Canadian Satcom: Out In Front

When it comes to space business, there’s more to Canada than meets the eye.

Much more.

The numbers tell the tale. In 1999–the latest year for which the Canadian Space Agency has survey data–the Canadian space sector generated U.S.$1.22 billion in revenues. That’s an 89 percent increase from 1996. Meanwhile, on the labor side, this sector employs 7,000 Canadians in more than 250 companies, coast to coast.

As for satcom? It accounts for 72 percent of this revenue–that’s U.S.$878 million in 1999 alone–making it the dominant player in Canadian space. Among Canada’s satcom companies are well-known international brands such as EMS Technologies, International Datacasting, NSI Communications, Telesat and Norsat.

The bottom line: Satellites are big business in this country of 30 million. That’s why Via Satellite recently spoke to some of Canada’s top satellite executives. Here, in their words, are answers to some very important questions.

Via Satellite: How well is the Canadian Satellite industry weathering the current economic storm?

Brad Sherrard, vice president of business development, Roadpost Inc. (a reseller of international cellular and Iridium-based communications solutions): The satellite industry has held its own during the recent recession. While growth rates did decline to some extent, most companies still experienced increases in the number of subscribers.

Mark Ahrens-Townsend, president and CEO, Norsat International Inc.: Many of the large satellite companies in Canada built business plans around high growth rate expectations for new technologies. However, these markets did not emerge as quickly as many people expected. (In contrast) smaller organizations that focussed on traditional satellite offerings and were supported by a loyal customer base were better able to weather the recession.

Ron Holdway, vice president of corporate communications, Com Dev International: So far the payload subsystem business has held up reasonably well. More work for larger payloads has largely offset the reduction in the number of payloads.

Paul Bush, vice president of corporate development, Telesat Canada: The majority of our customers are well financed and have signed up for long-term contracts. Our outlook for growth in revenues remains optimistic based on the view that economic prospects will start to pick up again later this year.

John Clarke, director of sales, Spacebridge: I think we’ve done okay when compared to other parts of the telecom industry. A lot of this has to do with our markets being largely outside of North America. For example, Europe is much more pragmatic about their approach to satellite services than the North Americans, which has resulted in a steady increase in demand for equipment and components to drive their steadily growing satellite-services business.

Ron Mankarious, vice president of marketing, NSI Communications: The recession has slowed our growth rate some, but we’re still seeing consistent growth. This is because as we sell globally we tend not to follow the NA business cycle. Globally we have seen dramatic shifts in each of the regions–but where one region slows down another region is expanding.

Gerry Bush, president, EMS Technologies’ Space and Technology Group: The Canadian satellite industry is commercial and has been affected by the slow-down in business by the prime contractors and by satellite operators. There has also been a negative impact caused by the delay in the roll-out of broadband satellite technologies and systems. We have, however, an established backlog of work from the heightened activity of the previous year and that will continue to mitigate the negative impact of the recession.

Eric Gregoire, sales manager, Wavesat Wireless Inc. (a Montreal-based manufacturer of coded orthogonal frequency division multiplexing modems and RF microwave amplifiers for wireless broadband): Wavesat has actually increased its sales during the recession, within its satellite segment. We’ve done so by developing new products two years ago, which anticipated certain segment opportunities.

Via Satellite: The North American Free Trade Agreement (NAFTA) between Canada, the United States and Mexico, was supposed to boost Canada’s satcom companies by giving them access to the U.S. and Mexican markets. The question is: Has NAFTA actually paid off as promised?

Sherrard/Roadpost: Definitely yes, because this industry is borderless by nature and trans-border issues act as a barrier. The removal of those barriers means we can move terminals and other equipment back and forth across borders more quickly.

As well, Canada’s population is such a small fraction of North America that the opportunities and customer base are that much greater south of the Canada-U.S. border. Many use the 10:1 rule in comparing the two markets. If one were to apply that formula, for the United States to market in Canada would increase selling opportunities by 10 percent. However, a Canadian company marketing to the U.S. is looking at a ten-fold increase in new business opportunities.

Mankarious/NSI: NAFTA has also opened up markets for many Mexican companies and thus aided them to grow. As they grow, they need broadband telecommunications from companies like NSI to support that growth, and to link with their North American counterparts. For these companies, broadband by satellite is a very attractive solution due to its ability to be quickly deployed.

Ron Clifton, president and CEO, International Datacasting Corp. (IDC): NAFTA helps a bit with trans-border issues, but we have always been price competitive with our U.S. competition, and Mexico has always been a natural market for us. We provide Canadian technology, served Mexican-style: high quality, yet economically priced.

Paul Bush/Telesat: NAFTA has assisted us in buying ground segment hardware from American firms, but the real opportunity has come from the WTO, as we are now able to market our services in the United States and other Pan-American countries. A number of U.S. broadcast customers are now buying services on the Anik satellite, Wildblue has committed to the use of Anik F2 for Ka-band multimedia services, and Telesat is operating a large number of VSAT systems for customers in the United States and Canada. Altogether, in 2001, 20 percent of Telesat’s revenues came from outside Canada. We are now pushing toward 50 percent of our revenues coming from international sales.

Via Satellite: Have the U.S. ITAR export restrictions affected your business as well?

Holdway/Com Dev: ITAR concerns in the United States have made international co-operation with U.S. contractors more difficult regardless of NAFTA. … We have found ways to work within the restrictions. But our biggest concern is reduced international sales by our U.S. customers, who represent our largest and most established market.

Gerry Bush/EMS: The satellite industry in Canada, like everywhere, is impacted much more by the U.S. ITAR regulations and by other controlled goods regulations than by the more generic NAFTA agreements. As such, these barriers to free trade have hampered the activities of all space companies.

Roger Tinley, vice president of space systems, Telesat Canada: For a company like Telesat, which has been a good customer of U.S. satellite manufacturers, the complex export restrictions are a real disincentive to ongoing procurement activities. While we continue to comply with all regulations, we believe that the restrictions will cause long-term damage to the U.S. satellite manufacturing industry. We fail to see the rationale for applying U.S. government technology controls to standard commercial communications satellites. Furthermore, companies like Telesat can purchase satellites with equivalent technology in Europe without the control restrictions.

Via Satellite: What about the September 11th attacks?

Gerry Bush/EMS: The impact of the events of 9/11 was, in a word, bad. The communications sector had begun to slow prior to September, and September 11 exacerbated this trend. Now, a conservatism with regards to major investments and large cap projects has slowed the industry further.

The only good news is that the effects of this should be fairly short term. Conversely, an increased interest in government and defense communications should spur the U.S. market in the near term; however, accessibility to these programs by Canadian companies may be limited.

Ahrens-Townsend/Norsat: The world felt the impact of “confidence shock” after the events of 9/11. As a result, we saw delays in the deployment of large projects, but we also saw new opportunities emerge for satellite technologies. We believe that there is an increasing demand for satellite solutions aimed at military, emergency services, and other portable solutions. Companies that can provide these solutions will be well-positioned.

Mankarious/NSI: We have seen quite a bit of interest in disaster recovery and restoral services by satellite. September 11th exposed the vulnerability of terrestrial services and how important it is to have a satellite plan in place before things happen so that you can respond quickly and effectively.

Paul Bush/Telesat: In the short-term, the emerging economies and the G7 economies have been hit hard. Access to capital and insurance markets has been difficult. This has led to a general softness in all markets. In the mid- to longer-term, telecommunications, in general, and satellite, in particular, will play a key role in safety and security within the region.

Clifton/IDC: We’ve personally seen no major changes, except for an increase in orders from some clients wanting encryption and conditional access solutions. We’re also seeing more demand from news agencies and others trying to provide increased service coverage for end users who are becoming reluctant to travel as much as before. Otherwise, we are seeing the same economic issues that are facing other markets.

Via Satellite: It’s no secret that Canadian companies often feel like minor leaguers when compared to their much-larger U.S. competitors. But what’s the situation in satcom? Do Canadian companies see themselves as independent players, or just U.S. sidekicks?

Clarke/Spacebridge: Definitely as players, although we are not sure we would be perceived that way by our U.S. counterparts. Nearly every major U.S. satellite company (network developers and product companies) has been through our doors in the past three years, and all have either signed contracts, invested in us or at the very least, set up partnership and Cupertino agreements.

Sherrard/Roadpost: Definitely as players. When you look at the mobile versus the fixed satellite services in North America, some of the biggest players, such as Stratos, Network Innovations, Infosat and Roadpost, are Canadian companies. That’s because these are all entrepreneurial companies that have been driven by aggressive leaders who have built the businesses from the ground up.

Clifton/IDC: As players and equals, plus we excel in certain niches. Canada does not manufacture satellites, but we are leaders in specific key areas ranging from high- performance spacecraft components to broadband DVB ground station technology.

Mankarious/NSI: We are players. In fact, NSI Communications has been successful globally by having a local presence in the international markets, which we feel is necessary to better understand their values and issues. This is why we have local presences in China, Mexico, Indonesia, Brazil, India, the United States, and soon in the Middle East.

Via Satellite: If Canadian satcom companies are players, then where do they fit into the global marketplace?

Holdway/Com Dev: I think we are seen as small but advanced technology players that effectively dominate global market niches. These work best when they flow from a national need like remote sensing, and the satellite communications and broadcast services needed by a very large country with a relatively small and dispersed population.

Clarke/Spacebridge: As well, Canadian satellite firms are playing a key role in developing Europe’s broadband IP-based services. For instance, SES Global in Europe has pioneered the development of the new broadband two-way interactive data service standard called DVB-RCS. A number of Canadian companies including Spacebridge are involved in DVB- RCS development and deployment. To date, Eutelsat has adopted DVB-RCS as a standard for deployment of broadband interactive services by satellite. As well, SES–through their acquisition of GE Americom last year–will likely be moving this to North America.

Gregoire/Wavesat: Globally, Canadian companies are well-liked for having fewer political barriers than other countries, a good reputation in technological competence, and a low currency value when compared to the United States.

Via Satellite: Canadians have a reputation for being “kinder, gentler” versions of people in the United States. Is this reputation–and the image of being Canadian in general– a sales edge, or a disadvantage?

Gerry Bush/EMS: Generally, being Canadian is an asset internationally. Our reputation is well established by Canadian success stories in manned-space, remote sensing and in satellite communications. This, combined with our best in class products and systems, and our four decades of experience, positions us very favorably in world markets.

Paul Bush/Telesat: First and foremost, it helps to be a Canadian. We are fortunate to have developed a worldwide reputation for integrity and trust. As a result, we’ve been successfully providing consulting services for many years throughout the world (to 30 countries and 68 satellites to date), and we are currently operating four satellites for non- Canadian customers.

Clifton/IDC: Being Canadian definitely helps. We are seen globally as being pioneers in the industry, as having excellent technology developed for a harsh climate and broad geographic terrain, and due to our French/English heritage, we are sometimes seen as being more culturally aware of our clients’ needs.

Ahrens-Townsend/Norsat: I believe that it helps to be a Canadian company. Canadian businesses are viewed as responsive, innovative, and professional, and have gained respect in the international business community. Part of our distinct advantage in the global arena is our multi-cultural environment.

Sherrard/Roadpost: Europeans don’t seem at all concerned one way or the other. Sometimes the United States can adopt that “51st state” mentality, but that often works in our favor because they consider us to be a local supplier.

Clarke/Spacebridge: Our reputation outside of Canada in the satellite community is generally very strong in general, along with our reputation as “people that are easy to work with and trustworthy.” Sounds a little trite, but it works.

Via Satellite: Finally, what common misconceptions about Canada do you have to deal with in your day-to-day global business?

Mankarious/NSI: The misconception that the satellite industry in Canada is new, when in fact we have been one of the leaders in the field of satellite communications. Our country deployed some of the first satellite systems in China back in the ’70s–Canada has been a major industry player since the beginning.

Holdway/Com Dev: Our success as a globally respected, technology leader is often better understood by our international customers than by the Canadian public and the parts of the Canadian government not directly involved in space.

Paul Bush/Telesat: Most people are surprised by the scope of activities underway at Telesat. Our R&D facility, as an example, is a destination of choice for companies and countries wanting to see the latest developments in broadband multimedia, community access programs for schools and hospitals, small office/home office technologies and the evolving broadcasting market (HDTV, MP4). The extent of services we offer can often be a revelation to some.

Clarke/Spacebridge: People tend to think that all companies are government funded through the Canadian Space Agency and other organizations. There are many other privately funded, commercially driven companies like Spacebridge who are proving their products are in demand globally, by standing on their own.

Canada Can Do

Judging from their own words, Canada’s satellite companies feel pretty secure on the world stage. They know who they are, and where they fit in. Granted, none of them have the clout of a Hughes, Gilat, or SES Global, but the Canadians are adept at finding niche opportunities, and exploiting them.

Moreover, Canadian satcom companies are clearly undaunted by the current economic slowdown and the fallout from 9/11. Add to this their entrepreneurial zeal–something that Canadians typically are not known for–and it’s clear that Canada’s satellite companies are serious about playing and succeeding on the global stage.

James Careless is a contributing writer to Via Satellite.