James Careless

In 1989, the Berlin Wall fell, and the “Iron Curtain” was raised from Eastern Europe. With the end of the Soviet Union, it seemed self-evident that free markets would flourish in this region, and that the entrepreneurs driving them would need telecommunications. Moreover, they would need far better links than what Eastern Europe’s feeble terrestrial networks could provide. The bottom line: here was an ideal opportunity for satellites, if ever there was one.

That, however, was then; this is now. Thirteen years later, it’s clear that some of these fond hopes have been realized, but not all. Now industry executives are examining the reasons as to why this is the case and what it will mean for the satellite industry’s future chances in Eastern Europe.

The Myth Of Eastern Europe

To understand Eastern Europe, one has to first accept the fact that it doesn’t truly exist. No, the countries are still there on the map. But they’re not interchangeable pieces in some “Eastern European” monolith. Instead, what Westerners call “Eastern Europe” is really a series of distinct regions.

The first is Central Europe. These are nations such as Hungary, the Czech Republic, Slovakia, Poland, Romania, Bulgaria, Albania and the former Yugoslavia. In general, Western Europe has influenced these countries to varying degrees. Some, such as Hungary, the Czech Republic and Slovakia, are very Western in their thinking, market style and industrial base.

The second region is what could be termed “Former Soviet Europe.” These are the Western nations of the former U.S.S.R., such as Russia, Belarus and Ukraine. Although somewhat leaning toward the West, most are still rooted in the state-planning, authoritarian styles of government and social control. For satellite entrepreneurs, these are far more difficult fields to harvest, especially because of widespread graft and corruption among public officials.

Finally, the third region is the “‘Stans”: former Soviet republics such as Kazakhstan, Azerbaijan, and Uzbekistan. Despite their ties to the U.S.S.R., these states are much more linked to Pakistan, India and Turkey. As well, their Muslim heritage often makes their interests closer to those of the Arab and oil states than to those of Western Europe.

The bottom line: there are three regions in the area commonly called Eastern Europe, each with their own rules and ways of doing things. That’s why satellite services that sell well in Prague won’t necessarily sell in Minsk, and vice versa.

Market Challenges

Okay, now that we’ve established the three regions in question–Central Europe, Former Soviet Europe, and the ‘Stans–it’s time to consider what market challenges they have in common.

First and foremost is money, or rather the lack of it. In general, the apparent demise of communism hasn’t ushered in economic prosperity. In fact, there are some areas– notably in the former Soviet Union–where people would argue that times are worse than they were before 1989, not better.

This said, Central European countries such as Hungary, the Czech Republic and Slovakia have somewhat mirrored the progress of their more Western neighbors economically. Still, as in the West, no one’s getting rich these days.

The second challenge is culture: just declaring that “we’re no longer Communists!” doesn’t suddenly turn a country into a Western-style democracy. Instead, what really counts is a nation’s cultural history, and its tradition (or lack thereof) of individual freedom.

This is why the Czech Republic, Slovakia and Hungary have found the move to capitalism relatively easy. Their cultures–and industrial bases–are akin to their more Western neighbors. Perhaps that’s why they’re more comfortable being capitalists and democrats. In contrast, former Soviet republics like Russia, Ukraine and Belarus have far less emphasis on free markets and individual freedom. As a result, selling satellite products in the latter areas is far more difficult.

Then there’s war: on-again/off-again conflicts like those in the former Yugoslavia are hardly amenable to economic growth. It’s not just a matter of physical death and destruction: investors tend to shy away from unstable regions, understandably fearing that their money will be at risk.

Finally, there’s corruption: greasing the palms of the right politicians and power brokers, so projects can go ahead. In countries where capitalism is somewhat understood, corruption tends to stay within liveable bounds. In other words, those who demand bribes know not to milk the cow too often, lest it dry up completely.

However, in nations of the former U.S.S.R., where capitalists are often viewed as having bottomless pockets, the graft can get out of control. When this happens, it puts entrepreneurs into a no-win position.

“In one instance, there was a construction company that tried to do things by the book,” says Simon Bull, senior consultant at Comsys, publisher of the annual VSAT Report. “First, they went in and got a license from the appropriate ministry–and made the unavoidable payoff–only to discover that there were another five bureaucrats who also wanted a payoff.

“So they paid them off, only to discover they had to pay off people at both the provincial and local levels as well,” he continues. “In total, they ended up paying off people four times, just to implement something they had permission to do! Next time, I’m told they’re going to just pay off the mayor, and set up illegally instead. There’s just no benefit to following the rules.”

Progress In Eastern Europe: A Corporate Tour

Okay, enough bad news. Now it’s time to consider what’s going right in Eastern Europe.

Take Eutelsat, for example. As one of the world’s largest satellite operators, Eutelsat has a longstanding commitment to Eastern Europe. In fact, “Eutelsat expanded its coverage further into Central and Eastern Europe as soon as the Iron Curtain fell by modifying a Eutelsat 2 satellite under construction to stretch its beam further to the east,” says Eutelsat Spokesperson Vanessa O’Connor. “The W4 satellite that was launched in 1999 was also designed for the region, specifically western parts of Russia. The satellite has a high-power beam optimized for consumer direct-to-home broadcasting that is used by NTV Plus to reach 200,000 subscribers.”

In total, “19.7 million cable and satellite homes in Central and Eastern Europe are receiving programming from our Hot Bird satellites,” O’Connor adds. “As well, almost all East European countries use Eutelsat including Albania, Kosovo, Serbia, Croatia, Poland, Romania, Slovenia, the former Yugoslav Republic of Macedonia and the Czech Republic.”

Eutelsat’s business VSAT service is also garnering customers in Central Europe and the former Soviet Europe. For instance, in Hungary, banks rely on VSATs for credit card verifications. Meanwhile, Russian telecom provider Comincom is using VSAT networks for voice, data and video communications nationwide. “The company uses capacity on the Sesat satellite,” explains O’Connor. “Comincom also has a mobile subsidiary called Combellga that also uses Sesat for the Euteltracs messaging and positioning service for trucks.”

Then there’s Intelsat, the government-turned-commercial global satellite company with a long history in this region. As in the past, Intelsat’s bread-and-butter is carrier services, says Mario Iwanow, Intelsat’s regional director. However, “there has been a general migration to IP-based services, as well as market deregulation in numerous countries within Eastern Europe,” he notes. “We feel that competition brings with it new options for businesses, and that deregulation in this area will allow new and emerging telecommunications companies additional choices with which to grow their businesses.”

A case in point: Intelsat recently provided a new digital TV platform to Kazakhstan’s Katelco. The result: instead of just six channels, viewers there now have access to 10 to 20 pay-TV channels, plus Internet access, distance education, pay-per-view, corporate TV and satellite cable stations.

“We think the major opportunities for satellite companies in this region will be in setting up new TV platforms and providing Internet trunking capabilities to ISPs,” Iwanow says. “With regard to Internet trunking, Intelsat has rolled out a new portfolio of services called GlobalConnex solutions in Eastern Europe. Intelsat’s Internet trunking offering, which is one part of this new portfolio of services, provides a bundled one-stop shop of terrestrial and satellite facilities for Internet backbone connectivity.”

In taking such a commercial stance to satellites, Intelsat is taking a major leap from its bureaucratic roots. So too is the former “East Bloc” analog to Intelsat, the International Organization of Space Communications, better known these days as “Intersputnik.”

Like Intelsat, Intersputnik has to make a profit from satellites to survive. To do so, it operates three geostationary C-/Ku-band satellites over this region; namely Express 6A, Express 3A and LMI 1. According to Stefan Kollar, Intersputnik’s director of sales, “Intersputnik offers capacity on these satellites for digital video and audio broadcasting, voice and data services and full-scale Internet backbone connectivity services for corporate users and ISPs.” At press time, Express-A1R was scheduled to launch and, like its cousins, will cover all of Eastern Europe.

So who uses Intersputnik? Well, its biggest client is Russia, with 60 percent overall space spectrum use. “The reasons for Russia’s large-scale usage are such objective factors as vast territories, geographic location of production facilities, different population density rates in different regions, and the absence of advanced terrestrial infrastructure in most regions for rapid deployment of communications networks,” says Kollar. “As well, Intersputnik’s Express 6A and LMI 1 satellites cover all of Russia, including Siberia and the Far East.”

In Russia proper, “Intersputnik’s biggest customer is the international telecommunications operator Rostelecom,” Kollar adds. “In 2000, Rostelecom established a nationwide network of digital trunk earth stations using LMI 1 in C-band and covering all federal regions. Today, there are 15 trunk stations in the Rostelecom network.”

Intersputnik’s second biggest client is the Bulgarian Telecommunications Co. Ltd. It broadcasts six digital Bulgarian TV channels via Express 3A in C-band all across Europe.

As for the rest of this region? Ironically, since Intersputnik traditionally relied on inclined-orbit Gorizont C-band satellites without Ku-band transponders, many Eastern European countries signed up with Eutelsat for their Ku-band TV traffic. As a result, they only use Intersputnik for voice.

Today, Intersputnik offers digital TV services via Ku-band, just like Eutelsat. “However, the transfer of digital video services to new satellites is not expected to be easy,” says Kollar. As a result, it may take some time for Intersputnik to cut into Eutelsat’s marketshare.

This said, “it’s worth noting that Russia has fully digitized the distribution of video and audio programs via satellite,” Kollar says. “At present, Intersputnik provides digital DVB-S broadcasting of three nationwide TV channels and six radio channels all over Russia, the CIS and Eastern Europe. These channels are retransmitted by terrestrial transmitters, in radio broadcasting and cable TV networks, or picked up by DTH receivers.”

What about commercial/enterprise satellite services in Russia and the rest of the CIS? “Regulatory authorities have recognized VSAT as a notion, assigned relevant systems to a separate class of communications facilities, and developed registration and certification procedures for VSAT stations,” replies Kollar. “While the legalization of transmit stations in Russia takes a long time and costs more as compared with similar procedures in Western Europe and the United States, it has been at least mastered by satellite communications experts.”

By Western standards, Russia has a long way to go in this sector. “Today, Russia’s share in the global VSAT market is only 3.2 percent and most VSAT networks are C-band systems,” Kollar notes. Still, things are starting to pick up: “At the end of 2001, the number of VSAT terminals reached 1,900 and the annual growth rate is expected to be 100 to 150 terminals per year at least until 2003.”

More Eastern European Operators

With its Amos 1 Ku-band satellite covering Central-Eastern Europe (CEE) and the Middle East, Israel’s Spacecom has been gradually building its client base since Amos 1’s launch in 1996.

According to Spacecom Managing Director and CEO David Pollack, business has been somewhat uneven over the past six years. “Until the economic crisis of Russia in 1998, the demand for satellite capacity for video broadcasting services was growing steadily,” he explains. “Until recently, this crisis also affected other former CEE countries as well.

“However and in parallel, the Internet service was expanded significantly over the past few years in the CEE region,” Pollack adds. “Local ISPs are utilizing more and more satellite capacity for that purpose mainly because the terrestrial infrastructure is underdeveloped.”

As a result, Spacecom is going ahead with plans to launch Amos 2 in 2003. Designed to be collocated with Amos 1, “the Amos 2 satellite will have a powerful beam over the CEE region capable of providing DBS services,” says Pollack. “It will also have a beam over to the northeast coast of the United States, enabling us to connect the two continents.

“Spacecom has decided that the CEE market is strategically important for the company’s growth in the future,” he concludes. “Therefore, the Amos 2 satellite payload will have a powerful beam over the CEE region with a capacity of twelve 36 MHz Ku-band space segment. Customers will be able to receive broadband and video services from the United States through the North American beam of the satellite.”

There is yet another private satellite player in the Eastern European market. Based in Bermuda, Newsat offers C-band services from London all the way to Beijing via its Newsat 1 HS376 satellite (formerly Palapa B2R).

So how is Eastern Europe treating Newsat these days? “The market has changed greatly due to the expanded demand for Internet access and broadband applications,” replies company president and CEO Jack Albert. “In the past we saw demand for capacity in Eastern Europe for broadcast and VSAT applications. Today we still see these applications, but the emphasis is on Internet access. There is very little demand for pure voice.”

For Newsat, as for other Eastern European providers, fiber is starting to nip at satellite’s heels. “Terrestrial has made sizeable inroads in metropolitan areas,” says Albert “Urban infrastructures are far better now than they were even two years ago.”

As in other areas of the world, “these infrastructures compete favorably with most satellite operators and resellers who cannot match fiber’s lower costs,” he notes. “As well, there is government pressure to use the new infrastructures in order to maximize investments. Fortunately for Newsat, this is less of an issue since our pricing is at times equivalent to fiber.”

… And Some Quick Snapshots

Of course, most satellite companies are active in East Europe. Take just two examples, Paradise Datacom and Xicom Technology.

“Paradise has enjoyed a steady degree of business with Eastern Europe customers,” says Gary McGovern, the company’s vice president of sales and marketing. Specializing in satellite ground station equipment, including those built by the Sierra Networks’ satellite communications division, which Paradise acquired earlier this year, the company’s having a good run in this market.

“At a time when the general trend of the global economy has been flat, these regions have experienced consistent growth,” McGovern says. “Interestingly, some of the biggest opportunities are similar to the challenges. For example, the fact that some of these regions lack good infrastructure equates to the opportunity to provide equipment and services in an effort to rectify this problem.”

Colin Bolton, Xicom’s general manager of European Operations, echoes McGovern’s upbeat assessment of Eastern Europe. “We have definitely seen increased interest in our high power amplifier products over the past two years,” he says. “As a result we have representatives in most Eastern European countries and recently signed on Datis Group (based in Moscow) to represent Xicom in Russia and the CIS states. We also have plans to add a service center in the region.”

What Does It All Mean?

Just this: Despite the fact that Eastern Europe is actually comprised of three economically and culturally different regions, and despite the fact that there are serious financial hurdles to operating there, satellite technology is making headway in this overall market.

Warning: For those wanting to sell in Eastern Europe, research is critical. So too are deep pockets, and a willingness (and a capability) to weather a host of problems not often found in the West. It also helps to have very strong local partners; people who not only know the lay of the land, but also understand the unique quirks of the countries you’re targeting.

Can it be done? Yes, it is already being done. And more can be done by the determined and savvy. As for the rest? You’d best stay in the West.

James Careless is a contributing writer to Via Satellite.