Web Exclusive: Making Money In Tough Times

By | December 1, 2001 | Via Satellite

by James Careless

These are tough times not only for the satellite industry, but the global economy in general. But don’t throw in the towel, yet. There are still ways to make money in satellites. To find out how, Via Satellite canvassed some top industry executives.

Our experts: Abdelsalam Heddaya is chief scientist at Infolibria . It develops Internet infrastucture solutions to address networking challenges. Kay Guyer is president of Mentat, a supplier of high-speed networking products to the satellite and computer industries. John Breyer is president and CEO of MI Technologies. It provides RF and microwave instruments, software and systems for satellite and wireless antenna testing. Paul Bush is vice president of corporate development for Telesat , which is Canada’s satellite operator and service provider. And John Sciberras is vice president of marketing for Tripoint Global Communications, a supplier of satellite, wireless and MMDS/LMDS products and services.

Via Satellite: Which areas of the satellite industry still have room for growth?

John Breyer: Applications in the consumer markets still offer opportunities for satellite communications. In addition, I think we have just scratched the surface for secure, military and government communications via satellite.

Paul Bush: In my view there is still plenty of growth in video broadcasting–DTH continues to grow, new programming continues to be launched, HDTV and enhanced TV is on the rise. Other areas where satellite will play a role are broadband (rural and remote communities), making the Internet more efficient (i.e. carrying video and audio traffic), and dispersed enterprise networks.

Abdelsalam Heddaya: Despite massive investments in fiber broadband infrastructure by carriers in recent years, it could be quite some time before key enabling technologies such as widespread support for multicast-based communications are ripe for use across the resulting networks. By way of contrast to terrestrial broadband networks, however, satellite infrastructure is already capable of supporting an array of broadcast-oriented content distribution and broadcasting applications.

Kay Guyer: Worldwide Internet and other IP traffic continue to grow for the foreseeable future, offering opportunities for all types of link providers including the satellite industry. As the world becomes increasingly connected to the Internet, there will be more opportunities to use satellite links for both backbone connectivity and for last mile service to homes and businesses. We also expect that satellite technology innovations will drive costs lower for last mile satellite service, making satellites more competitive with DSL, cable modem and other last mile link options.

John Sciberras: The satellite industry is in the mature part of its growth cycle. This means there are many competitors servicing generally the same customer base and vying for business.

In addition, the industry itself is in competition with other technologies. This fact means growth is difficult. The areas of growth will be ones that offer new applications for satellite communications. Satellite communications solve many communications problems, particularly in point-to-multipoint applications. These applications, in general, will have to be more cost effective than other technologies to be successful.

VS: Does the military buildup now underway offer opportunities for the satellite industry?

Sciberras: Because of the events of September 11th, the world now knows that the threat of evil being done is real. The world is now committed to stop this evil.

Technology is a key to the solution, with satellite communications as a part. Satellite communications has been giving the intelligence community insights for years. This will only increase.

In addition, the U.S. military, and militaries of the world will fight on the battlefields of the future with the operatives of telemedicine, where a solder can be operated on in the field remotely via satellite with the best surgeons performing the operations in domestic conventional hospitals. Further, the individual “troop” will be connected with his leadership via satellite to give him all the data he needs to perform his duties.

Guyer: As the military becomes ever more dependent on sophisticated data services, we expect satellites to play an increasing role in military operations.

Satellite links are frequently the only option for remote and mobile military operations. The current military build-up across some of the most inaccessible terrain in the world can only encourage the deployment of satellites in the military for everything from battlefield communications to telemedicine to e-mail between military personnel and their loved ones at home.

Bush: Due to satellite’s rapid deployment capability and ability to provide secure and diverse path communications, it will always play a role in military communications. Any type of improved security will require enhanced security and that will require improved communications. That’s why satellite will play a role.

Breyer: The test and measurement segment of the satellite industry may see some significant requirements emerge as a result of the recent world events. Military and government orders have been steady throughout the past few years and we may see an increase in radar cross section measurements, antenna and radome measurement requirements in the future.

VS: What money-making opportunities do you see people missing in this industry?

Guyer: We have not yet found an effective way to take advantage of the inherent broadcast nature of satellites for data distribution. In order to offer something better than terrestrial competitors, the industry will need to develop technical and business models for multicasting and streaming Internet content to users.

Heddaya: Further growth opportunities exist for the satellite industry. The airline industry is already pursuing the introduction of an impressive array of two-way, real-time broadband services onboard commercial aircraft. As witnessed through Boeing’s well-publicized Connexion technology, for example, instantaneous connections between satellites and mobile platforms such as aircraft will be key to the support of a cadre of new service capabilities onboard flights. These will include services such as live e- mail, two-way Internet and Intranet access, premium entertainment delivery, and live television

Sciberras: This industry used to be characterized by very sharp individuals who have brilliant ideas who brought them to a naive set of customers. Today, the customers are brilliant as well. They have choices and are continuously playing one technology against the other.

Opportunities exist for those who listen very carefully to what their customers are saying and do exactly what they ask. No more, no less. Too often a very complex and costly solution is brought forward to a very simple problem.

Breyer: Overall the better opportunity to make money, when the market is flat, is to offer superior customer service–not just warranty service of products we sell, but identifying with the customer and standing ready to provide, as in our case, test measurement facilities and personnel to meet unexpected demand or customer deadlines.

VS: Have the rules changed in making a profit in satellites? Or is it still primarily a case of good salesmanship?

Sciberras: The rules have definitely changed. The customer base is very capable. Once knowing how to calculate G/T was considered a high value proposition. Today, G/T can be calculated from many Web sites. The “high tech” value has shifted out of the supply side of the equation. Now suppliers of products and services have to find new ways to recreate that value. However, it doesn’t hurt to be a good salesman!

Breyer: Good salesmanship will always help tilt the scales to a win when products, services and prices are similar among competitors. However the company’s track record for meeting customer expectations is often the tiebreaker, which allows some companies to increase their margins and still win programs. When customers can rely on products and services delivered on time with responsive engineering support, price (and profit) become secondary considerations.

Bush: I think it is more than good salesmanship. The buyers today are sophisticated and in many cases extremely technically competent. A satellite operator must be able to design, implement, and support user networks if they are to survive.

Guyer: It seems the industry has started to move from selling transponder time to selling solutions, which may include a package of Internet access, hardware, installation, systems integration, and even terrestrial links. To be effective at this business model requires a greater degree of flexibility, a wider range of expertise, and a larger web of partners than ever before.

VS: Are there ways to cope with the export restrictions that can help preserve U.S. manufacturer profits?

Bush: I think the ITAR (International Traffic in Arms Regulations) export restrictions have actually hurt U.S. manufacturers. By making it more difficult to deal with U.S. firms, foreign operators are turning to non-U.S. suppliers to avoid U.S. ITAR challenges.

Breyer: It’s hard to compete internationally when our allies in highly developed nations can export freely the same or similar technology that is prohibited for export from the United States. We understand the reasons for export restrictions, but unless we build a consensus among all countries capable of exporting the same technology, we in the United States will be at a decided disadvantage.

Sciberras: Foreign competition is growing. Many international opportunities require in-country content. To be competitive in this environment many manufacturers are setting up operations in other countries. This gets them next to their customer and gives them more of a competitive advantage.

VS: What aspect of the satellite industry are you most bullish about?

Bush: Multimedia. Satellite-delivered Internet has the potential to be as big as the DTH services of the ’90s.

Guyer: Mentat is very bullish about the increasing use of satellite bandwidth for IP data traffic. Especially as the industry develops effective models for delivering IP data by broadcast and multicast services, it will begin to find wide niches where terrestrial options can’t compete.

Breyer: Test and measurement has a bright future. From new technologies bringing satellite communications into consumer hands to increased use for satellite technology by governments and military organizations, the requirements for fast and reliable testing will continue.

Heddaya: Recent economic and political conditions in the United States have combined to create a context in which we can intuitively expect substantial cuts in the levels of air-travel. Satellite-based communications seem well poised to help fill the resulting void through its readiness to support a broad range of real time business communications needs.

Sciberras: Currently on the ground station side, [the area we are most bullish about] would be the government sector. This sector needs more abilities to communicate, whether it is military or agencies or emergency such as FEMA et alia. Satellite communications will continue to play a big role.

VS: Are you optimistic about the year ahead, both for your company and the satellite industry in general?

Breyer: MI Technologies is aggressively pursuing test, measurement and control opportunities in the satellite and the wireless industries. We believe that new products in the consumer sector, new commercial applications for satellite and increased requirements in government and military areas will be beneficial for our company in particular and the industry overall.

Bush: Telesat has a strong foundation and solid expertise moving into the future. There is no doubt that the events of September 2001 have had, and will have, an impact on the economies and businesses in general. Telesat’s skill set and expertise will help us weather the economic downturn.

Sciberras: There is room for optimism for the year ahead….Timing is the issue. Satellite communications will always be in demand, even with stiff competition from other technologies.

The question is not if opportunities will exist, it is when will they happen. Trying to answer this question is what gives gray hairs to CEOs.

Willing And Able

There are still ways to make money in the satellite industry. Clearly, the satellite industry isn’t sitting on its hands and fretting about the world economy. Instead, leaders like the ones quoted above are doing something about it.

According to them, opportunities still exist. Front and center are Internet access, video delivery, and military support–all backed by solid customer service.

The bottom line: no matter what’s happening in the world today, there are still ways for the satellite industry to make money. That’s just the plain and simple truth.

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