Year in Review: Industry Leaders Review 2012
With a series of new developments in electric-propulsion, high-throughput and Ka-band satellites as well as industry consolidation, 2012 has been quite a year in the satellite industry. There have been many talking points among industry watchers. But, what did key industry executives see as the main announcements this year?
In a special year-end roundtable, Via Satellite spoke with Eric Béranger, CEO, Astrium Satellites, Steve Collar, CEO, O3b Networks, Mark Dankberg, CEO, ViaSat, Dan Goldberg, CEO, Telesat, Samer Halawi, CEO, Thuraya, Jean-Yves Le Gall, CEO, Arianespace and Patricio Northland, CEO, Satmex about the key talking points of the year and what challenges lie ahead for the satellite industry in 2013.
VIA SATELLITE: At SATELLITE 2012, one of the main talking points was the deal between Boeing and ABS and Satmex for electric-propulsion satellites. Do you think this will bring about a revolution in the satellite manufacturing industry?
Béranger: It’s certainly an interesting development. At Astrium, we are working on our own version of an all-electric satellite, although of course we have been using it for station keeping for a decade. Will all electric bring about a revolution? In the short term I don’t think so, because operators want reliable, proven systems so they can guarantee their services. But longer term, I am sure we will see more options available from manufacturers.
Collar: I don’t think it will be a revolution. I think it is a nice step forward. There are some downsides and drawbacks, in particular time to market. Adding another 6-12 months delay in the start of a new business increases a build time from typically three years to four years and that is not helpful for operators. That said, I am a big believer in innovation and competition and with the pairing of Boeing and SpaceX, we are seeing innovation drive competition in the manufacturing space.
Dankberg: The Boeing SP satellites represent a very innovative approach to mid range satellite design. They create opportunities to reduce the cost of certain classes of satellites in orbit.
Goldberg: The lighter weight of all electric satellites may be the most direct path for lowering launch costs, which has been an objective of Telesat’s and other industry leaders for a number of years. An all-electric satellite does take several months longer for orbit-raising but that could be acceptable with sufficient planning. Perhaps we will see a revolution in satellite manufacturing over time, but probably not soon since so many manufacturing and launch contracts are set the next few years. Subject to the overall risk profile, Telesat is ready to support innovations that have the potential to both reduce costs and give us greater flexibility in choosing a launch vehicle.
Halawi: Revolution is a strong word. We don’t see electric propulsion satellites as “revolutionizing” the satellite manufacturing industry, but rather we consider this to be an innovation, which many operators will be embracing to bring down CAPEX costs in an increasingly competitive environment. Personally, I am pleased to see innovation happening in space, rather than just on the ground.
Le Gall: Electric propulsion for satellites has existed for many years but was employed mainly for station keeping once a spacecraft had reached its final orbit. We congratulate Boeing, ABS and Satmex for using a new approach for orbit raising that will take advantage of the mass savings offered by electric propulsion. However, I am sure that most operators will wait until this system has proven itself, meaning that the satellites are built and then placed into their definitive orbits following a rather long process. Operators tend to be cautious and will see if the technical approach and business case is validated before ordering all of their satellites with electric propulsion. I don’t think this is a short or medium term revolution: it will be a revolution when electric satellites really start to operate and other operators opt for this new technology.
Northland: Yes, because an all-electric satellite has a significantly reduced mass, which results in a lower manufacturing, launch and insurance investment. All electric satellites will make feasible projects that were not feasible in the past. With that deal, we demonstrated that ABS/Satmex are leaders and at the forefront of technological advances in our industry.
VIA SATELLITE: A lot of talk this year has been about specific industry verticals (oil and gas, maritime, aero, enterprise). If you could pick one industry vertical where you see the most potential, which one would you choose and why?
Béranger: We are already very active in these markets – particularly maritime through Vizada, which is now fully integrated into the fold as Astrium Services. If I had to choose one vertical market it would be maritime, as satellites are the only way to provide the services and the growth trend is strongly upward. For the future, aero will become increasingly important. However, the business models in the sector are currently as numerous as there are suppliers. This is not a sustainable situation.
Collar: For me, potential means markets that can be grown or expanded significantly. It is about offering something that does not exist today rather than competing for more of the same. A good example is Royal Caribbean and what they are going to be doing in the maritime space, taking 350 Mbps where 4 Mbps is more typical today. I see similar opportunities in oil and gas. That sector will benefit more than most from higher speed and better quality capacity. I think there are lots of applications that will be enabled in the offshore and energy environment in general if significantly higher quality and affordable bandwidth is available.
Dankberg: We like the consumer broadband vertical. It’s a very big market and success is closely correlated to being able to drive down the cost of bandwidth in space – which we believe plays to our core strengths in systems design and vertically integrated space and ground technology. Most of the satellites in orbit are not suited to that vertical so there is a great opportunity here for our high-capacity satellite system. That business also benefits substantially from economies of scale and we believe we are leading the market in that.
Goldberg: The aero market today is a small percentage of maritime but aero demand for satellite capacity could surpass maritime if mobile broadband use on commercial flights becomes as common as Wi-Fi hotspots on the ground. Telesat is working closely with a number of broadband aero providers to make this a reality across the North Atlantic Ocean, one of the busiest commercial airline routes in the world. Such a development would represent very significant growth for aero versus levels we are seeing today.
Halawi: We see strong opportunities for MSS in general and Thuraya in particular across several vertical markets; however, if we were to single out one, then I would say it would be the oil and gas sector. Oil exploration activities in remote environments and deeper waters will further require the support of mobile satellite communications solutions that we offer. Aeronautical services have lately been the hot topic across the industry; however we don’t see this sector as driving meaningful growth in the years to come for several reasons. Passenger take-up rates have been disappointing to date, compared to the expectations of VSAT providers and airlines, including Emirates, which we understand is generating around $50,000 in revenues per year from their onboard Wi-Fi services.
Le Gall: There are indeed several interesting vertical industry segments that are being targeted by our satellite operator customers. We see promise in multiple verticals with operators leveraging greater power and ever-higher frequency bands to meet the increasing demand for speed and bandwidth. Many service offerings can actually serve multiple verticals so it is difficult to say which one will experience the greatest growth measured by new subscribers, revenue or capacity.
Northland: In Latin America we believe that DTH, cellular backhaul and consumer/government broadband (through Ka systems) have great potential. The key reason is that throughout the region incomes are growing and this drives demand for communication services. In addition, Latin America due to its geography still has many areas that can only be served effectively via satellite.
VIA SATELLITE: Not including your own company, what was the most interesting announcement you heard this year?
Béranger: In Earth observation, I would say the merger of GeoEye and DigitalGlobe. With developments on the U.S. Enhanced View contract, it became clear that something would have to change. It will be interesting to see what comes as a result of the merger. For us, it’s a challenge as we will face a bigger competitor but it’s also an opportunity as we will become the unique alternative. And we are about to get great assets with our double constellations of Pleiades and Spot, so we will be able to provide unique daily revisit of every zone on the Earth both in VHR and HR.
Collar: The ViaSat and Exede product which was launched. ViaSat has a different approach to satellite delivered broadband in North America. They are looking to deploy into regions where there is existing terrestrial infrastructure. That is a great example to the industry and I think it is very much “watch this space” to see how they get on. The thought that satellites should be competing on quality and be better than the terrestrial alternatives as opposed to there being no other option, is a great thought and one that reflects well on the industry.
Dankberg: I think that probably the most interesting event (vs. announcement) was the successful SpaceX launch of the Dragon capsule and docking with the space station. While SpaceX was already making progress, I think this was a watershed event for them and substantially increased their visibility and credibility in the space community, especially with the U.S. government. They have the ability to really impact the launch market in a number of ways (beyond just lower costs) and that event will likely accelerate their progress.
Goldberg: The announcement in March that ABS and Satmex had jointly committed to purchasing four all electric satellites from Boeing was interesting on several levels. First, it showed how two regional operators can work together to realize economies of scale common to industry leaders. Even more significant is that, by procuring satellites with significantly reduced weight due to their all electric design, both companies are able to launch two satellites at a time on the lower cost SpaceX Falcon 9 rocket leading to even greater savings. This was obviously an innovative deal with important implications for our industry that could establish a new cost standard for launching and deploying satellite capacity.
Halawi: The acquisition and integration of Vizada into Astrium is probably the most interesting development. The new structure offers a multi-faceted and mutually beneficial relationship between Astrium and Thuraya, and we look forward to aligning further with this new structure.
Le Gall: I would say the most interesting development is the trend of developing countries looking at new satellite projects to meet their telecommunications, meteorological, and Earth observation needs. Oil-rich Kazakhstan is the latest example of a country that has opted to pursue owning and operating its own Earth observation satellite – DZZ-HR. Other countries in the region, such as Azerbaijan, with AzerSat 1, have also taken similar steps towards having independent access to satellite services. And nations such as Bangladesh are following in the footsteps of their neighbor Vietnam, looking to deploy satellite technology to leapfrog terrestrial networks for delivering television and data services.
Northland: Echostar’s acquisition of Hughes Network Systems and the high prices for orbital slot auctions in Brazil. Both of these announcements reflect Ka-band’s promise.
VIA SATELLITE: Is Ka-band the real deal? Can satellite begin to compete with fiber in some cases in data and broadband markets?
Béranger: Good question! I see Ka-band as an evolutionary development, rather than a disruptive game-changer. Ka-band will open new territories for satcoms as the price difference between fiber and satcoms will be lower. Satcoms are and will remain complementary to terrestrial networks, especially for low density of population areas where terrestrial networks are not cost effective and also for urgent or temporary needs such as military deployment in crisis areas or theater.
Collar: If satellite is thought of being niche, it will never be anything else. There are markets and verticals where we offer genuine value and a higher quality product than anything else out there. Take the Pacific Islands where they have the same need for connectivity as everywhere else, but economics dictate that they are perennially underserved, and fiber deployments have to be massively subsidized by governments. This does not make any sense. As long as we can provide the right type of quality service – large amounts of bandwidth at a price point that makes sense and without compromising on the quality – there are places where satellite is a much better answer than terrestrial alternatives. But, I also think we don’t necessarily have to compete. It is an expanding market. There are verticals that have become limited with the products and services in the market, and I think we can serve them better.
Dankberg: Ka-band is definitely the real deal. But it’s not merely the use of Ka-band, nor the use of spot beams. It depends on creating a Moore’s law effect in space – constantly improving bandwidth economics. Rather than competing with fiber, we believe our greatest opportunity is in focusing on competing with less capable terrestrial fixed access networks, including telco twisted pair copper plant, lower end cable systems, and mobile wireless networks that are used for fixed access.
Goldberg: Ka-band has certainly shown itself to be the real deal for consumer broadband in North America with now over 1 million subscribers and gross revenues exceeding $500 million annually. Our expectation is that Ka-band platforms can achieve success in other parts of the world and we anticipate the introduction of Ka-band HTS in Latin America in the coming years. With respect to competition with fiber, Ka-band satellites will continue to have a competitive advantage for delivering broadband services outside of densely populated areas.
Halawi: Ka-band is a natural evolution for established satellite operators, and also for regional and national newcomers who are looking to establish themselves in this sector. From a technical perspective, Ka-band communications will still have its share of challenges, although technological advancements have improved the quality compared to 5 or 10 years back. There are multiple applications for Ka-band and some will be more successful than others. We feel regional HTS systems have a strong value proposition, which exceeds that of systems that target global coverage but compromise on performance.
Le Gall: Ka-band is being used effectively for specific applications, often where there is no terrestrial network and demand for higher bandwidth is at a premium. Its ability to compete with fiber becomes more complicated where terrestrial fiber networks are already built out for consumers and businesses. However, it is clear that it is an effective solution when there is no terrestrial fiber network. All successful Ka-band satellites today are used for broadband and broadcasting markets that leverage the inherent cost advantages offered by high-powered satellite systems.
Northland: Yes. We believe there is tremendous potential for Ka-band services, especially in emerging markets where terrestrial penetration is still relatively low. The lower cost per Mbps of Ka-band enables satellites to be both competitive and economically viable. There is an untapped market in small business and consumer connectivity. This could be another example of a leapfrogging in technology and areas where the terrestrial infrastructure has not made its way may jump straight to Ka-band.
VIA SATELLITE: What trends do you see emerging in the satellite industry in 2013? What do you think we might be talking about at this stage next year?
Béranger: I am impatient to see the impact of HTS (high throughput satellites) on the market as well as the consequences of the vertical integration in commercial satcoms.
Collar: I think of 2012-2013 as a little bit of a tipping point for the industry. If you think about ViaSat, O3b and some of the new technologies being introduced by a number of different satellite operators, an increasing amount of the revenue generated in the satellite industry will be from these new services and products for the first time. It has been a bit stagnant for a while, and satellite has gone down the pecking order a little bit. We saw that with the attack on the C-band spectrum. The satellite industry was a little bit in defense mode. Now, we are talking about the expansion of services, which is a much better place for us to be.
Dankberg: We think that it will become clearer that satellite data markets will be driven by bandwidth economics and that it will really take some revolutionary technology to compete effectively in those applications. It’s revolutionary – or disruptive – in the sense that it represents a new and different dimension of value in the satellite space.
Goldberg: We expect there will be additional procurements for all electric satellites. We also look forward to seeing the first successful launch of a commercial GEO satellite on the SpaceX Falcon 9 rocket, which is scheduled for next year. In addition, we foresee continued strong growth in mobile broadband as a number of service providers and satellite operators make additional investments in this growing market.
Halawi: The convergence of MSS and FSS will increasingly be discussed and debated. I believe that together mobile and fixed satellite operators can offer a strong value proposition. We can expect that creative commercial alliances will lead to value creation, with different operators coming together and each focusing on what they do best. In addition, the adoption of Ka-band will also remain a hot topic as various satellite operators move to introduce mobility and improve their ROI by revisiting their pricing and go-to-market strategies.
Northland: The major trend will be the growth of high throughput satellites to provide data services and the reduction in the investments required to build, launch and insure a satellite. In an industry that was screaming for alternatives and more competition for the launchers, we will see the consolidation of SpaceX as the new effective alternative for the commercial satellite industry.