By James Careless

Even though the global satellite industry is performing stronger today than in recent years, the numbers for 1Q 2005 were not as robust as executives would have liked, and as it always happens when the market experiences financial challenges, satellite executives are now embroiled in self-analysis, trying to figure which market segments, applications and business strategies will make the balance of 2005 stronger on both their financial and strategic business plans.

Adding to the pressure are the new managers on the satellite scene. One has to wonder "how the newly acquired and about-to-be-acquired satellite companies will fare under the harsh financial glare of the private investment groups that have bought them," says Susan Irwin, president of Irwin Communications in Washington, D.C. Given that private investors usually have little patience for losses, "will these companies be carved up and sold off in pieces, or will they be maintained with the same structure and management they have had?"

Only time will tell. Still, those who did their ‘due diligence’ before buying into the satellite communications arena know that the past few years have not been easy for the industry.

Notwithstanding, satellite executives are once again taking stock of their strategies and what can be done to make this year’s remaining quarters more profitable. The good news is that there are sectors of the satellite market that are performing well and whose prospects make them worthy of consideration by new players.

Private Networks

One of the industry’s brightest lights is the private networks sector. "We are seeing a growing demand for low-cost multi-site broadband terminals that support native IP applications such as IP/VPN, VoIP and videoconferencing," says Steve Corda, vice president of business development for SES Americom. "Awareness of broadband at the consumer level is driving demand in the enterprise world for greater connectivity at every remote site."

"Broadband satellite is unlocking value with as many dimensions as organizations have missions and people have personalities," adds Arunas Slekys, vice president of global marketing for Hughes Network Systems. "From digital signage to boost retail sales to delivering USA Today instantly; to multicasting media rich infotainment to movie theaters nationwide; to Wi-Fi via satellite, enabling wireless capture and transmission of findings at archeological digs to our homes, for high-speed surfing, distance-learning and downloading of songs and videos."

"There is also integration of point-of-sale and other traditional applications supported over satellite with other back office functions and business connectivity needs; virtual private networking at the enterprise level, and IP video (corporate, learning networks and commercial programming)," adds Corda. "As well, thin route client server applications are a common choice (that is SAP/Citrix); so are turn-key VPN networks, providing global connectivity to multi-national corporations over VoIP, and the provision of VoIP services to deregulated African countries."

There are a number of factors driving the growth of leading-edge private networks, chief of which is old-fashioned competition. "These applications have become more popular as businesses are striving to find new and creative ways to stay competitive, improve efficiencies and target consumers," says Jeff Carl, Spacenet’s director of marketing. When sent over satellite, "the latest multi-media service applications offer unique solutions that enable customization, content management, and can be easily deployed to multiple sites."

Falling prices combined with higher data speeds are also driving "the rapid acceptance of broadband satellite terminals," Corda says. "Another exciting development is the massive movement at the enterprise level toward IP-based applications. Everyone is speaking the same language, and Web-based applications, portals and meetings are making the telecommuter’s laptop as powerful as a data center workstation -when connected to broadband."

Finally, money talks: private network broadband via satellite is proving a real return on investment (ROI) for businesses using this technology. "Whether it is improving cost-efficiency or productivity, or uplifting sales, broadband investment improves the bottom line and, for consumers, makes life better," says. Slekys.

As for the future of private network sales, "satellite’s fundamental advantages of ubiquity and multi-casting make its business case superior over terrestrial alternatives," he replies. "More demand for video transport in virtually all applications will continue to fuel that advantage. The net result is both expanded and as yet untapped market opportunities for satellite."

Consumer Market Opportunities

Private networks are not the only area of opportunity for the satellite industry: consumers also count. For instance, "entertainment and information delivered via satellite to handhelds and cars are definitely proving to be hot applications," says Peter Nesgos, a satellite legal expert and partner in the New York law firm of Milbank, Tweed, Hadley & McCloy LLP. "They are catching on faster than anyone would have thought. The market is just starting to explore the possibilities in terms of creating unique content."

Nesgos’ opinion is echoed by Andrea Maleter, technical director of Futron Corporation’s Space and Telecommunications Division. "Anything mobile is definitely popular, with many developments supported by increased funding for security and emergency response services around the world," she says. "This includes satellite radio."

"HDTV and video-on-demand via satellite are also in demand," Nesgos adds. "Increased bandwidth combined with satellite delivery enhances the viewing experience at the receiving end and offers users the opportunity of customizing and tailoring the content and timing of programming. Finally, let us not forget radio-navigation by satellite, such as GPS. It is ubiquitous; few people appreciate how pervasive GPS has become."

The Military Helps Out

1Q 2005’s numbers would have been even more disappointing, were it not for the military’s increased use of satellite products and services throughout the past few years "The military sector has been tremendously important to the commercial satellite sector, particularly in the U.S. where other satellite markets have been flat," says Irwin. "It has reduced the glut of capacity and has been a proving ground for new satellite products and services. In fact, military spending and interest have dwarfed other sectors in terms of growth and this appears to be continuing in 2005." Better yet, "the military is treating satellite communications much like the broadcasting and enterprise sectors did in the early eighties; as a technology that they are building into their long-term plans."

Fortunately for the commercial satellite industry, military customers are predisposed to use its services. "Senior managers of U.S. government communications prefer to lease capacity rather than own space assets," explains Roger Rusch, president of TelAstra, Inc., a satcom consultancy in Palos Verdes, CA. "It is easier to obtain money for expenses than for capital appropriations. Meanwhile, government use is considered in a favorable light by FSS operators because governments almost always pay their bills."

Looking Ahead

Clearly, there are areas of opportunity in the satellite industry and not just in the United States. Take private networks via satellite; according to Slekys, the potential client base is "global. Whether it is in Kiev, Sao Paolo or Miami, every business, every government agency, and indeed everybody wants broadband," he says. "And nobody wants anything less than the most features and best quality at the lowest cost, even though they can’t always afford it."

This said, "uses/applications vary according to local economies," cautions Corda. "In the U.S., local buying power has created an exciting opportunity for SOHOs [small office/home office], educational and rural customers to leverage private network technologies previously only available to corporate customers. In the developing world, most private network applications are still implemented in support of mission critical remote operations for government and enterprise clients (that is offshore oil rigs, mining operations, and embassies) all still rely on satellite for their private networking needs."

The moral of this particular tale is not just that opportunities exist, but that they are often specific to regional markets. Satellite operators looking for such opportunities need to be aware that "one size does not fit all;" the same is true for their investors.

Meanwhile, the explosive growth of satellite radio proves that consumers will take to satellite when the applications are right, as has already been proved by DBS. Both services, however, are successes because consumers want what they offer, not because they are delivered by satellite. This is a lesson many satellite operators have missed in the past, namely that consumers only care about getting what they want, not how it happens to be delivered.

As for the military commercial satellite market? As long as commercial satellite operators can provide military users with secure, reliable coverage for less than it would cost the military to launch their own satellites, this sector should continue to thrive. This said, anchoring a commercial operator’s success primarily to military customers does have its risks, not least of which is the outbreak of peace throughout the world and a resultant lessening of military traffic.

The bottom line: the fact that 1Q 2005’s numbers were not as robust as one hoped does not make the satellite industry a failure, nor a bad investment. What remains to be seen is whether private investors will take the industry’s unique market conditions into account because, after all, this is rocket science.

James Careless is senior contributing writer to Via Satellite magazine.