 100.5 degrees E is Asiasat’s slot; 40 degrees E is a traditional Russian slot; 156 degrees E is Australia’s slot; and 136 degrees E and 158 degrees E belong to Japan. These slots are ‘hot’ for those nations and sub-regions, even though they are not as sexy as the high revenue producers,” Degnan says.
An informal proposal to put a 15-year term limit on ownership of a slot has been circulating among the community of national and corporate representatives who are involved with ITU satellite policy, but Degnan believes that any formal initiative to set term limits will not get far. “A major re-write of ITU regulations would be required, and it makes no economic sense for any party,” Degnan says.
Targeting The Next Hot Slots
Where will the most valuable slots be in a few years, as a new generation of satellites and services are launched? Some new hot slots may be created around new satellites launched explicitly to provide Internet or multimedia services. Others will become adjuncts to the current hot slots–nearby slots tapped for auxiliary services to be offered by the same big operators or their partners to an already established customer base. Again, the use of dishes able to receive from two or three satellites simultaneously comes into play.
SES, for example, is developing 28.2 degrees E into its second hot slot. This position has been used by SES since 1997, housing three satellites last year and with the addition of Astra 2C this summer, now a fourth. Astra is counting on dual or triple feed dishes to help it make its second and third orbital slots as attractive as the first, Feltes says, adding that a third SES position will be developed at either 23.5 degrees or 24.2 degrees E. The new location will beam down Internet multimedia services to be bundled with TV programs from these two slots.
Eutelsat is focused on creating two premier slots for multimedia services, at 7 degrees E, which could become a multimedia hot slot, building upon the $65 million generated there last year from the W3 satellite, and 25.5 degrees E, the slot intended to house e-Bird, a spacecraft for broadband access. At 7 degrees E, double feed antennas could be used to deliver multimedia services along with TV programs received from 13 degrees E. A new satellite has been ordered for launch in 2003 to be co-positioned at 7 degrees E, bringing the number of transponders there to 70 in both Ku- and Ka-bands.
As Eutelsat tries to build its markets outside of Europe, three new regional slots are targeted for development, aiming at the U.K., Russian and trans-Atlantic markets, Berretta says. For Russia, Eutelsat will focus on 36 degrees E; for the trans-Atlantic, 8 degrees W; and for the United Kingdom, 28.5 degrees E, a slot shared with SES that provides services into the United Kingdom where more than 5.5 million homes are reached by Astra services. At 8 degrees W, Eutelsat’s strategy is to locate two satellites that can view North and South America, Europe and Africa, providing a total of 37 to 40 channels for multimedia services and cable services.
Echostar is relying on partners to develop any additional high value slots. “We have branched out in partnership with Starband and Wildblue to develop Internet through satellite,” says Echostar Spokesman Marc Lumpkin. “Today we have a bundling agreement with them. We provide TV through our six satellites, standard TV plus high definition and interactive TV. We are not developing our slots for Internet. Now the Dish Network is concentrated on satellite TV and looking for partners to deliver Internet services.”
DirecTV intends to make better use of its current slots rather than spending money to develop new locations, Baylor says. The company recently purchased Telocity, a DSL provider, to help it become a broadband portal along with DirecWay, which is satellite-based.
Covet Thy Neighbor
Every operator in the satellite industry would like to have control of the coveted hottest slots in the world. The stories behind the best orbital locations in the world reveal, however, that creating monetary value out of an orbital position is a challenge that takes a huge amount of resources and time. Today, a handful of slots are capable of generating $1 billion a year in revenue, proving that it is possible, and setting the bar high for operators who control slots that do not generate such large returns.
Theresa Foley is Via Satellite’s senior contributing editor.