Slump or Growth for Satellite Service Providers in Latin America

According to Andrea Maleter, technical director, Futron, “There is a fair amount of private equity money still going into (Latin America’s) satellite business. Latin American telecoms, in general, has seen a fair amount of consolidation. Telefonica, which has acquired so many companies around the region, has not had a problem gaining financing for things that they want to finance. But you have so many other operators moving in. For example, Brazilian telecommunications group Oi bought out rival Brasil Telecom in August this year, so there has been an evolution of telecom companies expanding. There has been a certain amount of consolidation of all telecom activities. So of the kinds of financing that will be available, they will be varied and the fact that you do have some close (financial) relationships with both European and U.S. companies from an operating perspective. Maleter believes there are other interesting markets to look at in the region. “I think the big financial issue in the region is all about Mexico, whether it’s a Satmex issue or its individual players and Telefonica’s role in the region,” she says.

Doron Elinav, vice president of marketing and business development of Gilat Satellite Networks, says, “The rate of exchange has affected all business. Basically, the lack of free credit and the slowdown in business has changed things. Financing is much more difficult. All contracts take much longer. Everybody wants to secure monies in advance, so everything is more difficult for everybody to do business. This has caused a slowdown and delays in projects.”

E-government, long-distance learning, DTH services, video distribution and wireless backhaul are driving demand. Revenue has gone up for two reasons. First, because more capacity has been leased and second, because pricing of the capacity of the tighter supply has pushed up pricing in the last three or four years.

— French, NSR.

One example of where companies are seeing this impact is with Brazilian satellite operator Star One’s C1 satellite, Elinav says. “The delays in the launch of the Star One C1 satellite might cause immediate delays of government projects that were based on this satellite. So the effect has been, I won’t say minor, but has been much less compared to the effect of the financial crisis on the U.S. economy. It is a trend that many of the ISPs and many of the telco’s want to leave the capital expenditure model and want to go to the operating expenditure model. So they don’t pay a large amount day one when the network is set up, but they pay as they are using the network,” he says. 

Transponder Capacity

Some industry experts believe the demand-supply relationship in the market is very, very tight. While there are more than 300 Ku-band transponders over Latin America, the utilization rate stands at close to 84 percent. Patrick French, senior analyst, NSR, says there are still strong demands for capacity in Latin America. “Capacity (demand) is relatively high. E-government, long distance learning, DTH services, video distribution and wireless backhaul are driving demand. Revenue has gone up for two reasons. First, because more capacity has been leased and second, because pricing of the capacity of the tighter supply has pushed up pricing in the last three or four years,” he says. Bart Van Utterbeeck business manager, Newtec Americas, adds, “Within Latin America there is not so much capacity. The capacity has been cheap, very cheap over the last year. But the capacity is now growing and the prices are going up for the growing broadband services.”

Steps are being taken to add more capacity. In July, Telesat ordered the Telstar 14R satellite from Space Systems/Loral. The satellite, scheduled to be placed in orbit in mid-2011 by International Launch Services (ILS), will add to the Ku-band capacity over Americas and the Atlantic Ocean region. Nigel Gibson, vice president of international sales, Telesat, says “There are many new satellites planned for the region and some of them have been announced before the recession, but some are still being announced. I believe Bolivia announced just a short while ago that they’re going to be pursuing a satellite with a Chinese vehicle. I guess China Great Wall is going to deliver the whole thing to Bolivia for $300 million and launch it in 2013.” In March, Intelsat awarded a contract to ILS to launch Intelsat 16, which will add more Ku-band capacity to

One of the businees drivers in Latin America is “digital inclusion,” which extends the traditional Web access with low-cost computers to rural remote schools and governments. Photo Courtesy of Gilat.

support expanded services to direct-to-home customers in Latin America.

Hugo Frega, director, Latin America, at Hughes Networks Systems, says, “Ten years ago, everything in Latin America was very oriented to C-band capacity, (but there has been) a shift to Ku-band capacity, so I can say that we have a 80-90 percent marketing in Ku-band, leaving C-band capacity for more GSM backhaul operations where the sites don’t matter because it’s being at more teleport facilities. The trend in the next two-to-three years we will see the same process that we witnessed from C-band to Ku-band, we will see that from Ku to Ka-band.”

But Maleter sees problems in Ka-band demand. “They have got enough issues with getting into use of Ku-band because of rain attenuation, so Ka-band faces even greater issues. There hasn’t been sufficient demand or new application capacities. Now the capacity is getting tight in Latin America, both C- and Ku-band, and there isn’t actually as much capacity planned for launch to the region over the next years as there is for other parts of the world. But it is not likely a Ka-type of market, not for the foreseeable future,” she says. 

Demand Drivers

The two main drivers of broadband demand in the region are enterprise connectivity, which typically is corporate and government users, network, traditional IP access, and intranets. “The number one driver for Latin America satellite services would be banking and finance, next would be oil and gas, although prices have come down, and then IP connectivity,” says Elinav. “We are also talking about enterprise government and cellular backhaul and I have seen all three of these continuing to demonstrate growth in the future as well.” The other driver is “digital inclusion” projects, which basically extend the traditional Web access with low-cost computers to rural remote schools, and rural governments. “You should know demand in the region is high and prices are rising,” Gibson says. “There are a number of key countries in Latin America where you are seeing digital inclusion,’ whether it is in Colombia, Brazil, or Mexico. We do provide service on Anik F1 to a major digital inclusion Colombian program called Compartel. The Compartel Program seeks to promote IP connectivity to public institutions such as schools, municipal governments and hospitals,” he says.

With the 2010 World Cup approaching and the Olympics in Brazil in 2016, Latin American broadcasters are planning ahead to determine how they can improve their coverage of the event via the deployment of occasional-use broadcast satellite services. “Video is not a huge driver for us, but DTH is growing in the region and the other thing that’s growing in the region is just traditional Ku-band distribution, broadcast distribution of content by Ku-band as opposed to cable headends and receive sites as opposed to direct-to-home,” says Gibson.

Latin American telecom operators are striving to meet increasing demand for more powerful communications networks to serve enterprises and governments. These same operators also seek creative ways to meet surging consumer demand for mobile voice and Internet connectivity. Internet backbone connectivity in rural areas lacking the terrestrial infrastructure to access major fiber routes is a key growth area. “We don’t see the (vertically integrated consumer market) per se as really a big potential industry. What we do see is a mix of enterprise, government projects as being the big drivers. Internet connectivity is probably the number one application,” says Elinav.

As of October, Iridium Comunicaciones de Mexico SAPI de CV (a subsidiary of Iridium Communications Inc.) will operate, provide and sell MSS in Mexico. Iridium partnered with Spacenet Communications Services de Mexico SA de CV, a Mexican telecommunications company. Matt Desch, CEO, Iridium says, “Mexico is a market requiring broader services than are available today given the country’s extensive, open land masses that have no telecommunications infrastructure, expansive coast lines, growing remote industries and the need for effective response tools in natural disasters,” he says.

In terms of cellular backhaul, Elinav says, “The bigger the country, the more cellular backhaul is an issue. For example, it is a much bigger issue in Brazil than in Nicaragua, but we have networks in both countries. Brazil has a huge potential and the government is driving the cellular backhaul over satellite by making mandates to provide services to more villages and more small towns. But besides that (other Latin American countries are potential such as), Bolivia, Colombia, Peru, and Argentina.”

SkyAbis is a cellular backhaul solution for both GSM and CDMA2000 that lowers the cost of using satellites for wireless backhaul by up 70 percent over SCPC links. Empresa Nicaraguense de Telecomunicaciones (EniTel), a subsidiary of Mexico’s América Móvil, provides a range of telecommunications services in Nicaragua, including PSTN, GSM, Internet access and satellite communications and uses. Distance education is another important area where satellite communications is contributing to strong growth. “In Mexico, we have contracts for broadband satellite terminals for the Enciclomedia project which is an initiative of Mexico’s Ministry of Education to bring an enhanced learning environment to over 150,000 classrooms throughout Mexico,” says Frega. 

Conclusion

There appears to be a strong return for economic stability and an ascending growth cycle in the Latin American region where satellite services are sure to grow. Operators appear to be consistent in diversifying beyond their traditional services such as basic video distribution and basic telecommunication services. Operators are creating greater value propositions such as value added services and reaching out for end-users. E-government, long distance learning, DTH services, video distribution and wireless backhaul will drive demand in the future. It is clear that the region is building on a lot of strengths in the underlying foundations of telecom services and video services businesses to expand profits for the satellite industry.

Richard Theodor Kusiolek has been an early innovator of wireless technologies in Northern California’s Silicon Valley with digital battlefields and the High Tech Multimedia City. Kusiolek is chairman and president of TransGlobalNet, a management consultancy specializing in strategic technical marketing. He can be reached at [email protected]