Satellite Industry Robust And Growing, But Some Uneasy Uncertainties About The Future Remain.
Overall it’s been a very positive year for the satellite industry,” says Andrea Maleter, technical director at Futron Corp., Bethesda, Md. “There has been both lots of growth and setting the stage for future growth.”
Global satellite manufacturing revenues in 2006 improved 54 percent, led by a 57 percent gain in the United States, according to the Satellite Industry Association’s (SIA) State of the Satellite Industry Report prepared by the Futron Corp. and released in June.
The 101 payloads launched in 2006 represent an increase of 53 percent over 2005, with the number of government payloads launched in 2006 jumping 76 percent. Government payloads generated 75 percent of total manufacturing revenues in 2006, and commercial payloads generated nearly $3 billion in revenue. The average revenue per payload launched remained stable, according to the study.
“The main thing I would say is that the industry is on a rebound,” says Marco Caceres, senior space analyst at Teal Group Corp., Fairfax, Va. “You can see that in the number of new manufacturing contracts for satellites. That will result in an increase in launch contracts. Launches trail manufacturing by a year or so. There has been an average of 15 or so big orders on the commercial side, increasing to 20 to 22 a year for at least a couple of years.
“Like many other industries, this one is cyclic,” says Caceres. “Toward the last part of the last decade there were new customers, technologies and applications, while older satellites needed to be replaced. There was a fairly large spike in the number of satellites launched. It took a while for the industry to absorb that many in orbit. Now there are more replenishment satellites needed and some new broadband and other services in demand.”
The one area that could raise concern is that “in terms of manufacturing, on the commercial side, the U.S. companies are being absorbed into multinationals,” says Maleter. This is the result of “consolidations and the changing investment structure of the satellite industry. There’s a lot of money going into the industry but fewer decisions are being made by the satellite operator and provider.”
In agreement is Max Engel, strategic analysts at Frost & Sullivan, San Antonio, Texas. “In my mind the biggest thing going on by any measure is consolidation. In the short term that’s not important. The satellites are still out there. The real importance of consolidation is what’s going to happen five to ten years from now. Will satellites go up at the same rate? What will happen when the industry is run by people who make money by buying and selling satellite companies?
“Satellite operators feel conscientious about maintaining a good replacement rate,” says Engel. “But when a satellite company starts out as a quasi-government organization, then is sold, through one and sometimes more leveraged buyouts to private investors, it certainly makes you wonder where the money will come from in the future.”
In the short term, the consolidations into non-U.S. entities has resulted “in the dramatically declining role of the U.S. in commercial launching,” says Maleter.
While the number of launches performed by U.S. providers increased in 2006, the U.S. share of launch industry revenue continues to decline, according to the SIA study. U.S. launch providers had a 37 percent of global launch revenue in 2006, compared with 50 percent in 2005 and a high of 66 percent in 2003. The loss can be attributed in part to the retirement of the higher-priced Titan 4B rocket, which performed its final mission in 2005. For this same reason, the 2006 worldwide launch industry revenue decreased by 10 percent from 2005. But adjusting prior year figures for these launches, revenues showed a gain of about 22 percent globally from 2005 to 2006.
On the plus side, Engel says, “In general, transponder pricing is rising. There’s money to be made. This is a good sign after the price wars of previous years.”
Overall, fixed satellite transponder fill rates grew from 58 percent in 2004 to 70 percent by 2007, according to the SIA study. Transponder agreement revenues, which include contracts for the use of capacity on a full or partial transponder basis, grew 25 percent in 2006, compared with only 4 percent growth in 2005.
Revenue for global commercial satellite remote sensing increased about 16 percent from 2005 to 2006, driven by evolving business opportunities. These include new and continuing military and intelligence imagery contracts as well as civil and commercial needs such as online mapping services.
One expectation that has not been fulfilled, Maleter says, is the “bundling” strategy for new service, such as a hybrid service that combines cell towers with satellites — both owned by the satellite company — to provide communications services. “Deals have appeared to be made and regulations in place, but the construction or deployment of these systems still have not taken place,” she says.
Ground equipment accounts for the second largest share of industry revenues, with the proportion remaining stable throughout the prior five years. The SIA reports shows that overall, the ground equipment sector grew 14 percent in 2005, driven by demand for end-user equipment. The prices for consumer service-related hardware such as satellite radio and direct-to-home TV receivers are increasing as new technology and capabilities are introduced.
In 2006, global satellite ground equipment revenues were $28.8 billion. By contrast, during this same period, U.S. cellular handset revenues were $17 billion.
But Maleter points out that at the same time there are increasing requirements for enhanced products and applications in emerging markets and a continued demand for increased geographic penetration in all markets, the developed markets show steadily increasing demands for converged applications — that is , data, video and voice to mobile devices.
These converging applications of hybrid networks and bundled services include cellular backhaul and video/voice/data bundles. At the same time that legacy products decline at predictable rates (that is, voice, analog video), strategic partnerships, such as DirecTV-Verizon, are being tailored for new market segments. The advanced products and services are increasing penetration in mature markets thus creating new opportunities. Satellite services grew approximately 19 percent from 2005 to 2006, primarily due to growth in satellite television.
Another way of looking at this is that the traditional lines between the satellite and communications industries are rapidly overlapping and becoming blurred, says Engel. “If I was going to say what the biggest thing that became clear this year was, it would be the degree to which the satellite industry is becoming just another means of communication,” he says. “One reason is that with the consolidations companies that own equity in satellites also own equity in communications. There’s nothing weird or exotic going on here, and you don’t have to be a rocket scientist to understand it. The other reason is that companies in the satellite industry — to maintain their huge network system — have to provide more services. For instance, Hughes, which invented dishes, now sells DSL. They now sell not just to satellite providers but communications providers as well. Europe has a number of different combinations of these flavors.”
Engel says this evolution may not be all good news for the industry, for it is this diffusion of focus which might adversely affect the replacement issue. On the other hand, companies will have to recognize this change and adapt to it. “At one time the satellite industry thought it was extra special, and had all these cool toys to play with,” he says. “But that’s less true today. The future of this industry is to be a smaller part of a much bigger industry. It has to learn how to cooperate with the rest of the communication world. That said, this does not make satellites less special. But it does mean that this industry, in order to survive, is going to have to do a better job of showing where it is special and to understand the places where it is not.”
In the military satellite sector, the United States maintains its dominance, accounting for three-fourths of the value of all spacecraft built and launched, says Caceres. “And they will continue to dominate,” but not as much as in the past, as Russia, German, France and Italy are building for the military market, as are China and India, he says.
“One thing to remember is that the U.S. now has roughly 10 military satellites in the pipeline that have been delayed because of technical problems or funding,” says Caceres. “Those up there are coming to the end of their lifeline, so the new have to be there to replenish. We’ll see a lot of activity in the next five years, and then there will have to be new satellites researched for the next generation. With our troops on the ground in Iraq and other places, the military can’t afford to have a gap in reconnaissance, early warning systems, communications, navigation and weather.”
In terms of the future, Caceres says that NASA and other agencies are laying the groundwork for building space stations and sending men back to the moon to see what the soil and atmosphere can do for man, then, eventually to Mars. This might be 20 years away.
Still in the future — but more likely to happen sooner — are microsatellites, some of which already have been built and placed in orbit. “It’s mostly the Russians who are aggressively moving into this market,” Caceres says. “These microsatellites will allow a university, a small company or a small researcher to get up into orbit for $10 million, which is about as cheap as you can get.”
Thomas G. Dolan is a business journalist based in the Pacific Northwest who covers a wide variety of topics.
Factors That May Affect Future Demand
Global and industry environmental factors can affect current and future demand forecasts for commercial GS0 satellite launches. The 2007 Commercial Space Transportation Forecasts published May, 2007 by the FAA Commercial Space Transportation and the Commercial Space Transportation Advisory Committee, has identified the following issues as potential factors that may impact satellite demand in the future:
â– Economic Conditions continue to improve. Low interest rates have allowed for a stable to increasing amount of financial venture capital for commercial space businesses. Many global fixed satellite service (FSS) operators are highly leveraged with debt levels more than six times earnings before interest, taxes, depreciation and amortization (EBITDA). The debt market’s willingness to offer financing and the low interest rates have allowed mature operators like SF5 and Intelsat to refinance to more favorable rates, decreasing their interest expenses. This high level of debt combined with continuing excess satellite transponder capacity in some regions may impede short-term demand for satellites.
â– High-speed terrestrial services have lowered demand for satellite-based data transfer because of existing terrestrial capacity and price competition. There remains an overcapacity of inexpensive land-based fiber optic assets.
â– Data compression technology has been steadily increasing the amount of information carried over a given satellite channel. Improvement in video compression methods especially has allowed expan-sion in the number of video channels carried over satellite with increasing transponder demand. In addition, data compression also allows more information to cross terrestrial systems, decreasing the need for space-based systems.
â– U.S. Government regulatory environment continues to be a factor in the redistribution of market share from the domestic market. More international operators are purchasing their satellites and launchers from international manufacturers to avoid the U.S.-imposed restrictions.
â– Private equity firms have purchased controlling stakes and other significant equity positions in some of the largest satellite operators in the world. It has yet to be seen how the strategic plans of these new owners will affect the demand of new and replacement satellites from these operators.
â– Satellite operator consolidations are occurring as operators are seeking complementary markets and services to offer global solutions. Low capacity utilization rates allow for consolidation of capacity on fewer satellites. Consolidation appears to impact the timing of and funding for anticipated replacement orders.
â– New commercial competitors will impact the launch market over the next few years with increased competition.
â– Indigenous launch vehicles will likely decrease the demand for internationally competed commercial launches as more countries decide to build and launch their own government and commercial payloads.
â– New market applications have increased the demand for satellite services. Ka-band satellites have become a reality with the launch of high-definition television (HDTV) and broadband satellites. Business success of broadband systems are determining the rate of future demand, while HDTV appears to be headed for success. Other emerging applications that could impact future demand include mobile video broadcast services to wireless handsets/terminals as well as emerging Internet Protocol television (IPTV) applications. Another new service is being developed in the mobile satellite services (MSS) sector.
If these systems are successful, similar systems could be developed worldwide.