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Hosted Payloads: Deal Tracker

By Staff Writer | June 1, 2013

      The hosted payload market has kicked into life in spectacular fashion this year with a number of contracts being announced. With speculation always abound about potential deals to come, 2013 is set to be the year when we see the whole hosted payload market reach new heights.

      EMC/Arabsat

      Arabsat and Emerging Markets Communications (EMC) signed a strategic commercial agreement to use Arabsat’s new BADR-7 satellite, which is currently being manufactured and expected to be launched by the end 2015. EMC has designed and acquired exclusive use of a hosted payload to be carried onboard this satellite. EMC will operate the first-ever multi-purpose Ka-band hosted payload covering 34 countries in the EMEA and Central Asia regions. EMC specializes in delivering mission-critical network services for the global energy industry, mobile network operators, carriers, governments, NGOs, and worldwide enterprises with locations in remote and/or challenging areas around the world.

      “The difficulty was mainly in designing the hosted payload in a way that could allow for mutual benefits of both partners and support the whole business case of the satellite,” says Khalid Balkheyour, Arabsat’s CEO. “Overall, the difficulty comes usually on qualifying and hunting for the right partner who has certain needs to qualify for a hosted payload rather than waiting for somebody to be looking for a provider. It is more of a proactive approach. On the other hand, Arabsat is in talks with certain governmental entities for a hosted payload deal, but the problem always with governments is the stretched time lines and uncertainty of the accurate needs. Arabsat has been engaging in different exercises supporting such quests.”

      The company is optimistic and expects to sign more hosted payload deals in 2013. In particular, the company is working on a Ka hosted payload deal for government needs, and expects this to be completed this year, according to Balkheyour.

      For Blake McLane, the recently appointed new president of EMC, the deal with Arabsat has opened doors to expanded business. “One of our strategies is to grow the business is to really have the economies of scale in terms of capacity. We want to make sure we have a clear working platform for our customers. So, we are trying to align ourselves strategically with customers for their long-term play. In order to do that, we are trying to take out as much volatility for our partners as possible. By gaining access to this capacity we are able to do this,” he says.

       

      Harris/Iridium

      In April, Iridium signed an agreement with Harris Corporation to enable the use of expanded hosted payload space on the Iridium NEXT platform, Iridium’s second-generation satellite constellation scheduled for launch in early 2015. Under the agreement, Iridium could raise around $45 million in “hosting fees” for Iridium NEXT resources that will be used by the payload when launched into orbit.

      “We’ve been working on our hosted payload program since 2007, and since that time we’ve looked at more than 20 different payload opportunities. After weighing a number of options, the government couldn’t respond quickly enough to take advantage of our unique opportunity and meet the deadlines associated with a commercial launch,” says Matt Desch, Iridium’s CEO. “Our agreement with Harris demonstrates the power that can be achieved by hosting a network of hosted payloads on Iridium NEXT. This new agreement provides an opportunity for Harris to showcase how their reconfigurable payload platform can provide responsive on-orbit capabilities to customers as hosted payloads on very aggressive schedules.”

      While Iridium was unable to close a deal with the U.S. military, Desch believes a breakthrough in this arena could be imminent. “The attention that hosted payloads have been getting from senior leaders within the Air Force and NASA shows an uptick in momentum for the U.S. military to secure a hosted payload deal. Interest is growing, but there are still a number of challenges. For example, timelines between government procurement and commercial space procurement are still mismatched and there are a number of inherent cultural and systemic biases against hosted payloads within the U.S. Department of Defense that will make it difficult to put government missions on commercial satellites. There are no incentives yet to make it happen faster, so it may take a number of years to grow to significant levels, but it has to grow,” he says.

      Most countries in Asia are still looking at developing their own technological capabilities. They are not looking at hosted payloads in the same way as many countries in the West
      —Bill Wade, AsiaSat

      For Harris, the deal was about “pioneering a new contractual relationship” according to Janet Nickloy, director of mission solutions, Harris Aerospace Systems and chair of the Hosted Payload Alliance.

      “The Harris-Iridium partnership is certainly strategic from both a relationship and capability perspective. Once Harris was selected as the Aireon hosted payload contractor, and the deal had other strategic touch points between our companies, we started exploring whether there was sufficient size, weight, and power for any additional hosted payloads. Once we determined that there was some available capacity, we decided to formalize the business arrangement under which Harris could use that additional capacity,” Nickloy says. “[This deal] is significant in that we are finding some customer interest that could yield hosting and data service upside to Iridium.”

       

      AsiaSat/GeoMetWatch

      Also in April this year, AsiaSat and GeoMetWatch (a commercial technology company specializing in global hyperspectral weather services) announced that the two companies had entered into a strategic partnership to host the first of six Sounding & Tracking Observatory for Regional Meteorology (STORM) instruments on board a new satellite planned to be launched by AsiaSat in 2016.

      “GeoMetWatch had been speaking with various satellite operators about this hosted payload concept and they came and presented their ideas to us. We thought it sounded interesting at the time, but the discussions did not go any further than that. Over the next year we met periodically to catch up on the latest developments. As we discussed the project with them, we began to think that perhaps there was more to this than we had originally thought,” Bill Wade, AsiaSat CEO says. “We took the opportunity to explore what this hyper spectral weather sensor was all about and investigate if there was a market for this level of weather data. Our interest in the project did not happen overnight, it evolved slowly over time. Being outside our area of expertise, it was not something we looked at and immediately said ‘this is great.’ It took us a while to catch the vision. What struck home was if we were able to find a way to formulate the right deal, this could be an interesting additional revenue source for the company.”

      Wade is hopeful there could be a revenue stream for the company as a result of this deal. “When you look at the potential demand for this type of weather data, it looks as if it could be significant. Looking at it from our perspective and based on the results of studies that had been done, there could be significant upside for the company. However, given the unknowns, we needed to cover our downside risk. We structured the deal in a way where we were comfortable with the level of downside risk in relation to the potential benefits. After full due diligence of the technology and market potential, we felt this was an interesting opportunity that we could not ignore,” he says.

      However, while optimistic about the benefits the partnership with GeoMetWatch can bring to AsiaSat, Wade believes it might take some time for the hosted payload concept to catch on in Asia. “Most countries in Asia are still looking at developing their own technological capabilities. They are exploring the development of satellites, launch vehicles and their own scientific space missions. They are not looking at hosted payloads in the same way as many countries in the West, who have gone through this development stage, and due to slowing economies and budget cuts are now seeking more efficient and economical ways of deploying these technologies. From the domestic operator’s perspective, the pure hosted payload concept has not really caught on. Except in a few instances such as military payloads which typically are flown on a country’s domestic satellites, we have not seen many Asian countries developing projects that would require an independent satellite host,” he says.

      David Crain, CEO, GeoMetWatch admitted the hosted payload concept made a lot of sense for the company, although AsiaSat was not the only operator his company considered. Others came close to signing a deal with GeoMetWatch.

      “We went very far with two operators before AsiaSat. Those operators are still potential candidates for future missions; we just could not come to an agreement. They were either asking for too much upfront for a hosting fee or we could not agree on terms. AsiaSat is a true partner with us. If we are successful, they will be successful; if we hit our revenue numbers, they will get a percentage of that. At this stage of our venture, they were the type of partner we needed. At a future stage, and when we do have revenue and cash flow, we could complete our own financing. To get the first one up, we really needed someone to step into the ring and take some risk with us. AsiaSat seemed to be one that was the most aligned with us,” Crain says.

      GeoMetWatch could definitely be a company to watch in the hosted payload sector as it bids to sell data services on the back of the AsiaSat deal. In fact, a second hosted payload deal could happen sooner rather than later according to Crain. “In terms of next steps, we have about a dozen MoU’s for purchase agreements in Asia. One of the things we want to do now is go back to those customers, and get firm commitments to buy the data. That will satisfy most of the obligations we have with AsiaSat and give us the collateral to make sure the business goes forward. Alternatively, we are also doing fund raising. The terms of the AsiaSat deal are very open. As we secure contracts, it will make any unclosed issues go away. The main challenge is to start firming up the contracts. The most pressing concern this year is getting everything in place for a second deal,” he says.