Latin America: Economically Down, But Definitely Not Out
By Nick Mitsis
The landscape of competition and regional satellite services growth within Latin America continues to change. Alongside the growing capacity rate, more satellite companies are increasing their business offerings and maintaining their interests in delivering new services. A region comprising more than 500 million inhabitants, Latin America continues to attract business plans zeroing in on this key market spanning from Mexico to Argentina.
T he region is host to small, well-established regional satellite companies and an important revenue source for the world’s larger satellite services providers. Even though the more than 30 nations of Latin America continue to struggle through the worldwide economic recession–and some are in the midst of their own economic or political turmoil– satellite industry executives remain hopeful that business opportunities will continue to foster strong growth. This growth primarily is materializing in the applications of telecommunications and entertainment services.
The Ups And Downs Of Near-Term Forecasts
Maria Valez de Berliner, president of PA-based analyst group Latin Trade Solutions Inc., says that communications and telecommunications are sectors that Latin America cannot afford to live without. “I believe the satellite industry, indeed, has tremendous possibilities in the area, but particularly in the area that has to do with applications that are related to security of communications,” she says. “I believe that applications through satellite, through hybrid operations, through joint ventures and also through strategic alliances are going to be vital to the stability of the [Latin American] governments and the economic institutions that are going to guarantee a safe and secure business environment.”
Janice Starzyk, senior market analyst with Futron Corp., says the current economic situation in the region has had an affect on satellite developments, but certain markets are still favorable in the long term. “There is an oversupply in Latin America due to the region’s economic situation and the tremendous buildout of submarine and terrestrial fiber connections. But Mexico and Brazil remain the big markets to continue to look at and they still hold promise for the satellite industry,” she adds. “Entertainment and last-mile Internet connectivity are still the favorable industries to tap into.”
As the economic and political landscape changes within Latin America, so are the strategies of the global satellite players. “During the next few years we are going to have more capacity and more development of applications like we have in Western Europe and North America,” says Bernardo Schneiderman, executive director of sales in Latin America for Loral Skynet. “The trend now is Ku-band and the next few years are critical for the market in terms of new interests. With the launch of Estrela do Sul 1 and Telstar 8 in the next 12 months, we will have enhanced Ku-and C-band coverage over North and South America.”
Like Loral Skynet, BT Broadcast Services also sees growing opportunities within the Latin American region. Mark Smith, BT’s head of broadcast and satellite services division, says the Americas currently make up 25 percent of BT’s business with the rest of the world balancing its business model out at 75 percent. “Our goal is to have a 50-50 split within three years time,” Smith says. “I think one of the largest growth opportunities within Latin America rests within the region’s borders with intra-Latin American content distribution. I believe we will see this grow even more throughout the years to come.”
Satellite Operators Continue Orbiting
Juan Manuel Pinedo, executive vice president of sales and operations for Satmex S.A. de C.V., also says the near-term outlook for the region will be both “challenging” and “exciting.” The challenges stem mainly from the overall economic downturn facing the region. The excitement stems from the new applications on the forefront and the cost reduction of those currently existing. “The convergence of applications into IT standards and the ability to include it into a single platform–video, voice and other types of services–we believe are going to be the key drivers for the upcoming years,” Pinedo says. In addition, Pinedo notes there has been a reduction in terminal costs. “A few years ago, we would be talking about VSATs which would cost between $5,000 and $6,000 per terminal. Now, we are talking about $2,500 per terminal.”
Now Satmex is further analyzing its business plan in the region. “We believe the satellite industry will continue to be very well positioned [as] a niche player for specific applications. But not only that, we consider that satellites will not only be the best, but in many cases, the only way to provide connectivity and answer the last mile dilemma for rural and some urban Internet users,” Pinedo says.
“We are expecting huge growth from the broadband DTH and SoHo (Small office Home office) services, and two-way satellite applications will enable them to quickly deploy at a very low investment cost and provide them with broader access to markets and immediate connectivity,” adds Pinedo. “I believe that Latin America in 2002 will still be suffering from the economic slowdown. At the same time, we will need to better understand applications, technology and customer requirements. But a key element here will be how we assess the risk associated with these new business plans and how we develop longer-term relationships with current customers and potential future partners.”
Indeed, Lincoln Oliveira, director of operations and engineering at StarOne Satellites, says his company is developing residential broadband services in the Latin American region, entering the broadband enterprise market, and obtaining a telecommunications license in Brazil to provide telecommunications and broadband services to Brazilians. Currently, StarOne’s satellite traffic is 58 percent voice and other applications, 25 percent TV, 12 percent data and 5 percent idle capacity. “We also plan to develop services provisioning capabilities, and better aligning our resources with our parent company, Embratel,” he says. “Embratel is currently providing satellite communications services and now we plan on creating further synergies among our offerings in order to better serve the market.”
Another satellite operator that is focusing on developing stronger market synergies within Latin America is New Skies Satellites N.V. Dolores Martos, vice president of Latin American sales for New Skies says the Latin American market went through two to three years of recession in broadcast and video services. “But we see an increased need for more entertainment services in Latin America,” she adds. “We estimate roughly 4,000 cable headend antennas operating right now in the C-band in all the Americas, as well as in Europe, mainly in Spain and Portugal, receiving programming in Portuguese and Spanish.”
Now, New Skies is gearing up for new Ku-band applications coming soon through its NSS 7 satellite slated for full operation later this year. “We see a high demand in our region for multimedia broadband services and NSS 7 will enable new synergies to form through its beam capacity from the Southern United States to Argentina.”
Jose Ignacio Gonzalez-Nunez, deputy CEO of Spain’s Hispasat, says that his company recognizes the Latin American market potential and plans to grow its regional penetration by 2004. “We have a total market penetration in Latin America of more than 11 million households, most of them are cable households, with an estimated penetration rate of more than 55 percent,” he says. “We have learned that the culture and the language are very important for our business development, so we have learned that we don’t want to focus on all the markets within this region, but rather concentrate on where we feel strong.”
Daniel Salzer, who was general manager of Nahuelsat S.A., of Argentina and is now vice president operations at EADS Space Services in Germany, says Nahuelsat continues to weather the current economic and political storms in Argentina and has survived well. Nahuelsat’s main business comes from data (37 percent), telephony (24 percent), television (24 percent) and DTH services (15 percent).
He says satellite companies face many risks to their businesses in the region including: large debt carried by countries in the area, continued economic sluggishness, existing trade barriers that need to be eliminated, and integration of services that need to occur.
“Basically, Latin America is growing as a whole. Today at Nahuelsat, we have to provide much more of an access to the region’s networks. We are complementary to optical fiber, we have open standards, intense cooperation with manufacturers and we find new ways of distributing capacity to our customers on the real demand,” Salzer says. “But I would like to point out that we are accustomed to and confront the economic regional risks every day. The key to successful business under these situations is staying flexible within our relations to our partners and customers.”
Ed Martinez, vice president of Latin American operations for Panamsat Corp., says he is not pessimistic about the economic opportunity represented in the Americas. Indeed, he adds that Panamsat is committed to the region, has offices in Mexico and Brazil and will open additional offices as business conditions warrant. “Our strategy is to stay focused on our customers,” Martinez says. “We need to listen to our customers and partner with them.” Currently, Panamsat has 11 satellites servicing the Latin American region.
Intelsat, another global satellite service provider honing in on Latin America, recognizes that demand will grow throughout the next 10 years. “For Internet, for example, the online population today is about 21 million, and this population is expected to grow to 56 million by 2005,” says Ruben Levcovitz, Intelsat’s vice president of sales for Latin America. “Likewise, the DTH subscriber numbers are expected to more than double by 2005 from the current 2.1 million.”
In addition, Intelsat recognizes that the video market is also going to increase as the economic issues settle. “There is a big demand for video in Latin America, and the major markets are Brazil, Mexico, Argentina, Colombia, Venezuela and Chile,” Levcovitz says. “I believe the main objective of the satellite providers is to create orbital slots that not only have the satellite capacity as a commodity, but offer value added services.”
Ground Service Providers Not Exiting
From a ground segment perspective, some companies are staying in the game regardless of fiber build-out and are enhancing their offerings. Network hubs of Very Small Aperture Terminals (VSATs) from the Comsat Laboratories division of Viasat Inc. are already operating in Buenos Aires, Argentina and Rio de Janeiro, Brazil. “We’ve focused our VSAT product developments on providing efficient and affordable broadband that can expand to meet the need for multimedia services,” says Benjamin Pontano, president of Comsat Laboratories. Likewise, Hugo Frega, regional director of Latin American sales for Viasat says high bandwidth efficiency and low terminal cost give Viasat’s Linkstar platform a low cost of ownership, and it is flexible enough to carry everything from typical low rate VSAT services to true multi-megabit enterprise broadband.
Sunglobe Telecom Inc. is also maintaining a strong presence within the region as it expands its VSAT service offerings and witnesses the emerging opportunities of the smaller countries and regions. “I see a much faster growth right now in the smaller countries that are now finding out about the opportunities,” says Barry Pasternak, president and CEO of Sunglobe. “Their big problem is going through the regulatory issues of how to privatize and how to regulate. So I think the Andean region area should show greater growth within the next year.” Pasternak adds that some of the hottest markets currently evolving within the Latin American region revolve around cyber cafes connected by wireless local loop, online entertainment and telemarketing.
Like its counterparts, IDB Systems is also maintaining a strong business presence within the Latin American region. Through its earth station supply division, IDB has witnessed and adapted to the changing momentum of Latin America. “We have seen a slowdown directly related to the world economy,” says Eduardo Coquis, vice president of sales and marketing for IDB. “VSAT applications, particularly broadband, hold the most promise right now for regional growth.” Coquis believes that several key markets will tend to shrink somewhat in the next couple of years, excluding the big ones like Brazil and Mexico. “The deregulation in Brazil is now opening the way for all companies to leverage their services within the country and that will be a strong economic development as time goes on,” he says.
The Next Phase
As Latin America emerges from its economic challenges, the competitive marketplace for satellite services promises a brighter forecast. More services, stronger competition and higher-quality applications are sure to emerge throughout the region in the coming years.
Nick Mitsis is Via Satellite’s Associate Editor.