Theresa Foley

The biggest customers in the satellite world often control 20, 50 or even 100 transponders, giving them as much clout and influence over the industry as satellite operators who actually own the spacecraft. To get their views on some of the uncertainties that have arisen over the rate at which the satellite business will grow in the next few years and what technologies and trends will influence their purchasing of capacity, Via Satellite set out to talk to a dozen of them.

Most of the big customers are shopping for capacity on a weekly basis, although they strike major capacity deals far less frequently. In general, they express a strong general level of satisfaction with the industry but they also voice a long list of complaints and changes they’d like to see from their suppliers, the operators. Among the changes customers would like are better coverage, different contract structures and purchasing models, more in-orbit spares to protect services during failures and higher reliability.

On the positive side, operators win praise for meeting most of today’s customer needs. BT Broadcast Services (BT) uses the equivalent of 47 full-time transponders provided by Eutelsat, Intelsat, New Skies, SES Americom and Panamsat for broadcast, direct-to-home (DTH) and Internet Protocol (IP) services. Expanding beyond its European base, BT began operating in North America in 1996 and saw its U.S. portion grow 33 percent this year. For BT, the big operators have shifted their satellite spotbeams as the company came in with new clients, according to Jon Romm, head of global broadcast sales for BT.

Romm cited Intelsat’s response to this in the Caribbean, New Skies in Africa and Panamsat in the Indian Ocean region. Romm adds, to date, the operators have had enough flexibility to quickly support the big users’ needs when situations like the war in Afghanistan erupt without much warning in remote places. Deals often need to be made in a single day.

The quality of satellite services is high, say most users. Dick Tauber, vice president, Cable News Network (CNN) satellites and circuits, says quality of the carrier is no longer an issue, but instead “an issue of what kind of electronics you put with a product and how much digitization you put on.” CNN uses 12-16 transponders to operate its CNN, Boomerang, Cartoon Network and other TV news and entertainment channels. It is a large customer for SES Global, Panamsat and New Skies Satellite.

The Price Isn’t Right

Perhaps the most common complaint with operators is that prices are too high. Tauber represents the views of many with his comment that while the market is generally fair, “I always wish costs were lower and that we could get a better break. It’s become much more competitive even though there are fewer carriers. Vendors also know when they have a good satellite with good contours and beam powers over a region, and they will sell that to you. If they have an edge, they use it.”

Another price-related complaint is the discounting for volume, or lack of it. Romm believes that large volume users like BT should get discounts but some operators treat large and small users similarly, giving no volume discounts. “They don’t take into account the value of the channel resellers they have in country and the people who have been taking care of them for years,” Romm says.

The France Telecom unit Globecast uses 100 transponders, carried across virtually all the large operators’ satellites, to serve 1,000 customers with DTH, broadcast, IP and Internet services. Ange Angeli, vice president of network marketing for Globecast, says that satellite capacity is still perceived by some customers to be expensive, particularly when compared with fiber. “There is no denying that price pressures exist for satellite service providers such as Globecast. So value-added service bundling and end-to-end network management are key to developing cost-effective satellite delivery packages, particularly for new media applications such as direct satellite Internet access,” he adds.

NHK Japan Broadcasting Corp. uses 260 MHz of capacity, including 144 MHz for contribution circuits from the United States, Europe and Asia. Another 126 MHz is used for distribution of NHK World and NHK World Premium. Panamsat, Intelsat and Jsat are its dedicated suppliers, and it also uses Asiasat, Eutelsat and other U.S. domestic satellites.

Akio Sano, senior producer, international circuits and news exchange for NHK, says the trend has been lower satellite service prices because of the fierce competition, which he appreciates, but “we have also seen some suppliers having problems with maintaining the quality of their services.”

A Done Deal?

As a customer to the satellite operators, Globecast is pushing to change the model for the leasing of satellite capacity to adapt over time to changing market conditions. Angeli called for a mechanism to adjust the price of capacity in long-term contracts as the years go by. “As the market changes, there is no way to correct the prices on our side.” Tauber says CNN negotiates contracts with a green field clause to allow their business needs to be altered if technology comes along, like compression, which substantially alters the business requirements.

Hughes Network Systems (HNS) has to put its VSAT business in North America on multiple satellites for diversity and coverage of the 50 states, Puerto Rico, Canada and Mexico, says David Zatloukal, HNS vice president of Direcway services. HNS controls transponders serving the continental United States, Canada and Mexico with enterprise networks and private video. Its international business groups provide services in 85 countries. HNS is one of Panamsat’s largest customers, and a very large customer of Loral and Satmex. It also uses SES Global.

HNS typically contracts for four to five transponders on a satellite in a single deal even though it doesn’t need all of them immediately. “With the business model today, you pay full price even if you aren’t using them,” he says. HNS has had conversations with operators about a different model that would allow a “pay as you go” method of growing into the capacity, but not all operators are receptive to this idea. HNS has a deal with one unidentified operator who is willing to try another approach, he says.

Standard contracts for capacity would be helpful, according to the executives who buy capacity for Telenor and HNS. Cyberstar would like more flexibility in contract terms, especially on price and the length of the lease, according to Edward DiCarlo, vice president and general manager of product management for Cyberstar. Cyberstar provides data, voice, video and Internet services to enterprises and service providers worldwide over an undisclosed number of transponders on satellites in the Loral Global Alliance, as well as spacecraft operated by Intelsat, Eutelsat, Mabuhay, Apstar, Jsat, Asiasat and New Skies.

“Operators are used to long-term leases, but with the fiber build out, the bandwidth exchanges and the launch of more powerful and modern satellites with better capabilities, users such as ourselves would prefer to see shorter contracts, more use of pre-emptible contracts, and the ability to change transponders without penalties so that we can meet our customers needs. The operators that show flexibility in their terms will get our business,” says DiCarlo.

HBO controls 12 transponders serving the United States and, through its partnerships, another seven outside the United States for its TV entertainment services. It also uses satellites to distribute HDTV and on-demand TV programs as IP files to its affiliates. Most of HBO’s capacity is provided by Panamsat, with additional circuits from Loral, the Israeli Amos system and Asiasat. HBO is part of AOL-TW and coordinates its satellite capacity with other AOL-TW units like Turner Broadcasting and Warner Brothers.

HBO addressed its biggest satellite industry concern–the reliability of in-orbit satellites–last year during contract negotiations with Panamsat to renew capacity that also is used by Warner Brothers and Turner Broadcasting. Reliability issues have become more important as the value of the television services the company is distributing increases, according to Bob Zitter, HBO senior vice president of technology operations.

As part of the effort to exert some control over the reliability of HBO’s satellite circuits, Zitter first went to the manufacturers to discuss quality issues. Then HBO came up with a new protection scenario that was implemented in the Panamsat deal. Previously, HBO had spread programming over at least two satellites and purchased protected capacity. In the new deal, programming will be spread over at least three satellites, and HBO also added another level of protection that will be more immediate if a satellite totally fails as the company waits for an in-orbit spare to be relocated. He won’t be specific about what this new step involves, but does say that HBO’s request to be on three satellites has been helped by Panamsat’s decision to buy smaller satellites from Orbital Sciences Corp.

The trend by operators to buy larger spacecraft with more sophisticated technology like switching, spotbeams and more power has not been embraced by HBO, which would rather see its suppliers stick to the basics for the most part. “These are things that may have value to other businesses but are not so valuable to our business, which is trunking our programming to other distributors, whether they are cable, telephone or DBS operators. Many reliability problems have come from people building bigger, more powerful, more capable satellites, but if you are doing what HBO needs to do–deliver reliably at C-band to distributors in the United States or elsewhere in world–simplicity is what we want. With simplicity comes higher reliability,” says Zitter. “We’ve opted for satellites that do the job but are not as powerful or as large.”

The value of in-orbit spares was proven when Galaxy 4 failed and HNS had to move tens of thousands of customers to Galaxy 3, losing some clients in the process, Zatloukal says. The end users want assurance that they can repoint their ground antennas at another satellite if the primary one goes out. “We have conversations all the time with space segment providers about putting up in-orbit spares. SES is doing things; Loral might. At Panamsat, we haven’t seen their strategy but they do have new birds coming up. A commitment to in- orbit spares is a big deal to any service provider,” he says.

The Wish List Continues

The relationship between customers and operators was another topic of concern. Some customers do not like to see the trend on the part of operators to become total solution providers by buying earth stations and replicating their own customers’ services. “We would like operators to focus on what they do well, their fleets, and let us climb the value chain of providing the complete network solution, that’s the niche we sit in,” says Romm. Angeli adds, “We are interested in providers who offer global coverage. If through consolidation we have players who provide this, it’s good. If by consolidation we mean vertical integration, we are not convinced.”

Instead of competing with their customers, the operators could come to them at times for capacity, if they have holes in coverage, Romm suggests. “We’d like them to at least think about this.”

The Department of Defense (DoD) leases commercial satellite communications through a variety of its organizations. Today, the Defense Department’s Defense Information Systems Agency (DISA) is designated to serve as the satellite communications expert for wideband commercial satellites and also Mobile Satellite Services. Currently, DISA leases roughly 1.5 GHz of bandwidth or about 26 transponders from commercial providers for a broad range of needs. DISA does not normally contract directly with communications satellite owner/operators. Instead it contracts for satellite services through Lockheed Martin Space Systems, Arrowhead, Artel and Spacelink. Through these firms, DISA has leased bandwidth/transponders on satellites operated by Eutelsat, GE Americom, Hughes, Intelsat, New Skies and Panamsat.

DISA wants a better “relationship between DoD and the satcom industry in general–developing a better understanding of each other’s needs, capabilities and normal operating practices. We are also interested in exploring ways by which DoD can make better, more cost-effective use of such industry practices as long-term (greater than one year) leases,” says a DISA spokesperson.

NHK would like the satellite industry to take High Definition Television (HDTV) transmission seriously so that it can provides the transmissions more efficiently, says Sano. NHK processes incoming signals at its Tokyo production center in HDTV format. “If the signal is NTSC/PAL, we will up-convert it to HDTV,” Sano says. “We try to cover events/news overseas in an HDTV format as much as possible. Therefore, we sometimes have problems sending our signals in an HDTV format from overseas to Tokyo partially because we cannot get enough bandwidth. We need at least 27 to 36 MHz of bandwidth.”

Reaching The Four Corners Of The Globe

Although the satellite industry can provide coverage literally anywhere on the globe, in some places it proves to be inadequate when an event like the war in Afghanistan breaks out, creating sudden demand from news organizations, the Defense Department and others. Angeli says carriers were eventually able to meet Globecast’s needs in Afghanistan by repointing steerable spotbeam antennas. However, places like distant French territories such as Polynesia don’t have enough coverage to meet Globecast’s needs on an ongoing basis.

DISA also has run into capacity shortages in particular regions where it needed coverage and had funding to pay for it. “There are clearly regions of the world to which U.S. military forces may deploy which have minimal Ku- and little C-band coverage due to the lack of a paying customer base. However, DoD cannot realistically expect the commercial satcom industry to provide coverage over areas which will not normally generate a profit,” the agency says in response to questions.

Demand Ahead Appears Modest

Most of the big customers say their projections for the future show flat demand or modest increases during the next one to three years, and beyond that, many have difficulty making projections.

“We don’t know what the network growth plans are,” Tauber says of CNN. “The company is going to be more skittish about starting new networks. It’s not as cost effective as it used to be. It’s harder to get on cable systems… In the near term, if things stay the way they are, our needs will go up a little, five to seven percent this year perhaps.”

In addition, more fiber will be included in the mix. Even though solid longer-term projections may not be possible, CNN makes long-term contract commitments to get a lower price, then reassesses its needs as it goes.

Predicting the demand for satellite is difficult, even for satellite operators, particularly during the current flat market, Angeli says. New customers can be accommodated without buying new transponders. Globecast has moved cautiously but strategically into IPsat service delivery across Europe, the Middle East and Latin America. Although backbone services led the immediate move into IP delivery via satellite, Globecast sees the real future in enterprise IP solutions, such as VPN overlay, large data file transfer, satellite streaming and other IP solutions.

The only customer predicting a big burst in new demand was the DoD. Near-term growth depends on demands generated by the global war on terrorism, while mid-term growth could be as high as 30 to 50 percent. As the DoD gets next-generation military satellite systems into space, its reliance on commercial satellites should decrease.

Turner Broadcasting tries to keep tight control of its satellite circuit inventory so that it does not have a lot of excess capacity, says Alastair Hamilton, executive vice president, worldwide distribution technology, Turner Broadcasting System International Inc. and Turner Network Sales Inc. “If we’re going to launch new channels we try to have capacity in our back pocket,” which means the broadcaster’s near-term demand won’t grow beyond the current 30 to 35 transponders it uses now. Turner, part of AOL-TW, uses 30 to 35 transponders for international and domestic operations for its entertainment TV programs, broadcast distribution, backhaul and newsgathering. It is a big user of Panamsat and SES Global.

Over the longer term, Turner has struck some 10-year agreements, but he does not see requirements going up. Instead, “transponders will get repurposed for value added IP services and adding value to content. We will have an ongoing distribution requirement to use capacity… I don’t think it will increase, it’s a fairly safe bet,” Hamilton says.

David Gilmore, director of international sales for Telenor Satellite Broadcasting, says Telenor’s near-term demand is flat. For IP services, Telenor is using up capacity as fast as it buys it, but that is only going to go up about two percent a year mainly in markets outside Europe. Telenor owns its own satellites and leases 10 transponders from Intelsat, plus other capacity from Europestar, Eutelsat and Loral, for a total of 39 transponders that are used for content distribution, pay TV, DTH, news, IP backbone and VSAT services. It mainly services the Nordic countries, but it also reaches beyond Europe.

Most of the big customers are shopping for capacity on a weekly basis, although they strike major capacity deals far less frequently. They tend to favor their established, long-time suppliers but most say they consider all alternatives when shopping. Several, including HNS, DISA and BSkyB, are not using the online exchanges at all, while a few others, such as BT and Globecast, have begun to use them to sell capacity but not to buy it. “We do use online exchanges cautiously for selling capacity,” says Angeli. Globecast has only discussed the purchase of capacity with the exchanges. “We see them to be a place where it’s easy to monitor market trends and the average price for raw capacity. Raw capacity to an extent will become a utility for many users. However, for broadcasters that use exchanges to save money, there is little direct contact with the service provider, and the question of service and trouble shooting have to be considered.”

Gilmore says bandwidth is becoming commoditized, which means that to save money, end users are buying bandwidth themselves without seeking value added services. “They will buy it unbundled from a number of different operators and then seek to drive the best deals for themselves. When they do this, there is a risk. They’d better be fairly expert or they will find different suppliers passing responsibility onto others when something goes wrong. It makes more sense to offer complete bundled service and guarantee service, then if anything goes wrong, it’s up to one person or organization to fix it.”

Technological Advances

Most of the customers see further advances in compression on the horizon that will improve the economics of their satellite usage even further. Romm says sports programming can go from 8.5 to 24 Mbps per channel. HNS has multiple patents and an engineering team focused on data compression. Zatloukal says the technology includes performance enhancing proxies and ways to address latency. He sees an evolutionary compression improvement using Ku-band satellites, perhaps of five percent a year and then a huge jump in compression rates once Ka-band arrives in the form of Spaceway in about two years.

“Data rates today range from 30-40 kbps up to 128 and down from 400 to 45 Mbps. You will see uplink speeds minimally of 512 in Spaceway up to 2 Megabits per second for commercial applications, and from 512 to 16 Mbs down,” Zatloukal says.

A new compression standard called H26L, a subset of MPEG-4, is in the laboratories at the moment, Hamilton says, which will arrive in two to three years and bring significant quality improvement in video signals at the same bit rate or same quality at a lower bit rate. But first compression developers must solve the problems associated with the high processing power required to implement the standard, he adds.

Beyond compression, several other technologies are commanding attention. The move to an IP environment was cited repeatedly for its ability to lower costs and change the way video is transmitted. Technology that will allow the broadcasters to add value to their programs by encapsulating data, provide interactive content or more localization or allow Web browsing on the TV also came up repeatedly as customer favorites. Once these techniques are in use, data may fill up some of the capacity left empty as services moved from analog to digital.

Zitter cites on-demand TV as HBO’s next technology leap. On-demand TV will use satellites to send compressed programs in 2 to 4 Gigabtye MPEG files, which are then wrapped in IP packets, and transmitted over satellite to servers at cable headends. The return path back to HBO would use the Internet.

Besides a large number of transponders used by BSkyB for DTH and broadcast distribution and contribution operations, the European satellite TV operator has four dedicated 9 MHz channels in Europe and other circuits to transmit sporting events from the United States. The company often uses three to five transponders of occasional use capacity on weekends to support Sky Sports programming.

BSkyB already is using interactive broadcasting technology for sports matches, where viewers can select from several camera angles for an event, choosing a certain seat in a stadium or team preference for a viewing perspective.

HNS is monitoring the telecommuting trend and associated information technologies. DISA is interested in optical laser communications links between satellites, like those on the Iridium spacecraft, to be used on other spacecraft. “It may well reinvigorate the industry, making it a much more viable alternative or redundant capability to fiber,” says a DISA spokesperson.

Telenor Satellite is waiting for lower-cost, two-way satellite terminals for small users and consumers to arrive, finally opening the door for consumer use of satellite networking.

Nearly all the customers use fiber and have transferred some traffic onto fiber, but they all say their reliance on satellite will remain strong despite fiber’s inroads and lower costs. HBO, for example, has moved its video contribution partially onto fiber, but continues to keep all distribution feeds on satellite. Zitter says he looks at fiber for distribution each time he makes a product or acquisition decision but fiber still doesn’t have the reach required, especially in smaller communities.

CNN also has moved traffic to fiber but the motivation sometimes is other than economic, Tauber says. Sometimes it’s a security issue. Over the long term, CNN will stay reliant on satellites. “It’s our lifeblood,” Tauber says.

Cyberstar also uses a hybrid satellite-fiber model to distribute its data services. “We are facing intense price pressures and this is one of the reasons that we have moved to a hybrid model,” says DiCarlo. “Rather than use the higher-priced satellite bandwidth for the entire network, we supplement it with fully redundant fiber in places where it makes sense to do this. As we are not compromising the reliability, but reducing the costs to our customers, we feel it makes sense to introduce fiber into our customer networks.”

The Results Are In

Customer satisfaction with the satellite industry appears to be high, with the main complaint centered around prices. Even though the satellite community has struggled with reliability issues for several years, its customers appear to be largely satisfied with their ability to control or manage future failures. Business models need some work, but all in all, the big buyers of satellite capacity say the industry is doing a good job.

Theresa Foley is Via Satellite’s senior contributing editor.