Applications: What’s Hot And What’s Getting Hotter
Satellite industry experts pretty much agree that satellite-delivered TV and video, including direct-to-home services, direct broadcast services and the distribution of digital and high-definition TV are the star performers in the application category. Beyond that, opinions differ widely when it comes to what business areas are hot today and which ones will heat up in the future.
Constructing a satellite is expensive and involves more than simply selecting a vendor, obtaining a license and hammering out all the launch-related details. The business model must be tailored to meet a measurable demand, and the math surrounding revenue flows should be matched to the finite lifespan of the satellite in question. In the global satellite marketplace, the service that has been able to best maneuver this path has been satellite-delivered TV.
According to Christopher Baugh, president of Cambridge, Mass.-based NSR, a telecommunications market research and consulting group, direct-to-home (DTH) service is growing quickly in many parts of the world, and high-definition TV (HDTV) is coming on strong as well in “tier 2” TV markets such as Russia, Poland and Turkey. “In the battle for eyeballs, content generators and service providers are quickly taking on HDTV as prime market differentiators to keep as well as gain new customers. These emerging markets should help drive growth for HD content as pay-TV viewing becomes more prevalent over time,” says Baugh, who adds that all types of TV including free-to-air, DTH, and bouquets in Africa are poised for strong growth as well. “NSR is seeing more TV content being brought to Africa like GTV and View Africa. Others are following and the growth will just get stronger in the coming years. Efforts in South Africa to bring new pay-TV services to the country also be sure to generate new capacity demand as well for satellite operators,” he says.
Andrea Maleter, technical director at Maryland-based Futron Corporation, believes that overall, a fixed satellite services (FSS)-based strategy also has proven its worth. “Good old FSS is turning out some very hot applications thanks to the continued strength of the video and military markets and the growing demand for mobile backhaul,” says Maleter, who also views the distribution of HDTV programming for cable and other terrestrial providers as a hot category.
Besides HDTV mainly in North America both for DTH and cable, Tim Farrar, president of California-based Telecom, Media and Finance Associates Inc., designates Ka-band consumer broadband in North America and maritime broadband as hot performers.
Heating Up Fast
Most experts see satellite playing a strong direct as well as supporting role in many types of cellular and mobile services. Communications on the move “as military [research and development] investment (will soon find) its way into the marketplace,” says Hoyt Davidson, managing director at New York-based Near Earth LLC. “This includes enhanced telematics, traffic, weather and geospatial services to automotive vehicles and handheld devices using hybrid networks, and mobile video [and] audio,” says Davidson, who sees all of these as part of a new and emerging consumer communications on the move category where the applications serves as the core platform technology — most likely IP-enabled. Terrestrial infrastructure gaps in many regions of the world leave service providers few options as they rush to meet the rising consumer demand for mobile services in particular. That just further underscores the prime advantages offered by satellite in these situations.
“This includes wireless backhaul via satellite, driven by the continued growth in higher bandwidth mobile wireless services in virtually all markets, including those with limited terrestrial infrastructure,” says Maleter, who is bullish on mobile broadcasting via satellite, “which is a slower sell, building from video to the backseat of the minivan to broader service combinations that merge navigation, traffic and other service functions with entertainment.”
Baugh actually has cellular backhauling on his hot list already. “Cellular backhaul continues strong in some countries [and] regions, and 2007 was a banner year for GSM/CDMA backhaul deals: Sat-GE with PT Telkom in Indonesia, Intelsat contracts with MSTelcom in Angola and Safaricom in Kenya, Gilat Satellite Networks’ deal with Brazil’s Vivo, [Hughes Networks Services] with Eutelsat in a deal with Telma in Madagascar, ProtoStar anchor-customer lease agreement for PlanetSky, ViaSat Inc. and Verso Technologies backhaul system for Papua New Guinea’s Telikom PNG Ltd.” NSR expects this market to grow at an 8.4 percent compound annual growth rate between 2006 and 2011, he says.
The mobile satellite services (MSS) sector plays right into this trend. Farrar, who has managed and integrated VSAT and terrestrial corporate networks on his soon-to-be-hot list, likes the potential of low-data-rate MSS, particularly consumer products such as Globalstar Spot and aeronautical broadband, “although more for private jets and government than for passenger aircraft,” he says.
“Aero services will be strong — stronger than maritime for example — but not as big as video,” says Baugh. “NSR forecasts for the period 2008 to 2013 that aeronautical satellite services for commercial passenger aircraft and business jets will reach more than 27,000 in-service units and earn the industry retail revenues of $1.7 billion.”
Mobility aside, Baugh views Ka-band broadband, especially in new markets such as Europe, Asia and maybe elsewhere as something likely to takeoff soon. “These broadband services have more than overcome the credibility barrier in the last year in North America, and NSR expects to see every satellite operator and many other players looking very seriously and investing more capital in efforts to replicate the success around the world,” he says. “The best markets are in fact those where cable modem and ADSL broadband is already well established yet still have a significant unserved population. The more the general population wants access to broadband services, the more there will be a market to be tapped of people willing to pay the slight premium for the existing class of satellite delivered services.”
Picking A Winner Is Not Rocket Science
Successful service providers understand that identifying and meeting demand — and not simply allowing technology alone to be the driver — is what this game is all about. Davidson wants to see a strong management team in place — along with access to capital — and only then is he likely to encourage a business plan to move forward. The target needs to be a large underserved market, “with a significant window of opportunity before terrestrial competition cuts into market,” he says.
Baugh emphasizes localized content and an understanding of local needs, rather than simply trying to apply the same model everywhere is a key to success in the video space. “In the DTH market in Vietnam for instance, although Western content is in high demand, like the Disney Channel for instance, dubbing needs to be incorporated in a service package,” says Baugh. “The government also has a direct hand in choosing and filtering content, so careful packaging of channel line-ups need to be assessed before a DTH package is offered.”
The right combination of technology, timing and execution is crucial. Satellite technology alone is useless without right-priced user equipment, good distribution networks and content, says Maleter. “Content does not just mean audio or video programming. It also refers to all categories of user data requiring distribution such as military intelligence or mandated corporate data backups,” she says. “Knowing what kinds of content will drive user budgets, having the technology to carry that content through the entire customer service chain and delivering good customer service are what propels a winner. Whether a single company chooses to provide all of these elements themselves, or partners with others is not as important as having them all in place before launching a service,” she says.
Steve Hill, vice president of training and business development at the Satellite Broadcasting and Communications Association, points out the more practical, nuts-and-bolts aspect of what needs to happen. “Technology must be easy for the consumer to operate and for the technician to install,” he says. “ In addition, the cost of the equipment must be in line with acquiring and maintaining high value subscribers. Since the value of a subscriber is measured in years, it is imperative that new technology is advanced enough to not require frequent upgrades or service calls.”
What appears to be a compelling unmet need is not enough to open the door for a successful satellite-based offering, says Farrar. In low income countries, for example, simply gaining momentum is a challenge because projected and actual revenues often do not justify equipment subsidies. “Satellite radio is reasonably successful in the [United States] but much harder to justify in Europe and elsewhere because the market based on number of cars, amount of driving commute time and number of drivers speaking a single language is much smaller,” he says. “The key for a consumer service is a large potential market with sufficient disposable income to pay for the service. This is particularly the case when satellite services like DTH and consumer broadband are competing with terrestrial alternatives because the upfront equipment cost involving the dish and decoder will always be more than for terrestrial.”
Knowing What To Avoid Is Critical
As far as Baugh is concerned, “mistaking a new technology for a real market” is to be avoided at all costs.“Too often the satellite industry mistakes the latest technology for a market — the classic problem of a solution looking for a client. The industry needs to be truly careful about investing in areas of real customer demand, not some engineer’s favorite hyped technology solution,” says Baugh, who adds that, “it is so hard to project how a market may change between when a satellite project go ahead is given and when the satellite is finally launched and put into service.”
In addition, in many emerging markets around the globe, Baugh sees adverse regulatory environments which are not as open such that services like DTH that have a high pent-up demand are not realized, and of course, piracy looms as another issue which can devastate projected revenue streams.Artificial internal constraints are to be considered as well. “You see some satellite operators afraid to drop Ku-band capacity prices in Europe to help drive satellite broadband growth because of fear of impact on pricing on video side of the business,” says Baugh.
For Davidson, the satellite entrepreneurs like to lose their bets are those unable to leverage technology to achieve mass market price points, provide the right value proposition versus terrestrial alternatives or have difficulty raising large amounts of capital for projects with multiple years of negative cash flow and significant regulatory and operating risks.
Hill focuses on the costs involved in terms of new subscriber acquisitions and what it takes to properly maintain and sustain a large customer base over time. “If a product is too costly for the consumer, creates increased service calls or churn, then it will quickly be abandoned,” he says.
Picking a winner is not to be confused with gearing up and executing a winning game plan. Satellite may be very hot or not. Success stories abound, but there is a list of unprofitable and short-lived ventures. Doing your homework and doing it in a thorough fashion really does improve your chances for success.