SES Targeting Strong Performance in Asia
[Satellite Today Web Exclusive – 6-11-08] While SES divested its interest in AsiaSat in 2007, it is still intent in playing a major role in the region, the global operator still looks at Asia as a key market.
Robert Bednarek, CEO, SES New Skies talks about the opportunities for SES in the region and how the company hopes to make a strong impact in the market.
Via Satellite: What are the demands for satellite capacity in Asia?
Bednarek: Asia is actually made up of many different markets, but we have a tendency from a satellite perspective to refer to Asia as this one huge geographical region. There are lots of different markets within the region. Depending on where you look, you do see strong demand, which is also application-specific. The Southeast Asia market is showing signs of being quite interested in a variety of small DTH (direct-to-home) bouquets, growing data traffic and GSM backhaul traffic. There is demand there. If you look at Northeast Asia, and in particular Korea, we see strong demand for enterprise and data communications. Throughout the Pacific region, there is a need for trunking capacity, Internet capacity and fiber restoration capacity. The effects of the tsunami there a couple of years ago are still being felt. The general trend is positive with needs for increasing amounts of capacity. The applications are pretty diverse and there are certainly pockets of strength within certain regions.
Via Satellite: How does SES meet these needs following the AsiaSat divestiture?
Bednarek: There are a couple of elements to that, and this happened prior to divestiture of AsiaSat. It really began with the acquisition of New Skies. As you know, while our core markets were Europe and America, we had participated in Asia and South America through minority participations in AsiaSat and StarOne. We felt those regions offered lots of growth opportunities within diverse geographies. We were frustrated by the fact that we could only participate on a minority basis in the shareholding in AsiaSat. The minority shareholding prevented us from doing a variety of things, including the broadest possible synergies with the rest of SES, on procurement, fleet planning, optimizing capacity. etc. When New Skies came along, we thought this would be a good way of increasing our presence in the market. New Skies was highly complementary to AsiaSat fleetwise, and we thought the two would actually fit together nicely, but converting on this proved difficult. At the same time, it became evident that there was some external interest in our minority shareholdings.
Via Satellite: Do you see consolidation among operators in the region?
Bednarek: For a long time now, everyone has been predicting consolidation in Asia. It is a highly fragmented market. If you look at the pie charts with the number of operators in the world, you have the majority of the operators located in Asia. It is not just about economic dynamics at work. There are many instances of legacy government ownership — both direct and indirect. There are many national/domestic systems. There are also application-specific satellites that were built for one particular use or geography. The strict economic rules for investment in these systems do not always apply. I don’t think we will see any time soon a sudden consolidation like that we have seen in the U.S.
In terms of economic viability, it depends on how you define it. Some systems are sustained by government, some of them are capitalized originally and then left to their own devices. Viability is in the eye of the beholder. If you look at straight economic return on investment, and ask if everyone is viable, no, I don’t think so. Return on investment is not the only metric in use.
Via Satellite: Have the dynamics for fixed satellite services changed in the region?
Bednarek: I think the profile of the market in general has changed, but again there are pretty wide regional variations. In general, there are more sources of demand than before. Satellite demand is pretty well-correlated to economic development. As you have the broadening of economic development across the region, you have the broadening of demand. It is in the enterprise sector, the telecoms sector, the cellular backhaul sector, DTH, video distribution, etc. There has been some loosening of the restrictions, and when that demand shows up there are more options for you to try and satisfy that demand. You don’t always have to use the national system any more. It is now more likely that you can use other national systems or the international operators. I do think there is some positive progress in that, but there are still a lot of regulatory legacies. China’s demand is growing, but it is pretty clear that the domestic Chinese operators are positioning themselves to carry as much of that as possible, particularly on the video side. The basic trend is positive.
Via Satellite: How do you view the opportunities for Ka-Band in the region?
Bednarek: I think the future is bright. To me, Ka-band is another piece of spectrum. It has its positives and it has its negatives — propagation being the negative [and] the ability to make smaller tighter beams a positive because you can have higher frequency reuse. There are some applications that are naturally suited for it. Two-way broadband is one such application. I think you will see the growth of Ka-band, principally as operators run out of Ku-band capacity, and in particular, the standard Ku-band capacity. So you can consume what you have first, and then you drive towards Ka-band. You are really seeing that come to fruition in Europe, where there is not much Ku-band around. I do believe you will see that in Asia as well.
Via Satellite: What are SES’s capital expenditure plans as they relate to Asia?
Bednarek: In the fourth quarter this year, we have the launch of NSS-9, which will go to the 183 degrees West orbital location over the Pacific Ocean. That will free up NSS-5, which is potentially deployable to multiple places, including 108 degrees East, where it can provide expansion capacity to NSS-11, which is already serving customers at that location. We are looking at some other orbital locations in the region. In mid-2009, we will be launching NSS-12, which will be located at 57 degrees East. That satellite will have significant incremental capacity pointed at India and the Southeast Asia region.
Via Satellite: How do you assess the prospects for DTH across the region
Bednarek: I think India reflects a model you will see develop in a number of places. This will be for a number of reasons. Firstly, we have a tendency, particularly from an American perspective, to see DTH as a monopoly or duopoly in a huge homogenous market. That is not the case in many other places. There are subregions within India which are huge and on their own have a sufficient population to be addressed by a DTH platform. Across Asia that is the same case. There are definitely subregions within China and even in smaller countries. There is no question that there are many different audiences that can be reached.
Over the last five to 10 years, a significant change has been the cost of becoming a DTH operator. This has dropped dramatically. You can lease capacity from a number of satellite operators. The uplink and conditional access equipment is readily available. The two principal ingredients for success are: access to programming and some sort of retail distribution channel. It is not an accident that it is the mobile guys in India that are so active in this area, because they have the existing retail sales pipelines where they can add new products such as a DTH receiver. I think the ingredients are present in all of these markets. I think packaging into smaller regionally orientated systems is relatively simple. As I often say, for a few tens of millions of dollars, you have can have a 50 channel bouquet and you don’t need that many subscribers to make money from that.
Via Satellite: How do you see the satellite landscape developing in Asia?
Bednarek: I don’t see any huge realignment of players in the sky. You may see a satellite here or there go into another guy’s fleet. I don’t see a driver on the horizon for a fundamental reordering of the alignment there. You are not going to get private equity firms leveraging their way as they did in the U.S. What worked in the U.S. would not work in Asia. Demand will grow on a country-by-country basis.
VSAT as well as DTH is growing in India, although there are some regulatory constraints. In China and other markets like Pakistan, the Philippines and Vietnam, the VSAT business is growing, as is the demand for capacity to support the huge growth in mobile telephony, data and related services. There will be uneven demand growth across the region, and how each operator aligns itself for specific markets within the region could affect how you’re positioned to serve other pockets of demand, either technically, politically or otherwise.