Asia: Opportunities And Pitfalls In Equal Measure
Asia offers many strong dynamics that provide satellite players the opportunity to be successful, with large populations in countries such as China and India eager to receive more communications services as well as a number of other territories which seem perfectly suited for satellite. But despite the obvious potential, regulatory and economic issues have meant it has not been easy for satellite players to make the most of these opportunities.
The fixed satellite services (FSS) market in Asia is a melting pot of established local players, new upstart operators and industry giants. While the market remains highly competitive, the players seem to agree that the demand for communications and media services in Asia is high, and satellite is perfectly placed to take advantage of this. “The demand for communications products in Asia continues to grow in line with economic development,” says Simon Twiston Davies, CEO of the Cable & Satellite Broadcasting Association of Asia (CASBAA). “FSS and DTH (direct to home) in particular are a little bit ahead of economic growth trending upwards with media spend, especially since at least 50 percent of all satellite services are dedicated to video. The demand curve continues to rise across the region.”
Robert Bednarek, CEO of SES New Skies, says the profile of the FSS market in Asia “has changed” even though there are wide regional variations. “There are more sources of demand than before,” he says. “Satellite demand has become pretty well correlated to economic development. As you have the broadening of economic development across the region, you have the broadening of demand. We see growth in the enterprise sector, the telecoms sector, the cellular backhaul sector, DTH, video distribution, etc. There also has been some loosening of regulatory restrictions, and when fresh demand shows up there are now more options to satisfy that demand. You don’t only have to use the national system any more.”
Peter Jackson, CEO of AsiaSat, believes “some exciting developments” in Asia’s satellite broadcasting business make it a good time to be a satellite operator within the region. You have “the change of the television format from [standard definition] to [high definition] and the implementation of new DTH, IPTV and mobile TV platforms resulting from the increased consumer demand and the deregulation introduced by some Asian governments to the media sector that opens up the market for more competition. … The transponder market has improved with firmer pricing for quality C-band capacity and where there is a shortage of domestic Ku-band supply. But we see competition will increase with the new supply of national satellites in the next 18 months. Amid this competitive market, we see governments not only introducing deregulation but also lifting restrictions on foreign satellite operators, thus creating market opportunities for AsiaSat.”
While there is no shortage in the number of FSS players in the region, a number of the operators seem to need new capacity to meet this growing demand, says Paul Brown-Kenyon, COO of Measat. Even with the launch of Measat-3 at the end of 2006, the operator may have to order new satellites to keep up with the demand it sees from customers. “The Ku-band payload has now reached 100 percent utilization, while the C-band payload has reached around 75 percent,” he says. “We are launching Measat-3a in the third quarter. The satellite is going to be collocated with Measat-3 to provide additional capacity at 91.5 degrees East and in-orbit redundancy. We have seen a significant increase in Ku-band capacity leased at the location over the last 18 months. With Measat-1, we had four Ku-band transponders leased to a Malaysian DTH operator. Today, we support platforms in Malaysia, Indonesia and India and have 24 Ku-band transponders.”
AsiaSat plans to place its AsiaSat 5 satellite into orbit within the next year, says Jackson. “This new satellite is designed to offer a more powerful C-band pan-Asian coverage than that of AsiaSat 2. There will also be an additional Ku-band South Asia beam and an in-orbit steerable beam that will offer capacity to markets with stronger demands for DTH and broadband services.”
Intelsat and SES, the two largest global satellite operators, also are beefing up their capacity in the region. “We have in the fourth quarter this year the launch of NSS-9,” says Bednarek. “This satellite will go to the 183 degrees West orbital location, which is over the Pacific Ocean. Placing NSS-9 in this location will free up NSS-5, which is potentially deployable to multiple locations in the region, including the 108 degrees East orbital location where we already have NSS-11. In mid-2009, we will be launching NSS-12, which will be located at 57 degrees East. This satellite will have a large increment of capacity for the India and the Southeast Asia region.”
David Ball, Intelsat’s regional vice president for Asia-Pacific says, “We have a satellite at 66 degrees East. We expect to have a construction contract for that satellite this year. The other satellite is the 180 degrees East satellite. We expect to be placing a contract for a replacement to that satellite this year. The replacements satellites will bring new capacity and capabilities to the market. The Intelsat 15 satellite is also coming at 85 degrees East next year. We do see a lot more Ku-band demand. There are some regulatory issues, but there is strong demand.”
One operator not looking to add more satellites to its fleet — but confident of its prospects — is Thaicom PCL, which launched its IPStar satellite in 2005. “We are seeing some satellite broadband services out there in the market using conventional satellites, but such services are ultimately limited due to the higher cost structure and capacity limitations, unlike IPStar,” says Nongluck Phinainitisart, president of Thaicom. “We have now deployed our services in seven countries (Thailand, Australia, New Zealand, China, Vietnam, Cambodia and Myanmar) and are in the process of deploying our services in the remaining seven countries in Asia-Pacific.”
Satellite technology also plays a key role in Australia, where Optus is leading the way and has been investing heavily in new satellites. Paul Sheridan, head of satellite at Optus, says the operator has invested nearly 600 million Australian dollars ($556.2 million) in its latest D-Series satellites to meet demand for satellite services such as high-definition broadcasting as well as VSAT services in rural Australia. “Optus has one of the youngest fleets in operation with Optus D1 and Optus D2 successfully launched in 2006 and 2007 respectively. Optus’ D3 satellite is scheduled to be launched in 2009,” he says.
Even with the projected growth in the market, operators and analysts still think not all the players will survive as independent entities. Patrick French, a satellite analyst at NSR, questions the long-term prospects of both ABS and ProtoStar, which plans to use a pair of spacecraft to provide direct-to-home, high-definition TV and broadband Internet services in Asia. “ABS’ current satellite has broad coverage which is good for channels that need to get to many countries at once, but they are still working to strengthen their presence in specific country-level markets in order to develop a true video hot spot,” says French. “ABS has had success with other applications like data and voice in Africa, but their biggest challenge in moving to a second satellite will be to continue to get good growth in an increasingly competitive marketplace that is seeing existing operators working hard to protect their markets and new smaller regional operators emerging.”
Equally, French thinks ProtoStar faces challenges in the mid to long term, especially after the operator’s deal with Antrix — the commercial arm of the Indian Space Research Organization (ISRO) — to jointly provide interim satellite capacity to support DTH television demand in India expires. The contract allows ProtoStar to use capacity its has leased from another provider until its planned launch of its two satellites. But ISRO and Antrix only plan use the transponder to bridge an expected shortage in capacity until a new Insat satellite becomes available. “One big risk for ProtoStar is what happens after their contract with ISRO in India runs out,” French says. “Will ISRO actually manage to expand its fleet sufficiently to pull the DTH services off the ProtoStar-1 satellite as they claim they will? Or will the Indian market keep growing at such a rate, as believed by ProtoStar and many other foreign satellite operators, that ISRO will still be obliged to use ProtoStar’s capacity to meet national demand? NSR tends to believe the later is more likely, but today it is truly too hard to say how it will actually play out.”
Some FSS players also think their competitors could struggle to survive. “I struggle to see how some of the FSS operators today will be able to continue their business long term with the rates that they are charging in the market place,” says Brown-Kenyon. “While you can justify rates below cost in the short term, as it contributes to your cash flow, unless you have covered your costs you cannot justify replacements. There are a number of satellites which will reach end of life over the next three to four years which I think are in this situation. I think these operators will struggle to justify replacement satellites.”
But while business sense may dictate that consolidation is necessary, many operators are aware that national interests and regulatory barriers will continue to make that option difficult to achieve. “There have long been predictions of consolidation in Asia,” says Bednarek. “It is indeed a highly fragmented market. If you look at the pie charts with the number of operators in the world, the majority of the operators are in Asia. However, not just economic dynamics are at work. There remains a lot of government ownership of legacy national systems either directly or indirectly. There are quite a few application specific satellites that are out there that were built for one particular use or geography. The normal economic rules which clearly support consolidation do not always apply,” he says.
“We do see a number of the single satellite operators struggle to get a real momentum or neighborhood going with their capacity,” says Ball. “The global operators such as ourselves can provide a more compelling value to customers in terms of regional, global distribution, different connectivity options, different capacity options and the assurance that comes with multiple satellites serving the region. I think we discriminate ourselves in that sense in the market. I could see some operators teaming up. I think it is going to be a case on who blinks first in terms of people not wanting to yield on sovereign rights.”
Sheridan says, “I have no doubt that as the global operators consider their next moves, a number of well run regional satellite operators will come into their focus, whether this leads to more consolidation in the region will be interesting to watch. In the longer term I believe there may be a need for closer working relationships between regional players and perhaps an increase in the condosat approach to effectively address future replacement strategies and to continue to meet the market demands.”
While some operators may not survive, the fact remains that Asia has a number of markets where the demand for capacity will be very strong. Twiston Davies says the opportunities for both FSS and DTH players “are enormous. The appetite for general communications is increasing. There is a challenge from fiber in this part of the world, but the fact is we live in multiple markets which are almost perfect for satellite communications. With 13,000 islands in Indonesia and 7,000 in the Philippines, they are both ideal for satellite communications and growth in both of those economics should lead to more opportunities. India has a vast piece of geography which is only patchily connected by fiber and fixed ground systems. So India is ideal for DTH, VSAT, satellite backhaul of video and for general communication products,” he says.
The major growth is likely to come from video services, with numerous DTH players set to emerge. “Indonesia already has three DTH operators and there could be more,” says Twiston Davies. “The Philippines has one satellite operator in a pay-TV market which is still only penetrated at around 10 percent. There are plans for up to eight DTH platforms in India. That is one of the elements that gives you enthusiasm for Asia where pay-TV as a whole is only penetrated at only around 30 percent. There is 70 percent upside in some absolutely enormous markets. That is one of the reasons why we are seeing new investments into the Asia-Pacific satellite services market.”
In India, there are already multiple DTH platforms with others set to launch this year, and operators believes numerous DTH operators could appear in other markets. “I think India is a model you will see happen in a number of places for a number of reasons,” says Bednarek. “… There are subregions within India which are huge and have more than sufficient population to be addressed by a either dedicated DTH platforms or multiple platforms offering different content bouquets. Across much of Asia, including China, you can find similar cases. With the steady decline in the cost of DTH technology there is no question that are a lot of audiences that can be most effectively reached via DTH,” he says.
“The number of DTH platforms that a market can support is dependent on a number of factors including the size of the market and extent of other pay-TV delivery platforms,” Brown-Kenyon says. “Compared to Malaysia, for example, Indonesia is a much bigger market with 220 million people. It is also not particularly well served with cable. As such, you would expect it to be able to support a number of DTH platforms.”
With huge populations promising to support growing markets, Asia should represent huge growth opportunities for satellite operators. However, markets such as China and India remain heavily regulated, meaning opportunities are still at a premium for international operators. Despite this, many players optimistic the long-touted potential for satellite communications is about to be realized.