Philip Father, CEO, ProtoStar

ProtoStar hopes to make an impact in the promising DTH markets in Asia by providing capacity aboard its ProtoStar 1 satellite.
The spacecraft, placed in orbit in July, carries 16 Ku-band and 38 C-band transponders that allows DTH operators to provide services without purchasing their own satellite.
ProtoStar CEO Philip Father discusses orbital location issues, the business opportunity for ProtoStar and the company’s capital expenditure plans for future satellites.

VIA SATELLITE: How much capacity did you have sold at launch, and when do you expect to fill up the satellite?

FATHER: We had pre-sold a significant amount of capacity at launch with anchor customers such as DishTV/Agrani, PlanetSky and SingTel. We have also sold a significant amount of capacity since the launch. In terms of reaching industry metrics of 60 percent to 70 percent utilization, we will reach that in 18 to 30 months. We have launched into a market where there is a supply-and-demand imbalance. As a result, we will get there in a fairly quick time frame.

VIA SATELLITE: There are a number of operators already present in Asia, and cheap capacity has been an issue in that market in recent years. Why do you think ProtoStar can be successful in this market?

FATHER: I think you have to take a look at our customer focus, which is the DTH market. As a result, part of our success is in not having legacy systems. Much of the capacity launched in Asia in the mid-1990s was prior to the DTH market opening up from a regulatory perspective. As a result, much of the satellite capacity that has been over Asia has been more geared to corporate networks, cable headends, VSAT, etc. It is not necessarily the high-powered Ku-band capacity required in large blocks by DTH operators. Granted, there is some high-powered Ku-band capacity in the market but not necessarily in blocks sizeable enough to allow the DTH operator to grow to 200 to 300 channels.

VIA SATELLITE: When do you expect ProtoStar to become profitable?

FATHER: We should be profitable relatively soon. That is just a consequence of hitting certain capacity utilization hurdles. We think we can do that in the next year or two.

VIA SATELLITE: There are concerns that ProtoStar’s C-band capacity could interfere with the operations of spacecraft located near your orbital slot at 98.5 degrees East, especially from AsiaSat. How do you respond to some of AsiaSat’s concerns?

FATHER: At the highest order, ProtoStar has always conducted itself to ITU (International Telecommunication Union) principles and guidelines. However, some of our competitors have been quick to point to the contrary in other ways that are simply not true. In October, the ITU distributed a circular saying that we are in a good standing and that ProtoStar is being a good citizen. I think that vindicates some of the falsehoods that have been out there, which have been purely driven by anti-competitive motivations.

In situations like this, the customer always loses. No one grows top line revenue when there is anti-competitive behavior amongst the operators. Our point of view is that if we saw a higher degree of cooperation across Asia, you would actually grow the overall market pie and then there would be more for everyone. It is the customers that we are all supposed to be serving. I contrast AsiaSat’s statements, which are really targeted to intimidate ProtoStar’s customers, versus a spirit of cooperation that we have been able to craft with PLDT and Mabuhay, where we are working closely to the benefit of our joint customers.

VIA SATELLITE: What is the significance of your deal with Intersputnik about the use of the 98.5 degrees orbital position?

FATHER: We simply switched administrations given where we were with our slot filing extensions and that we had a delayed launch with Ariane. We have continued to undertake the coordination process that we started with Singapore. We are very happy with our partnership with Intersputnik and are working through them on coordination. We hope to get through that process in a very effective way and we have a good partner with which to work.

VIA SATELLITE: Have you been surprised that this has become such a big media story?

FATHER: I am not surprised, but I am disappointed. I don’t think drama benefits in the end the industry or the customer. If you look at the way we have worked with our customers to tailor beneficial solutions such as footprints, power levels, time schedules, etc., you can appreciate the power of cooperation. That’s why we have been able to attract good customer partners in India, Indonesia, the Philippines and other parts of Asia. That is why we will be three satellites strong in a very short period of time, where as others have been stagnant during this time. It is about cooperation, not competition.

VIA SATELLITE: Territories such as India and Indonesia will have multiple DTH platforms. Is there room for multiple operators in some market, or will we see a shakeout of operators?

FATHER: I think it is logical that markets follow one another. If you look at the United States, PrimeStar was acquired by DirecTV. There was also a similar shakeout in Europe. From a market perspective, several of these markets can support multiple DTH operators. If you take a look at the cost of content, assume reasonable transponder lease rates — which is what we are trying to bring to the market — and see increasingly inexpensive consumer equipment, the DTH operator can hit break-even in three to five years of operation. That is a much more rationale time frame for break-even than I think North America and Europe saw. They were at the early front-end of developing these operations, so I do think you will see multiple operators, because the thresholds to profitability are lower across the board. It will come down to the old adage of who has the best consumer offering and how well the respective companies are managed. Therefore, I think it will stay competitive for quite some time.

VIA SATELLITE: Apart from DTH, are there are any other growth areas such as mobile TV for broadband which you will look to target?

FATHER: You mentioned some good applications there, but I think this is really dependent on the price of consumer equipment and then the [average revenue per user] that one can generate on a monthly basis. Several of those applications have been successful, or are close to being successful in North America and/or Europe. You have different price points and metrics for Asia. As always in this business, it depends on the quality of content, but there is promise there.

However, our focus has been on what we know best and that is point-to-multipoint broadcasting. As I mentioned earlier, the prices of consumer set-top box equipment have come down drastically from the early DirecTV days and people always want to be entertained, especially in these difficult times. We are comfortable that if the price points are right, there is potential for newly delivered satellite applications that fit the customer demand profile.

VIA SATELLITE: What are your plans for future satellites?

FATHER: ProtoStar 2 is scheduled for launch in the late first quarter of 2009. We are pleased that it is going up on a Proton given that Proton has had a successful string of launches. Part of that program comes with another terrific customer, Indovision of Indonesia.

ProtoStar 2 will provide replacement capacity for their existing payload. We are working very closely with Boeing to make sure that satellite stays on our delivery schedule to accommodate the late first quarter launch. We want to provide a significant amount of capacity to serve the Indonesian market, so the strategy behind ProtoStar 1 and ProtoStar 2 is that ProtoStar 1 is being targeted more towards India and ProtoStar 2 is being targeted more towards Indonesia. That allows us to meet customer demand in two large and significant markets for DTH.

VIA SATELLITE: What impact will your deal with Philippine Long Distance Telephone Co. (PLDT) and Mabuhay Satellite Corp. have on the company and ProtoStar 3?

FATHER: In terms of ProtoStar 3, we are looking at the PLDT/Mabuhay transaction to be very synergistic for all the involved parties. [Mabuhay’s Agila 2] is a good satellite with a good customer base. It has three to four years left in terms of satellite life and that forms the basis for a potential new ProtoStar follow-on program. We will be working closely with PLDT and Mabuhay to undertake a methodical approach towards our joint integration. I think as we get closer to the launch of ProtoStar 2, we will have more insight into a path forward. If you think of the milestones we have ahead in terms of the implementation of the ProtoStar 1 program and the launch of ProtoStar 2 and considering that we are still a relatively small organization, we have a considerable work load.

VIA SATELLITE: Will you need further financing to fund your business plan?

FATHER: We are well financed with what we have on deck. We have fully financed all of our programs. The question would become relevant if we see a new opportunity next year that could translate into a new build and therefore have us pursuing a ProtoStar 4 satellite. If this were to evolve, I do believe we could access the markets to support our program, but I don’t think we would do it in the manner we previously undertook. Some of those paths may be closed off for a while.

Additionally, there are strategic sources of capital and there are people who are very interested in our sector, so I don’t think future funding is closed off to us. In nine months, we will be three satellites strong. That is a significant milestone, as ProtoStar 1 was only launched in July so that is a lot to digest. If a ProtoStar 4 takes a little bit longer to materialize we are OK with that because we want to make sure we are dotting all the i’s and crossing all the t’s as it relates to implementation and doing a good job for our customers.

VIA SATELLITE: What are the major challenges for ProtoStar?

FATHER: There is still an element of nationalism amongst operators in Asia, and there are also some entrenched operators. This is very capital intensive business, and the secret of success going forward will be to figure out how to cooperate rather than compete.

There is a certain disappointment with the drama that has surrounded the ProtoStar 1 launch. That does not help customer needs. In a cooperative environment, you are looking to follow ITU guidelines for the efficient use of spectrum and bandwidth given it is a scarce resource. The ITU has always encouraged cooperation as a means to effectively share bandwidth, and ProtoStar’s objective is to strictly follow their guidelines for the benefit of all satellite and DTH operators and, ultimately, the consumer. There are many ways for systems to effectively operate together, and in Asia we need to figure that out in a fair and equitable manner.

We are trying to pave the way and set an example of that by working together with other satellite operators as well as with our anchor clients such as DishTV/Agrani, Indovision, PlanetSky and PLDT. We are trying to lead by example even though it may be difficult at times. I think in the end that would benefit the Asian communications landscape to be more efficient, provide affordable pricing and have a renaissance on the consumer end.