Cover Story: The Road ahead: Not So Straight And Narrow

The global satellite industry is being pulled in different directions as 2002 gets under way. A slowing world economy has either flat-lined or depressed sales in many categories. It has not however slowed the pace of continuing consolidation in the industry, as the multi-billion dollar marriage of Luxembourg-based SES Astra and NJ-based GE Americom illustrates.

In the DTH and DBS markets, which remain remarkably resilient in these unsettled times, the headline of the day is CO-based Echostar Communications Corp.’s proposed merger with El Segundo, CA-based DirecTV Inc. This would create a company with an estimated 16 million-plus subscribers and $10 billion in annual revenues. The deal will also have an impact upon the future of Panamsat Corp. and Hughes Network Systems. However, there are substantial regulatory and antitrust hurdles that must be addressed before this can be completed.

“Satellite and satellite TV in particular do well in a down economy. People tend to cocoon more, and there is a noticeable uptick in TV watching,” says Paul Bush, vice president of corporate development for Telesat Canada in Ottawa. “Because IT managers are under intense pressure to save money and cut costs, they tend to migrate more easily to VSAT technology, which is something they like anyway. Hence the continuing growth in this category.”

The broadband sector has gone through another reality check with two of the four investors withdrawing further support for Astrolink. Whether this will spell the end for this project remains to be seen.

“The process of financing and insuring satellites has become much tougher than it was in 2000. That is the reality of the marketplace. It is slanted heavily in favor of the satellite operator with a track record,” says Bush.

“Many of us recognize the importance and potential for broadband communications by satellites. There is clear evidence that businesses and consumers need and desire access to high speed data networks for virtual private networks and for faster Internet access,” says Roger Rusch, president of Telastra Inc. “We are convinced there is a real broadband satellite business. It is only a matter of time, but it will happen.”

While new projects may be on hold, the steady upgrading of satellite networks and facilities can be observed. A good case in point involves the decision by Globecast to integrate MPEG IP gateways and smart switches from Thales Broadcast and Multimedia–formerly Thomcast Communications–for BTV and IP via DVB delivery services as well as other purposes throughout the Americas. When this upgrade is completed, Globecast will be able to broadcast IP and data traffic within MPEG 2 transport streams over its bank of existing Helius receivers.

“I remain optimistic about growth in the broadcasting and the IP sectors,” says Robert Behar, president and CEO of Globecast America. “In North America, for example, we see tremendous growth in the delivery of enterprise satellite networks, which includes both business television and IP multicasting.

“Corporations will expand investment in private multimedia networks in order to increase worker productivity, reduce travel expenses and overcome competition through faster data and video communications,” Behar adds.

Fuzzy Future For Broadband

With news in late October that Astrolink was losing Lockheed Martin Global Telecommunications as a financial backer on top of TRW’s apparent retreat–leaving Astrolink in limbo with just two of its four major investors still onboard–there are several possible outcomes. One is that Astrolink goes forward with Liberty Media and Telespazio, and possibly some new participants. Will Astrolink dissolve all together and leave other satellite broadband players to reap the benefits of diminishing competition? Or, will a new owner or investor come to the rescue?

In early November 2001, another satellite venture, ICO Global Ltd., stated that its plans were being vastly overhauled. ICO Global–formerly ICO-Teledesic Global Ltd.– terminated its proposed merger with Teledesic Corp. Thus, the attempt to unite Teledesic’s broadband satellite network with New ICO’s satellite-based mobile voice and packet-data services has ended.

The fact that the two ventures are still going ahead is proof there is a considerable energy and optimism behind them. Still, there are critics who have watched these and other satellite ventures come and go over the years.

“Neither of these companies (Teledesic or New ICO) have any realistic prospects for proceeding in the current financial climate,” says Rusch. “Furthermore, most investors now realize there are enormous risks associated, both with extremely expensive non-geostationary orbits for communications satellite systems, and any attempt to build a high-tech communications company from scratch when there is no proven market for the service.

“I am disappointed that New ICO is not getting off the ground, but it is now clear to me that the cost of operating a MEO or LEO satellite constellation is prohibitive, and that the mobile market is far smaller than anyone expected, even when the prices for service are reduced to less than $1 per minute,” Rusch adds.

Still, at least one analyst projects that the growth in the U.S. market of residential satellite broadband users in 2002 will outpace both cable modems and DSL on a percentage basis as the total increases from 150,000 at the end of 2001 to 500,000 by the end of 2002. DSL is projected to grow to five million, while the number of cable modem users will swell to almost 10 million, according to this preliminary projection.

Latin America is a good example of a region that has a wide-open broadband agenda. “We know satellite is the only true broadband solution to Latin America, and again, Miami is the ideal location for an effective Pan-American gateway,” says Behar. “We see great promise in providing satellite delivery to Latin America for a broad range of services including backbone connectivity, direct to subscriber IP, streaming, Webcasting, content push and caching, large file transfers and other applications.”

Bandwidth Trading Still A Baby

The emergence of the independent satellite bandwidth trading house represents a radical new twist to the satellite business as a whole. The good news from The London Satellite Exchange is that no evidence of any significant downturn in the demand for satellite capacity has been detected as of early November. This company’s new managing director, Dylan Browne, reports that approximately 950 MHz of satellite bandwidth was traded in its first full year of operation.

He reports that starting in mid-2001, while the completion of the privatization of Intelsat and Eutelsat exerted downward pressure on the regional pricing structures of major satellite operators, the market indicators remained generally positive.

“There was a reduction in the pricing of regional capacity, but despite the apparent softening in the market, the capacity was taken up quite quickly,” says Browne. “If there has been any global downturn in demand, it has not been something that we have detected thus far. I estimate that it would take two months before we would notice it.”

The London Satellite Exchange is still focused on attracting buyers, and assisting satellite operators in their efforts to find users for any idle satellite capacity. For example, such capacity is being freed up as the analog to digital transition continues worldwide, according to Browne, who sees no immediate end to this process of replenishment.

“This remains a heavily fragmented market, and yet satellite operators are keen to sell capacity on new and existing satellites with a heavy emphasis on one to five year contracts,” says Browne. “South America and Southeast Asia remain the weakest markets from our perspective due to lots of capacity and too few buyers.”

In the Middle East, Browne notes there has been a noticeable spike recently, as news and military operations dip into the region’s commercial capacity pool. Otherwise, IP-based services for small- and medium-sized enterprises (SMEs), along with a steady growth in DTH services, have created quite a bit of positive momentum for FSS providers. South Asia shows a similar pattern with a slant towards call center data connectivity.

With the noticeable expansion in the international online registry of satellite bandwidth trading houses, thanks to ventures such as iacto.com in Stockholm, satcap.com in Amsterdam, and gsatx.com in the United States, Browne sees the increased activity and competition as an expected validation of the original premise put forth by The London Satellite Exchange.

“As far as industry-wide receptivity is concerned, the skepticism and fear we encountered in the beginning is gradually disappearing, and now we have lines of communications with all the major satellite operators,” Browne says.

Buses Are Bursting At The Seams

Satellite buses and payloads are getting bigger and more complex. As this industry-wide trend unfolds, power systems based on lithium ion batteries are playing a critical role with an inherent weight advantage, i.e., up to 50 percent savings in weight per unit of power. The existing nickel oxide battery is a solid performer, but it is just too heavy as geostationary satellites in the five-plus ton class with double-digit kW start to join the global fleet in growing numbers.

“Com Dev has focused on using very small cells, which render the battery rather like a solar array in terms of flexible sizing to meet mission capacity requirements,” says Michael Pley, president of Com Dev Space in Cambridge, Ontario. “This is a low complexity and low risk solution in contrast to the more traditional approach using sophisticated circuitry to balance and control large cells.”

The satellite buses in this category include the Spacebus 3000 B2 from Alcatel Space, the Boeing 702, the Lockheed Martin A2100, the Eurostar 3000 from Astrium and the 1300S from Space Systems/Loral. These immense spacecraft can include a DC payload power of 15 kW or more.

“They are jamming more and more components into spacecraft. And I see no end to this trend. All of this requires better power handling and better thermal management,” says Pley.

Joan Byrnes, executive vice president of sales and marketing at Loral Skynet, describes the majority of satellite operators as aggressively pursuing the deployment of larger buses and multiple payload platforms. They are so compelling, but at the same time, the industry is mindful that there is a need for balance.

“There is kind of a love-hate relationship in play here. Larger buses are more cost effective because of the greater number of antennas you can put on them. However, there is a need to be agile in terms of the fleet mix as you often hear customers asking for the return of smaller, single payload satellites,” says Byrnes.

Byrnes remains a proponent of the conventional bent pipe approach. “The goal remains the same: the delivery of seamless, continuous high quality service. You do not want to get too fancy. You could lock yourself into something which, five years out, you do not really want,” Byrnes says.

Pley believes that Com Dev Space is well-positioned as a subcontractor. The company continues to refine its product lineup, consisting of waveguide, switches and output multiplexers, which are benefiting from the use of temperature compensation techniques to boost performance without thermal drift, according to Pley. Preliminary work on micro and mini-satellite constellations is also under way with the Canadian Space Agency.

A Challenging Market Ahead

The coming year is already portrayed as one where optimism will be needed, along with increased consumer spending, in order to allow the economy to bounce back. However, this outcome is by no means guaranteed. In the realm of satellite operators, there is considerable, albeit guarded, optimism.

“We are all facing a challenging market in the coming year. We would all welcome a rebound in the economy. In the meantime, the focus is on maintaining good relationships with customers. That means working together as partners so as to come out sooner and better on the other side,” Byrnes says. “Customers are making do with older technology. At the same time, the events of September 11 are causing everyone to streamline applications over satellite.

“Full transponder sales are off. We see a much more cautious attitude on the part of customers buying space segment. Channelized sales, and instances where a transaction centers on a 3 MHz block are the rule now,” adds Brynes. “The practice of buying satellite capacity based on speculation came to an end in late 2000.”

Loral Skynet is celebrating its fifth anniversary in March. It is preparing new product lines that will leverage existing FSS assets and capabilities, according to Byrnes. Two new satellites including T13 with C-band capacity and T8 with Ka-band capacity are expected to launch next year.

“We are looking at the best way to extend the satellite network to the ground. This involves all aspects of an integrated network, and not just the gateway,” Brynes says. “This is in addition to our professional services, which involve everything from project management to systems integration.”

The steadily increasing commercialization of U.S. government traffic is not to be discounted. And new satellite-based joint ventures such as the recently formed Immeon Networks LLC, which unites Loral Skynet with Viasat, are likely to increase in number. Immeon Networks provides an essential backup data communications service, allowing companies to access a 512 kbps symmetric IP connection when circumstances warrant it, for example. With bandwidth on demand at their fingertips, Immeon’s customers can initiate a crisis response or disaster recovery plan in an instant.

“Companies are trying to drive more into their networks. They are leaning towards enhancing and consolidating the platforms that already exist, rather than creating new networks. And as a result, our network operations group is seeing steady and continuing growth,” says Telesat’s Bush.

Bush remains bullish on Ka-band multimedia. Telesat’s Anik F3 remains in the planning phase as Telesat attempts to attract more money and partners to the project.

“In the satellite broadband arena, both DirecWay and Starband are just interim solutions. The Ka-band multimedia solution is the way of the future, although as an industry we still need to get to lower cost terminals with higher speed access,” says Bush. “Satellite will not only provide access technologies and services to rural Canada, but also to anyone living anywhere that does not have high-speed connectivity readily available.”

Mixed Prospects For Mobile

People sailing or cruising offshore may look like they are eager to detach themselves from the noisy and hectic routine of daily life, but the need to stay connected in the realm of all things floating has never been stronger. The result is a growing demand for solutions to deliver data and voice traffic to vessels of all shapes and sizes worldwide.

Sea-Tel, for example, reports increasing demand for its stabilized VSATs and WaveCall communications products, which accounted for half of the company’s revenues last year, according to Richard Stallbaum, Sea-Tel’s sales and marketing director.

“The need for more bandwidth on very large yachts in particular is drawing customers to maritime VSATs. These clients have bandwidth demands that are not being met by traditional maritime satellite communications systems,” says Stallbaum. “For other yachts, there is also the issue of how much space is available for satellite gear. They cannot easily accommodate an Inmarsat B unit, so the search is on for affordable high bandwidth alternatives.

“Sea-Tel plans to introduce new WaveCall communications products utilizing Globalstar’s LEO satellites in early 2002 that will meet these two (small size and higher bandwidth) requirements,” adds Stallbaum.

As part of the broader terrestrial and maritime mobile satellite market, it is always good to hear upbeat news about big yachts and cruise ships. However, the mobile satellite sector in general is still in a state of flux with the exception of Inmarsat, which remains unchallenged as king of the hill.

“Mobile satellite services continue to be dominated by Inmarsat. It serves most of the subscribers and earns nearly 90 percent of the revenue. Iridium is unlikely to survive in the long term. Globalstar is a financial disaster as well,” says Rusch. “New ICO also seems to be stalled and unlikely to be fully deployed.”

Iridium officials, however, say the company is ahead of its plan for this period, since its relaunch last April. Likewise, data capabilities have been added, launch of more satellites are slated for next year and Iridium has affirmed its existing constellation’s life can operate through 2010 at a minimum.

The new regional players, ACeS in Southeast Asia and Thuraya in the Middle East, represent a new spirit in the industry, and thus far, they seem well positioned and well managed, although they face an uphill struggle as the world economy sputters.

This fall, Inmarsat postponed its Inmarsat Ventures IPO, while at the same time it is pressing on with its Broadband Global Area Network (B-GAN) project, which is scheduled for launch in 2004. Aimed at a user segment in the range of 400-plus kbps, B-GAN will tap a terrestrial interface provided by Logica as part of a broader satellite software and hardware contract with Thrane and Thrane.

Elsewhere in the mobile satellite services sector, Iridium and Globalstar struggle to attract new customers.

“Iridium restarted commercial service in April using limited ground facilities. It has dramatically reduced the original Iridium operating costs to about $7 million per month or $84 million per year,” says Rusch. “Despite a U.S. Department of Defense fixed price contract for $3 million per month that permits unlimited use of the system by up to 20,000 telephones, the system is still losing several million dollars per month. We continue to be skeptical about the long term viability of this system.”

Iridium officials, however, say they have instituted new competitive rates; introduced lighter/smaller handsets; and business objectives now are focused on market segments outside of the military that would best use the Iridium system.

“Globalstar has continued to provide service to a small number of users–about 65,000–while its financial reserves are depleted. It has suspended payments of principal and interest on over $2 billion of debt, laying off half of its employees this summer,” adds Rusch. “The high cost of operations continues to be about double the cost of Iridium operations. There is tremendous pressure for bankruptcy proceedings to begin in the next few weeks.”

Who Will Lead The Way?

The satellite industry may not be able to count on the commercial launch and spacecraft manufacturing sectors as strong sources of energy for a turnaround in 2002. Executives, however, might find strength in the relative stability of the FSS sector, combined with healthy subscriber growth in the DTH arena and a gradual uptick in demand for satellite broadband services.

The bottom is not about to fall out, but the global telecom sector has taken a huge hit in 2001, and the satellite industry has been jolted by the ensuing shockwave. There is no sense in late 2001 that a quick economic rebound is likely to occur, but there is hope that the soft economy will stay soft and not undergo any steep or dramatic plunge.

Readers take heart. We have much to do, and more satellite-based opportunities will unfold, even as the ever intensifying terrestrial competition marches on. The energy that will go on propelling the satellite industry forward is limitless, and as the current unwelcome economic climate swings back, the industry should be poised to address new challenges, and to rekindle the spirit which has taken us this far.

Peter J. Brown is Via Satellite’s Senior Multimedia Editor. He lives on Mount Desert Island, ME.