AsiaSat CEO Optimistic Despite Tough Conditions

AsiaSat is a major player in the Asian satellite and communications landscape. The operator plays a key role in developing the growing broadcast and broadband markets in the region. It launched its AsiaSat 4 satellite last year, and it remains one of the key investors in new satellites in the region.

However, while such markets as China and India offer numerous growth opportunities, intense competition means many venues in Asia are proving tough places in which to grow profits.

In its latest full-year results, the company announced a decline in both revenues and profits. Last year was most challenging for the Hong Kong-based operator. Its profits for the year fell by almost 25 percent. Profits for 2003 slipped to $54.4 million in 2003 compared with $71.2 million in 2002. The operator has its work cut out to reverse that slide.

The outbreak of Severe Acute Respiratory Syndrome (SARS) in Hong Kong and in neighboring countries also affected economies in the region in 2003. However, AsiaSat is confident that, when the market picks up, it will be in a prime position to take advantage. It has a debt free balance sheet and, with some of the most advanced satellites being deployed in the region, the operator is optimistic.

In an interview exclusive to Satellite News, AsiaSat CEO Peter Jackson talks to International Editor Mark Holmes about the performance of AsiaSat 4, when the company expects to see its revenues and profits increase, and its planned investments in new satellites.

Satellite News: Do you see any recovery taking place in the Asian markets?

Jackson: I think we have seen a turnaround in the general economies of quite a few of the Asian countries. However, some countries have yet to experience a real upturn. Despite some economic improvement, the Asian transponder market remains sluggish. This is because the transponder market usually lags behind the economic recovery. I think it is very unlikely that we will see a dramatic increase this year or even at the beginning of next year.

Satellite News: What do you see as the major growth opportunities for the company that will lead to a return to revenue and profit growth?

Jackson: DTH is undoubtedly a major contributor, not only in terms of the satellite capacity used for distributing the services to homes, but [because] it promotes the creation of new channels. These channels use other satellites for distribution to areas outside their area of operation. In addition to DTH, we also see an increase in use of satellites for unconventional FSS services, such as Connexion by Boeing, where satellites are used to serve airplanes. Ultimately, I believe satellites will serve other mobile broadband applications, such as trains and cruise liners.

Private networks serving multiple locations over a wide geographic area for corporations or a connected group of establishments will continue to use satellite to provide very secure networks. Additional demand will also arise from the new developments we are seeing in the television industry, such as high-definition TV (HDTV), personal video recorders (PVRs) and multiple camera choices for sports events.

Satellite News: How much capacity have you sold on AsiaSat 4?

Jackson: At the end of 2003, six months after AsiaSat 4 commenced commercial operation, the utilization rate was 10 percent. That is a fairly low figure but it is about where we thought it would be. Like any new satellite in a new orbital slot, it always takes some time to build it up.

Satellite News: On a different subject, in recent weeks, we’ve seen a trend develop where private- equity companies are investing in fixed satellite services (FSS) operators like PanAmSat [SPOT]. Has this surprised you? How is this ownership rotation going to affect AsiaSat?

Jackson: We weren’t too surprised because we had seen their previous interest in Inmarsat and rumors about their interest in Eutelsat. I think, in terms of impact, it has probably stopped some of the consolidation. But I don’t think this ownership rotation will affect AsiaSat. We are still competing with the same satellites, and I don’t see it affecting us unduly.

Satellite News: At the DTH Summit in Paris, we heard a number of DTH success stories from Asia (ASTRO, Foxtel, Sky Television New Zealand). Do you expect DTH services to continue to grow strongly in the region?

Jackson: The demand for multi-channel television exists in every country, and the use of a DTH satellite service to meet that need continues to be attractive. The main issue is to ensure that there is sufficient demand to meet the fixed costs. As the cost of customer equipment comes down, the number of potential users in a country increases.

We are seeing new developments that make multi-channel television even more attractive. One such development is the PVR. Where they have been introduced, they change the viewing habits of the audience, making watching television an almost “on demand” service. As the production and distribution costs continue to reduce, the number of niche programs continues to increase, thus attracting an increasing number of viewers.

In Asia, we are going to see an ever-increasing number of DTH platforms developing new markets to compete with the existing cable systems. We are also going to see competition in DTH operations in some areas. India, for example, will have at least two DTH operations. Ultimately, you will see competition in China. As costs come down, it will be cheaper to put in competitive systems in most countries, if politically you are allowed to do so.

Satellite News: China and India are the two biggest markets in the region. How do you see them both developing during the next 12 months in terms of generating revenues?

Jackson: India is a very interesting market, and it is trying to ensure that DTH is operated from an Indian platform. I think China’s DTH will also have the same model of putting the services on a Chinese satellite using a Chinese encryption system to make it as homegrown as possible. Both are going to be successful, though they have to compete with cable. It will be interesting to see if China will have a DTH system operating before the Beijing Olympics.

Satellite News: When do you see PVRs being widely deployed in the region?

Jackson: If you had asked me that before the DTH Summit in Paris, I would have said ‘not before the end of the next year.’ But after what we saw in Paris, I think we will see some limited introduction this year.

Satellite News: When do you expect to see SpeedCast become profitable? While it lowered losses in 2003, it still seems a little way away from turning profitable. How do you view the long-term opportunities for SpeedCast?

Jackson: SpeedCast is continuing to grow. I think it will turn cash flow positive probably this year. SpeedCast demonstrates the significant advantages of providing certain services on satellites over doing it via cable. This includes deploying broadband Internet connectivity, multimedia streaming and broadcast services across large and physically scattered regions, and for underdeveloped areas with poor terrestrial systems.

Satellite News: In which markets will satellite broadband have a considerable impact?

Jackson: The market with the most opportunity for satellite-distributed broadband is to 3G cellsites, providing real-time video content to handheld devices. We see this as a very interesting market. However, the general broadband market for satellite faces very tough competition from ADSL, and ADSL equipment prices are going down every day. Business models that worked yesterday are in tatters today if you are trying to compete with ADSL on a volume basis.

The only areas that will use satellite will be where ADSL is not available. For example, a market like Australia that has a high disposable income; in certain areas, because of its geographic size, there is poor access to ADSL, and that will be a very interesting market for satellite broadband. Apart from that, I believe the delivery of real-time video to ISPs, which then send the content on to their broadband customers, is also an area that is developing.

Satellite News: With revenues and profits still suffering, what impact is this having on your capital expenditure plans? When do you expect to finalize plans for your next satellite?

Jackson: To a certain extent, we had anticipated this downturn. We actually reduced our capital expenditure some time ago in that we cancelled AsiaSat 5, which was due to be built at the same time as AsiaSat 4. From the proposed launch schedules, we realized that the availability of transponders was going to far exceed the demand. We did not, however, anticipate the economic downturn happening at the same time. That reduction minimized the impact of the downturn on AsiaSat.

We are looking for the replacement for AsiaSat 2. We have no rush for this satellite but we would like to complete the design before the end of this year.

Satellite News: Finally, how do you see the satellite-services landscape evolving in Asia during the next 12 months?

Jackson: I don’t think we are going to see a tremendous change in the market; you will see demand improve when the economies revive. In Asia, we are facing the issue of pricing, which is affected not only by demand and supply but also, for some satellites, by the competition from cable. For single point-to-point services, if cable exists, satellite is completely outclassed in terms of price.

However, some satellite operators serving ISP backbone traffic were willing to price according to the average cable pricing at the time, rather than what a transponder costs. The thought was ‘if it is unused, I might as well get something for it.’ However, they ignored the fact that such pricing would definitely decrease the perceived cost of a transponder in other markets. When that started to happen, the prices had gone well-below cost. The challenge for the industry now is to correct it, and that is what we have to do in the next 12 months if satellite operators wish to stay in business and to be able to replace their satellites. There is an economic price for transponders, and real customers who have a long-term business have to make sure those businesses are viable when they are paying the true price for a transponder.

(Winnie Pang, AsiaSat, e-mail: [email protected])