Pablo Tognetti, Chairman and CEO, Arsat

Arsat, the satellite operator owned by the Argentinean government, could ultimately gain 50 percent of its revenues from outside of Argentina and even could look to form a partnership with other FSS companies to boost Arsat’s position in North America and become a key satellite capacity provider for the Americas, says Pablo Tognetti, Arsat’s chairman and CEO.

The operator, which was created in 2006, is major controlled by Argentina’s Ministry of Planning and Public Investment. Arsat holds orbital rights which enable it to offer services throughout the Americas and is in the midst of an aggressive capital expenditure program. Arsat plans to launch three new satellites by 2014 that will bring the operator a considerable amount of capacity to serve the needs of the population in Argentina as well,become more of a force in Latin America and North America.

Tognetti discusses the operator’s plans to use this capacity and where he ultimately hopes to position Arsat after these satellites have been placed into orbit.

VIA SATELLITE: What is the schedule for the deployment of the Arsat satellites?

Tognetti: Arsat’s satellite fleet deployment plan involves three satellites, with the first satellite — Arsat-1, being under construction and slated for launch by mid 2012. We have signed a contract with Arianespace for the launch of this satellite. We plan to launch Arsat-2 in 2013 and then Arsat-3 in 2014, respectively. The initial challenge is to complete the construction of Arsat-1 and Arsat-2 satellites. This is taking place with a company called Invap, based in Southern Argentina. This is a technology company which is the prime contractor of the satellites.

VIA SATELLITE: What is the total cost of Arsat 1, 2 and 3, and how are the new satellites being funded?

Tognetti: We are spending around $200 million over the next 12 months, and this represents the investments for Arsat-1 and Arsat-2. Main financing comes from the major shareholder, the Ministry of Federal Planning and Public Investment. This reflects the high interest in this project on behalf of the government, but we have a new source of financing for this project, which is the multilateral loan organization called Corporacion Andina de Fomento (CAF). CAF has granted a first step loan which amounted to $36 million. This is the first time that this corporation has lent money to a satellite project. They usually lend money for roads or other infrastructure projects. This is the first time they will lend money for a technology project, and we are proud of that. This is to be applied for the development phase of the project.

We now have a second step loan under the evaluation process from CAF for $100 million. This will be specifically for the Arsat-1 satellite. The costs of Arsat-1 will be higher than the other two satellites, because of one-time non-recurring costs development of the satellites, but the cost of Arsat-2 will probably be $210 million and that includes launch and insurance. As there is a learning curve, and because we also want to increase the domestic contribution in building the satellites, we expect a decrease in the costs. We think Arsat-3 will cost around $200 million or lower. As well, we expect to set-up a business plan with Invap, the company who is building these satellites, to try and export these satellites. Arsat is paying for the development, so it owns the intellectual property.

VIA SATELLITE: What are your plans for using the new satellites and capacity?

Tognetti: There are a number of important programs in Argentina regarding social inclusion in which satellites can make an impact. Satellite access to Internet and TV services has become very important to reach all areas of Argentina. Satellite is expected to play a crucial role. The challenges are about building these satellites and then helping the Argentinean state bring the benefits of this technology across Argentina in very important special programs. It is important we have our own satellites here.

VIA SATELLITE: How much capacity on Arsat-1 will be accounted for at launch?

Tognetti: Right now, we are commercializing 800 megahertz of capacity. Arsat-1 will have 32 transponders, of 36 megahertz equivalent capacity, that would be in the region of 1100 megahertz. We expect to be very close to filling the capacity on the satellite very soon after launch. We expect by the time the satellite is launched, it will be fairly full.

VIA SATELLITE: When do you expect to see a return on that investment?

Tognetti: We expect the repayment plan on these satellites, including the non-recurrent costs, to be completed by 2020.

VIA SATELLITE: How do you view the demands for communications and entertainment services based on satellite in Argentina?

Tognetti: We expect to see these services growing in Argentina. We also expect the demand for entertainment and communication services in Argentina as well as the Latin America region will continue to grow. There is a need for more satellite capacity across the region. We expect there will be a number of government projects, which aim to reach people who have previously not had access to these types of modern communications services, so you are seeing projects about switching to digital TV, social inclusion projects, etc. We expect to be a major player in helping these projects succeed.

VIA SATELLITE: How do you view the broadcast and HD markets in Argentina for Arsat?

Tognetti: We are working with local broadcasters to deliver content across the country, particularly DTH services, and these will complement terrestrial digital TV services. Also, we are very much focused on the government market. In terms of technology, we have upgraded our teleport to deliver services on a DVB-S2/MPEG-4 carrier. Though we are more focused on the government market, I believe there is a private market that is going to grow in Argentina and in the region.

VIA SATELLITE: What are the military and civil government opportunities for Arsat in Argentina?

Tognetti: We don’t have X-band planned in our satellites. We have C- and Ku-band capacity, but we are providing some capacity to the [Argentinian] Ministry of Defence (MoD) in Ku-band. We expect that segment to grow. There are no specific plans to build satellites with X-band capacity in the near future. We will help solve some of the demands that the MoD has in regards to capacity. I understand that a reformulation of the strategy in telecommunications is taking place at MoD, so we expect to fill their needs in terms of capacity.

Several government agencies, such as Health and Education, for example, are also becoming aware of the importance and the potential in using satellite technology and services. There is much stronger user demand. We are getting more and more demand from government departments, so we are seeing potential demands from customs, police departments and other institutions who want their networks backed-up, for example.

VIA SATELLITE: How do you see the broadband access market developing in Argentina and an satellite play a role alongside terrestrial technologies?

Tognetti: We are studying the potential for Ka-band in Argentina, but generally, the growth that was expected to take place in satellite broadband by and large hasn’t happened. We would like to watch this market. The first target for us is to have three satellites, but we are also thinking about the possibility of more satellites as long as we can use the capacity. For example, we would consider an Arsat-4 satellite to be a hybrid satellite with Ka-band on it. It is still under very broad consideration.

VIA SATELLITE: What is the potential timeline for an Arsat-4 satellite?

Tognetti: We would not think about commissioning an Arsat-4 satellite until we have launched our Arsat-1 satellite. We are newcomers to the market, so we do not wish to go too fast. We expect the demand for capacity to grow. Argentina is a large country which has areas such as Patagonia where the population density is very low, hence there has been little interest in the private sector to deploy terrestrial networks. We think there is a huge opportunity for providing satellite services. We expect to grow in that area.

VIA SATELLITE: Are you looking to develop business in other countries in Latin America?

Tognetti: Once we have our satellites in orbit, it will be much easier to develop new business for the company. Most of the capacity we use is for use in Argentina. We have some capacity being used in neighboring countries. We expect to continue serving other countries in the Southern Cone with high quality services. Our satellites will have good power as well as good coverage. The new satellites will also help us increase our coverage but our overall focus will remain the same, though we will be able to offer more services to customers. In the future, we want to also deliver services in North America. Some of our new satellites will have Ku- and C- band coverage in North America.

At the moment, around 15 percent of our revenues come outside of Argentina. In the future, we expect, that with our own fleet, we will reach 30 percent to 35 percent of our revenues from outside Argentina, and, once we have coverage over North America, around 50 percent of that figure should come from business in North America.

VIA SATELLITE: Are you looking to form partnerships with other satellite operators in North America?

Tognetti: We would like to form some partnerships with operators in North America. We haven’t decided yet who will partner with, but we will talk to other satellite operators with a presence in North America such as Intelsat, SES World Skies and Telesat. We already have strategic agreements for satellite capacity with these operators. Arsat-2 will provide capacity over North America, so we think 12 months prior to that, we might look for partnerships so that we could establish them in 2012.

VIA SATELLITE: While the company is focused on Argentina, how do you view the competitive dynamics of satellite in Latin America?

Tognetti: We see Latin America becoming a more vibrant region for satellite going forward. We can say that the Latin American region is becoming more aware of the benefits of satellite communications. Also, in a continent likes ours where there are challenges in terms of geography, satellite solutions are gaining speeds, and end users as well as governments are eager to take up satellite services. In somewhere like Argentina, the government is more open to satellite services than it has been before.

We can also see a similar situation in Brazil. There is also more potential for DTH now in the region. There are a number of government projects taking place in the region.

VIA SATELLITE: Has there been much impact in Latin America from the economic crisis? How could any economic volatility impact Arsat?

Tognetti: I believe that Argentina is in quite good shape economically. We are proud that we can carry on delivering services to the Argentine market, which is growing. Having said that, Argentina and Latin America are connected to the world, and when a global crisis takes place it has an impact.There are some bumps here. We are fortunate in a way that we have managed to survive and recover quickly from the last big crisis. We managed to set-up a robust business plan, so that we managed to continue our day-to-day activities and gain funding, so the impact of the economic crisis was minimal for us. I think the global economic crisis somehow diminishes when it reaches Latin America. I don’t know exactly why, but we have absorbed most of the impact of this crisis.

VIA SATELLITE: How do you view the cellular backhaul market for Arsat? Is this a market you are targeting?

Tognetti: We are providing services to cellular companies for backhaul. As long as terrestrial companies limit the growth of mobile broadband services, there will be an opportunity for satellite. Satellite can also play a role in remote areas. We expect to see some growth in this area. We are designing our satellites to support these applications. Today, in our activities, cellular backhaul only represents around under 10 percent of our overall revenues.