State Of The Industry: Continued Years Of Growth
For the fourth year running, the global commercial satellite industry has had solid, measurable growth, generating $88.8 billion in revenues in 2005, according to the 2006 “State of the Satellite Industry Report” issued by the Satellite Industry Association and Futron Corp. That’s up 7.4 percent from 2004’s total of $82.7 billion, which was 11.3 percent higher than 2003’s $74.3 billion in revenues.
“The 2006 SSI report is encouraging for the whole space industry,” says TelAstra President Roger Rusch. “Clearly the industry has recovered dramatically from declines in several sectors that occurred early in the decade.”
The latest report, however, actually shows a decline of nearly $15 billion in 2004’s reported revenues. In its 2005 report, Futron reported industry revenues of $97.2 billion, but in the 2006 report, the 2004 revenues are $82.7 billion. Pamela Luskin, program manager for Bethesda, Md.-based Futron, says the decline comes from new study methodology and is not a signal of weakness in the industry.
“This year we had the opportunity to revisit several of our methodologies that were established nearly 10 years ago,” says Luskin. “The new, lower numbers are primarily due to our change in methodology for the DTH [direct-to-home] sector, which makes up a large portion of overall industry revenues. In addition, we have more up-to-date data for some of the other service sectors as well, such as mobile phone and mobile data.”
The report continues to evaluate performance across the same four sectors: satellite services, satellite manufacturing, launch and ground equipment.
The satellite services sector continues to be the industry’s biggest, accounting for 59.5 percent of all revenues in 2005 with $52.8 billion. This represents a 12.6 percent increase from revenues of $46.9 billion in 2004. The satellite services sector has shown the largest increase in the industry from 2000 to 2005, as revenues climbed 82.7 percent throughout the period.
The ground equipment sector was the satellite industry’s second largest revenue-generating sector in 2005, garnering $25.2 billion in revenues, or 28.4 percent of the industry’s global total. The sector grew 10.5 percent over 2004, when revenues were $22.8 billion, continuing a trend of steadily improving year-by-year revenue growth since 2000.
In contrast, the satellite manufacturing sector had a slow year 2005. Its $7.8 billion in revenues was 23.5 percent less than 2004’s 10.2 billion, and 2005 was the worst year for the satellite manufacturing sector since reporting revenues of $11.5 billion in 2000 – the last year in which the Satellite Industry Association and Futron revised their figures.
The launch sector reported revenues of $3 billion in 2005, an improvement of 7.1 percent over 2004’s $2.8 billion in revenues. The industry may never return to the levels reported in 2000, when the sector took in revenues of $5.3 billion, but the 2005 totals match the revenues reported in 2001 and may signal a recovery from the very slow launch rates of the past few years.
The depression that seemed to engulf the satellite industry in the wake of the collapse of the telecom/dot.com era is over, though it took five or six years to shake off the effects.
With the improvement in satellite industry revenues, “New technologies are being funded,” the report says. Thanks to consumer hunger for entertainment; government demand for connectivity, and the long-predicted consolidation of companies within the satellite industry, the economics of the business are finally looking up. However, there are still some issues to be faced for the satellite industry, especially in the hard-pressed manufacturing and launch sectors. Still, those who weathered the storms of the early 21st century can take satisfaction in their hard-fought survival.
Satellite Services Continues To Lead
The satellite services sector continues to grow, driven by increases in three main areas.
Commercial remote sensing also continues to help fuel growth in the sector. Companies that provide satellite imagery products and services reported revenue growth of 18 percent in 2005 as military, intelligence, and business interests increased their demand for data collected by satellites. DTH TV grew by 14 percent, while satellite radio revenues improved 165 percent in the most recent period.
Mobile data services also contributed to the overall growth in the services sector, as revenues improved 8 percent due to increased use for emergency and military applications. Transponder agreements grew 4 percent in 2005, as “increased satellite capacity utilization offset the continued declines in lease prices in several markets,” according to the study. Add the fact that overall transponder usage grew from 58 percent in 2004 to 61 percent in 2006, and the future for satellite services continues to be bright.
With 2005 revenues being 23.5 percent lower than 2004 and the worst revenue total since 2000, the satellite manufacturing sector continues to be in a slump.
“The decline was due to lower government contract revenues, with the average price of government payloads launched in 2005 being 69 percent lower than those launched on 2004,” according to the report. The 2004 figure was bloated by three government payloads totaling near $1.8 billion. “The total number of payloads launched has remained relatively stable throughout the last three years, while the proportion of commercial payloads has been increasing. Government payloads still constitute the majority of spacecraft launched [71 percent of 2005’s sector revenue, compared to 82 percent in 2004]. However, the absolute value of revenues from government payloads is declining at the same time that revenues from commercial payloads are growing,” the report says.
“Although satellite radio is catching on and it appears that Wildblue is making a go in the Ka-band broadband market (with Hughes soon to join), there have been no new applications that promise true major increases in satellite manufacturing rates,” says Max Engel, broadband and satellite analyst for Frost & Sullivan. “As long as the replacement of current satellite capacity is a leading driver, the industry will continue to have considerable overcapacity and will suffer from large percentage fluctuations caused a few satellite swings in the small number of total orders.”
The U.S. share of the satellite manufacturing sector was $3.2 billion in 2005, which was 41 percent of worldwide manufacturing revenues. In contrast, the United States owned 52 percent of the world satellite manufacturing market in 2000. While the share for U.S. manufacturers is declining, the pain is even worse for companies outside the United States. Revenues declined only 18 percent in 2005 for U.S. manufacturers, while global satellite manufacturing revenues dropped by 24 percent.
“The total number of satellites launched was the same in 2004 and 2005, but the overall value of the satellites declined 24 percent,” says Luskin. “The number of U.S.-manufactured satellites declined from 2004 to 2005, but the value of those satellites did not decline at the same rate as the value of the satellites for the rest of the world.”
Engel cautions that U.S. manufacturers should not take this as a good sign. “It is really a red herring to talk about relative declines in revenue. The important fact is that the United States is losing market share,” he says.
The global launch industry’s $3 billion revenues in 2005 were 7.1 percent better than the year before. That’s the good news. The bad news is that the sector’s 2005 earnings only matched 2001’s figures and where less than the numbers reported in 2000, 2002 and 2003.
The number of launches performed for commercial customers is climbing, though government customers continue to account for the majority of missions, according to the report. In 2005, 54 percent of the year’s 39 launches were for government customers, with the rest being staged for commercial users. In 2004, 41 launches, or 63 percent, were for government customers, while 37 percent were for commercial customers.
U.S. launch providers accounted for about a third of all launch activity in 2005, compared to 46 percent in 2004.
With its 28.4 percent of the global satellite industry’s 2005 revenues in its back pocket, the satellite ground equipment sector continues to be another solid performer. Driving this growth is end-user equipment, “particularly for key consumer services [such as] satellite radio and DTH TV,” the report says.
“With respect to the VSAT equipment market, we are seeing the beginnings of growth in certain verticals that would not traditionally use or think of using satellite,” says Tim Street, a research analyst with Frost & Sullivan. “Applications such as digital signage and BTV are broadening the customer base that satellite normally serves. These applications are also spurring growth in one-way VSAT sales, which is contrary to the trend of everything moving towards two-way terminals.”
Launch Forecast For Next Decade
The satellite industry is expected to continue many of these trends throughout the next decade, as voice, data and video communications continue to drive the deployment of geosynchronous satellites. In particular, the popularity of Internet Protocol (IP)-based communications — including satellite broadband — and the introduction of high-definition (HD) TV are pushing up demand for new spacecraft, along with the need to replace aging satellites currently in service.
With these factors in mind, the COMSTAC/FAA 2006 Commercial Space Transportation Forecasts increases its estimates for the number of geostationary communication satellites that will be launched between 2006 and 2015, reversing a trend in which the numbers were cut during the previous two years. Co-written by the Commercial Space Transportation Advisory Committee (COMSTAC) and the U.S. Federal Aviation Administration Associate Administrator for Commercial Space Transportation (FAA/AST), the annual report looks ten years into the future. COMSTAC predicts satellite and launch demand for geostationary satellites, while the FAA/AST projects demand for non-geostationary satellites and launchers.
“In the [geosynchronous] market, satellite demand [now] averages 20.8 satellites per year, a slight increase from 20.5 satellites in the 2005 forecast,” the report says. This said, it is still a drop from the 2004 estimates of 21.1 satellites per year, and 2003 forecasts of 23.3 satellites per year.
“From 1995 to 2001, the COMSTAC reports were historically overly optimistic,” says Rusch “However, the most recent forecast for launches is consistent with past experience. I would estimate that this forecast may be a little pessimistic because there will be a need to replace a number of satellites that were launched during the peak activity years. Based on satellite orders and projections of orders, it seems likely that there will be several years with a somewhat higher number of [geosynchronous] launches.”
According to the FAA/AST, demand for non-geostationary satellites continues to grow. Based on the most recent data, the projected market includes 160 satellites launched from 2006 to 2015, “the third significant annual increase in the total number of [non-geostationary] satellites since the 1998 forecast,” the report says.
There are a number of factors pushing up the predictions. One factor is the international science community, “where countries without indigenous launch capabilities have generated steady demand for commercial launch services that has outpaced demand from other markets, including telecommunications and commercial remote sensing, over the last several years,” the study says. Using low-cost launchers such as refurbished Russian and Ukrainian ballistic missiles, these countries are able to get their satellites into space relatively inexpensively. The report divides these payloads into three categories; remote sensing, scientific/experimental, and technology demonstrators. It expects “approximately 97 satellites of the international science or other category will be launched during the forecast period.”
As for the other estimated 63 launches, the study cites a variety of projects; such as the German Armed Forces’ plan to loft five SAR-LUPE radar imaging satellites into low-Earth orbit. It also expects launches by commercial remote sensing companies such as Digitalglobe, Geoeye, Israel’s Imagesat International, Infoterra GmbH, MSA Geospatial Services, Northrop Grumman and Rapideye AG. Transorbital also should be launching a remote sensing satellite called Trailblazer, with the unique twist that the satellite will orbit the Moon; making money shooting images of its surface and that of far-off Earth.
Then there are the Mobile Satellite Services carriers: The FAA/AST says that “Globalstar plans to launch eight spare satellites in the first half of 2007”, and is “in the initial stages for its next-generation satellite system.” Globalstar’s current constellation, which includes spares that are scheduled to be launched in 2007, are predicted to last through 2011, while Iridium’s “current constellation of 66 operational and spacecraft and 11 in-orbit spaces is expected to last through at least 2014, with some satellite remaining functional beyond 2020,” the report says. “New satellites will likely be launched gradually, at a rate of several per year, starting around 2013.” Orbcomm also is expected to place more satellites in orbit, starting with a demonstration spacecraft in 2006 and followed by six next-generation satellites beginning in 2007 and additional launches in 2009.
“In terms of either launch or manufacturing, this increase is of limit economic value,” says Engel. “It is not until Globalstar and Iridium begin to replace their constellations that this market will really grow again. Galileo may also have a stimulating effect although the absolute number of satellites is lower.”
In terms of overall launches for the period of 2006 to 2015, the U.S. government is predicting an annual average of 16.7 medium-to-heavy launches for geostationary satellites, 3.6 launches of medium-to-heavy launches to non-geostationary orbit and 3.3 launches of small vehicles delivering payloads to low-Earth orbit. This adds up to an average of 23.6 commercial space launches per year for the next decade.
Going back to 2005, the report predicted a ten-year annual trend of 16.4 geostationary launches, 2.5 medium-to-heavy launches to non-geostationary orbit and 3.9 small launches to low-Earth orbit. This works out to an average of 22.8 commercial space launches each year 2005-2014.
According to the report this growth is due to the lag time between geostationary procurements and actual launches — which are often delayed for a number of reasons — rather than any significant change in market demand. “Comparing this year’s forecast to the previous two years’ forecasts, the traveling bow wave effect is evident,” the report says. “This bow wave effect occurs due to the difference between demand and realized launches, where the demand is typically greater than the actual number of launches due to launch delays.” This means that increase in the annual geostationary estimates are due to the launch industry playing catchup, rather than the satellite manufacturers getting a greater number of contracts than previously predicted.
The predicted total of non-geostationary launches for the next ten years is up 8 percent from 2004 predictions, while the predicted number of satellites is up by 11 percent. The FAA/AST attributes this disparity to multiple non-geostationary satellites being launched together on single launch vehicles.
Tellus Venture’s President Stephen Blum is more cautious about the next 10 year in terms of launches to low-Earth orbit. “It sounds to me like the U.S. government is assuming that Iridium and Globalstar are going to fall into the ocean,” he says. “Replacing those constellations would presumably generate more [non-geostationary] launch activity than they are predicting. That might be a good, if unfortunate, working assumption, though.”
Future Looks Better
The global satellite industry did better in 2005 than it has since the turn of the millennium. This said, the decline in satellite manufacturing is a real concern, especially because this sector still garners the vast majority of its revenues from government business, which appears to be decreasing with time.
Still, a 7.4 percent increase in total revenues to $88.8 billion is nothing to take lightly. Despite facing some very challenging times, the global satellite industry continues to hold its own and prosper despite everything that has been thrown at it.
“This last, long round of rationalization of commercial satellite and [direct broadcast satellite] operators is nearly over,” says Blum. “For the coming few years, the best and, in most cases, only way for a satellite operator to grow is to launch new birds. They won’t be able to replace aging satellites or gain new capacity by absorbing rivals, so the only way forward is up — back into orbit.” â–