Fifty Years On: New Russian Space Industry Takes Shape
Driven by Communism and the Cold War, Russia ushered in the satellite age in October 1957 with the launch of Sputnik. Today, the country is one of the biggest single markets for satellite communications, and with a population of more than 140 million people spread throughout a vast territory, Russia may even be more reliant on satellite communications than most countries. The fall of Communism in 1991 and a move toward a more liberal society has brought change to Russia’s satellite industry, and nowhere is that more evident than in the broadcast sector.
Where once TV was a state-controlled mechanism, the industry now embraces competition, and the opportunities in the Russian market for satellite operators are plentiful.
“In terms of dispersed population, economic potential, international trade and the progress of terrestrial-based networks, the Russian market is the largest single growth market in Eastern Europe,” says Olivier Milliès-Lacroix, Eutelsat’s commercial director. “Its requirements take in the full range of key services supplied by satellites, including broadcasting, [Internet Protocol} trunking, broadband access and data networks. … There is pent-up demand for two-way broadband networks from the private sector led by companies in finance and banking, oil and gas, and retail services and also for the public sector for government-backed programs for education and Internet access for rural communities. Satellite networks which began as one-way for file and data transfer are increasingly transitioning into two-way to get round any dependency on terrestrial networks for return path communications.”
The Russian market is open, but the dominant domestic satellite operators — Russian Satellite Communications Company (RSCC) and Gascom — are fighting hard to keep the market to themselves.
RSCC, which operates the Express-AM satellites, is in the midst of an aggressive upgrade of its satellite fleet and modernization of its terrestrial facilities. The operator has built two new teleports and improved its satellite monitoring and control system and plans to launch three satellites in 2008 and a total of 15 by 2015, says Ludmila Mikhalina, head of RSCC’s international sales department. “We are observing rapid growth of broadcasting services in the region,” she says. “RSCC uplinks one or two new channels every month. Today, there are approximately 115 TV and 60 radio channels broadcast via RSCC. … The potential for the broadcast market is definitely enormous.”
While demand in Russia is growing dramatically, RSCC also plans to expand its business internationally, says Mikhalina. “Today, services for foreign customers comprise about 40 percent [of RSCC revenues],” she says. “The CIS satellite market is the most important for RSCC, but the company also works on the Middle East market together with its European partners [and] cooperates with companies from the Asia region, among which Indian companies lease more satellite capacity than others.”
Igor Kot, deputy director general of Gascom, also believes there will be a number of strong drivers for the Russian satellite market over the next few years. “The number of Russian TV channels distributed via satellites grows by 40 percent annually. The VSAT market in Russia continues to grow dramatically,” he says. “In 2003, there were only 300 installed VSATs. In 2006, this figure had gone up to 6,500. In 2007, 10,000 to 12,000 are likely to be installed. The total number of VSAT stations will exceed 20,000 before the end of the year.
Gascom operates three satellites — Yamal 100, 201 and 202 — but these satellites virtually are full, and the challenge for Gascom will be to bring on extra capacity to cater for demand across Russia, says Kot. “In 2005-2006, we had annual revenue growth of 23 percent and 44 percent correspondingly. To keep this pace of growth going, we will develop our orbital constellation. We possess the rights to five orbital slots and intend to fill them before 2015, launching, in twos, satellites every couple of years,” he says.
Gascom’s main shareholder is Gazprom, one of the world’s biggest gas companies and also one of the operator’s main customers.“Gazprom is our biggest corporate client, taking about 10 percent of the total Yamal satellite capacity,” says Kot. “Satellite communications are used practically everywhere in Gazprom’s activities, including financial resources management, production, transportation and gas sales.” With its remaining capacity, Kot believes Gascom plays a vital role in the Russian satellite market, providing healthy competition for RSCC. “The role we are playing now generally suits us. Firstly, we are quite successful commercially. Secondly, we serve a certain state mission. Besides different state structures operating via our satellites for years, the very fact of our existence as a commercial operator stirs the Russian market for satellite capacity and does not let our respected state competitor relax. Our presence on the market protects the Russian market from monopolism, which, as is well known, always brings stagnation.”
While RSCC and Gascom are working hard to serve the Russian market, the demand for satellite capacity is so strong that Kot admits that the two operators could struggle to keep up with demand. “The Russian telecom market is growing faster than international markets on average,” he says. “Our estimates over the last two years suggest the demand for satellite capacity has grown around 20 percent annually. Russia is serviced with only around 200 transponders. A significant portion of these transponders — approximately 40 percent — on Russian satellites are being used in non-Russian markets, so now the demand in Russia exceeds supply by more than 10 percent. In spite of RSCC and Gascom planning to launch new satellites, this gap will remain over the next five years. We forecast that about 650 transponders shall be demanded in Russia by 2015.”
Gilat Satellite Networks is another company aiming to take advantage of the growth for satellite services in Russia. Gilat sees Russia “as a rapidly growing market for satellite communications,” says Arie Rozichner, Gilat’s regional vice president for Eurasia. “The Russian market is in need of broadband solutions and even USO/telephony networks are typically complemented by broadband Internet connectivity. We see continued opportunity for USO and other federal projects in Russia. A good example is the recent development of Sibirtelecom’s satellite communications network to fulfil its obligation to provide telephony and Internet services to Siberia’s rural communities. The network is based on Gilat’s SkyEdge solution, which will enable Sibirtelecom to provide services of toll-quality telephony and broadband Internet connectivity to the region’s most remote locations. Another example is the Russian Post, for which we have provided a broadband satellite network to bring dependable and secure communications to serve the nation’s remote postal facilities.”
Rozichner believes the market is a rich one in terms of potential. “The demand for satellite capacity is growing in Russia,” he says. “Today, there is limited capacity due to the large government projects being rolled out which require space segment. Due to this, space segment efficiency is a key factor to consider when developing a network in Russia.”
In Russia’s nascent pay-TV market, satellite operator NTV-Plus leads the way with around 560,000 direct-to-home subscribers in Russia and the Ukraine. NTV-Plus Director General Dmitry Samokhin is an example of the new, dynamic thinking in Russia’s satellite industry. While his company already is profitable, he admits that a major challenges for the operator is changing the mentality of people, many who lived through Communism, to accept TV as a pay service.
“The majority of the Russian people still believe television itself is a free commodity which should be given to you free by the state,” says Samokhin. “That kind of attitude has been inherited from the Soviet era, where all TV was owned by the state. Secondly, you have the spending power of the people. We think our ability to gain customers is strongly linked to the spending power of the people, which is still not too high. But we are optimistic in terms of the growth of the market. We think that all the new players, which will come into the market will also help us in terms of boosting customer numbers. There will be increased awareness in pay-TV as a result of more competition.”
While citing limited spending power as a problem, NTV-Plus already is introducing higher level services such as high-definition (HD) content. “We rate the potential of this market quite highly,” says Samokhin. “We are cautiously optimistic about this market. Obviously, we don’t expect any huge figures of subscribers in the next two years, but being the number one pay-TV operator in this market, we should provide HD services. We believe that our audience are the top ones in this country so they must have a right to choose HD if they want to.”
NTV-Plus’ platform is based on Eutelsat’s W4 satellite, and the satellite operator also works with Tricolor TV, another direct-to-home platform try to take advantage of new opportunities in Russia. “Over the last year NTV-Plus has taken four extra transponders on W4 for new HDTV and [standard-definition] channels and services,” says Milliès-Lacroix. “A second emerging platform is Tricolor TV, which was launched in 2005 from W4 as a subscription-free digital package of 15 Russian national and regional channels with the only cost being the receiver. Tricolor’s main target are the estimated 50 million viewers in western parts of Russia living in rural areas with limited offer of channels through terrestrial reception.”
While the economic and political landscape in Russia has changed considerably throughout the last 50 years, the vital role of satellite technology has not. Russia’s vast territory is ideally suited for satellite solutions, and with new segments opening up, the role of satellites within Russia is likely to be as strong as ever.