Expanded Europe: New Freedom; New Satellite Opportunities

By Jason Bates

After spending much of the 20th century behind the Iron Curtain, many Central and Eastern European countries are embracing their relatively new economic and political freedoms and joining Western European counterparts in their desire for advanced communications and technology. The countries of Central and Eastern Europe are prime targets for expanding commercial satellite businesses, with growing populations eager for communication and entertainment options but a lack of terrestrial options for providing such services in many of these countries.

In May 2004, the first of the former communist bloc that sprung up following World War II joined the European Union (EU), and more are in line to join the organization throughout the coming decade. Industry executives and observers see the markets within Central and Eastern Europe developing at different levels, with the countries that already have joined the EU, such as the Czech Republic, Estonia, Hungary, Lithuania, Latvia, Poland, Slovakia and Slovenia offering the most potential for short-term satellite business. Next in line for development are the countries that are candidates to join the EU: Bulgaria, Croatia, Romania and Turkey, while countries such as Albania, Bosnia-Herzegovina, Estonia, Latvia, Lithuania, Macedonia and Yugoslavia could be long-term targets for satellite opportunities.

"Most services will remain relatively modest in terms of targets, even five or 10 years from now," says Pacome Revillon, managing director of Paris-based Euroconsult. "The market is expected to grow, but it will remain a small market when compared to Western Europe. The budgets will be lower, but it still is an area of growth and will develop fast. There are possibilities in terms of corporate network on the public side, which need communications and terrestrial networks in many places that are not available or would require investment to be upgraded. In that sense, I think in a number of countries entering the European Union, there are a number of projects spotted by the European Commission to bring advance communications solutions into the region."

The market in developing Europe is tiered, with countries such as the Czech Republic, Slovakia, Poland and Slovenia "fairly well off," and other emerging markets just beginning to explore satellite technology more fully, says David Harrower, iDirect’s director for Central and Eastern Europe. "Their general economies are in much better shape than the emerging markets. In the Czech Republic, Poland and Slovakia, we are seeing our technology used for applications such as for backhauling GSM traffic, where you have sophisticated telecoms that use satellite for certain applications within their network. In emerging markets, such as Ukraine, you are still dealing with elementary delivery of telecom services such as telephone and internet access, so you are dealing with different needs based on the maturity of the telecom infrastructure."

In Bulgaria, for example, iDirect’s Internet protocol (IP)-over-satellite technology has found a telephony market, because only two or three of the countries largest cities have modern terrestrial infrastructure, Harrower says. "Outlying areas are lacking communications infrastructure, so we have opportunities for providing rural telephony using satellite delivery. We have hub operators within several countries within the region, and traditional teleport operators who run large hubs and can provide several types of service to corporate, military and private customers."

The European Space Agency (ESA) launched a study in 2004 to determine satellite communication demand in Central and Eastern Europe. ESA Telecom, the department that coordinates and supports satellite communications development, commissioned the study by Lapp-Hancock Associates Ltd. of Canada to identify opportunities for EU satellite operators and service providers in new member states and potential member states, with a special focus on the affordability of satellite TV and broadband access via satellite. The countries surveyed include the Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia, as well as Croatia, Bosnia-Herzegovina, Macedonia, the Former Republic of Yugoslavia, Romania, Albania, Bulgaria and Turkey.

The first part of the study assessed the state of the telecommunications infrastructure in the countries and found vast discrepancies in Internet use across the regions, as well as a significant digital divide between urban and rural areas within the individual countries. The study also found that demand for satellite broadband services is related to population size, with smaller countries better suited to development of terrestrial networks due to their smaller populations and less territory to cover, with satellite broadband services more likely to find success in larger countries.

"The hot markets are the countries in the EU and ones that will be joining soon," says Alexander Oudendijk, senior vice president and chief commercial officer. "As you go further East, the average income drops, and the demand for satellite services right now is very low. We will see a gradual move eastward. The countries close to joining the EU are ready to accept these services. Another five years from now, the other countries in Eastern Europe will be ready for these types of services."

Of the countries ready for satellite services today, Hungary, Poland, Slovakia, Romania, Bulgaria and Turkey, are the best candidates for satellite broadband and direct-to-home (DTH) television services, according to the ESA study. Those six hold the most promise for EU satellite operators and service suppliers based on estimates of the potential demand for satellite services in the near future, though the situation in each country varies, the study found.

DTH television services are established in Poland, but the market appears to have level out, the ESA study said. In Slovakia, there is virtually no market, and none expected to develop within the next five years, due to lack of interest on the part of the government, the competitive pressure from Slovak Telecom and the lack of ability to pay. Bulgaria appears to be a potentially strong market for DTH satellite services, though cable television companies have been testing digital TV, high-speed Internet, video-on-demand and voice over Internet protocol services as a means of increasing cash flow.

"We have seen in the last two or three years are new DTH offerings, beginning in Bulgaria, for example," Revillon says. "In the first wave of DTH platforms, we did not see a large amount of activity in Eastern Europe because you have a number of small countries with cable. With the amount of capex [capital expenditure] required to enter the market, the market was not there. Right now we see a decrease in the cost of set-top boxes and transmission infrastructure and other things, and due to the large content available, we see new platforms coming to the market.

"For DTH services, there is a middle class that will want these services," Revillon says. "The service will be around $20 per month in these areas, compared to $30 or $40 per month in developed countries, so there is a gap, but in some areas there is already a market. There are more than 1 million subscribers in Poland. The market will still be developing in 10 years. It’s a long-term trend."

While rural areas offer the most potential for satellite service providers, factors such as cost, education and competition from state-owned providers could hinder the development of the satellite market, the study found. While cost of the satellite service itself is a factor, the study found that cost relationship to the very low disposable incomes in all 17 countries surveyed is exacerbated by the fact that much of the potential market for satellite services is in the remote and rural areas of each country. Poland, for example, has very low levels of broadband Internet use, but the satellite broadband Internet access services currently in place are priced so high that they are unaffordable to all but a very specialized market due to the low level of the economy and the lack of interest in broadband service.

While iDirect is targeting companies and organizations rather than individual consumers, the company is aware that cost is a major factor for Eastern European customers. "Our solution is more scalable than traditional services, and that makes it attractive because the price point of entry is much lower," he said. "That allows the customers to scale their business and add incremental cost as they add hardware rather than start with a large network and then populate it with customers. This is important in a country such as Romania, where the gross average income per month is $100. You have to keep that in context."

With there are opportunities in Eastern Europe, there will be plenty of competition, as new entrants seeking business in the region will find plenty of state-owned companies and already-established commercial ventures fighting to hold onto their turf, industry officials said. "It’s a market where you already have one big player, Eutelsat," Revillon says. "They have relationships there. You also have the Russian operator, RSCC (Russian Satellite Communications Co.), having some influence, but overall, the market is not as committed as western Europe. It’s a lot more open to companies."

According to Euroconsult, 135 leased transponders generated $337 million in revenue from Central Europe in 2004. Eutelsat and Intelsat dominate the region, combining to account for 61 percent of the transponder capacity and 62 percent of the revenue. Eutelsat operated 43 transponders that produced $56 million in revenue, while Intelsat’s 41 transponders produced $48 million in revenue. RSCC was the largest of the remaining players in Central Europe, with nine transponders and $12 million in revenue.

Turksat, part of Turk Telekom, will maintain its grip on business within Turkey and also is looking to expand into other countries, company officials say. "We have some big customers outside of Turkey within our region," Senol Duman, chief marketing officer of Turksat says. "There are many European customers and we think projects will be picking up. We also have started working on VSAT projects for government customer who need secured lines of communications, such as Kazakhstan, Bosnia, Bulgaria. They are very interested and we are talking with them. The main goal of the company is to expand its business outside of Turkey."

Luxembourg-based satellite operator SES Astra also is expanding its footprints in Eastern Europe, with three satellites on order, Oudendijk says. The company also has acquired four transponders in orbit today that can serve the region. "We have made major inroads in Hungary, the Czech Republic and Slovakia. The markets we are looking at can be served out of 92 degrees East, so there are a lot of synergies from the existing channels there going into these new markets," he says. SES Astra sister company NAB also is working in Eastern Europe, opening an office in Romania and looking to move into Ukraine, Oudendijk says.

More and more satellite operators and service providers likely will setting up operations in the region, as the countries of Central and Eastern Europe are poised to become one of the hot markets for satellite services. New satellite entrants will face stiff competition from established players and will have to be patient in cultivating opportunities in some of the more slowly developing countries, but the potential long-term benefits look to be worth the effort.

Jason Bates is the Assistant Editor of Via Satellite magazine.