Intelsat is planning to set up a video services unit in the next month as it plans to tap into that growing market. The satellite operator is increasingly looking to broadband and launched a commercial broadband service in Colombia last month. It is planning to make a similar move in Asia ‘sooner rather than later. To examine these initiatives and other satellite opportunities, Interspace Senior Editor Mark Holmes recently talked with Intelsat President of Global Sales and Marketing John Stanton.

Interspace: How do you expect your business model to evolve as your traditional markets mature? What levels of demand do you expect to see from new services? What are going to be the main revenue generators going forward?

Stanton: We are in four major segments. We have our carrier services, which are primarily point-to-point voice and data. They tend to be challenged by undersea cable on many routes. There are opportunities for those services as new markets liberalise and new carriers emerge and so forth, but realistically they are not going to generate the growth curve for the company going forward. We are in the video services sector and that provides about 20 percent of our revenues today. Video services will continue to grow across the world. We are actually looking to significantly strengthen our presence in the video market in the coming years. We have been focusing on Latin America, for example, where we have co-located a second spacecraft at 304.5 degrees. That gives us additional high-power Ku-band capacity into Latin America for video. We are putting a new spacecraft at 310 degrees, the [Intelsat] 10-01, which has superb high-powered Ku-band beam for video in Brazil. It has a single shaped beam that covers the whole of Brazil. The [Intelsat] 10-02 spacecraft that goes to 359 degrees has improved Ku-band for Scandinavia, where we have a large DTH platform operating through Telenor. That satellite also has high-powered Ku-band for the Middle East, linking back to Europe … We are looking to generally increase our presence in and share of the video market. We are actually setting up a new video services business unit within the company. That will come into being next month. That is the first strategic business unit we have created in the company and is a recognition of our determination to strengthen our video market presence.

The next segment we are involved in is the ISP segment. It has been our fastest growing segment in the last four to five years. It now constitutes 16 to 17 percent of revenues. We are working with more than 150 tier one and tier two ISPs in more than 100 countries. The final segment we are in is corporate networks. It represents roughly 25 percent of our business. The principle areas for growth are corporate video and IP. On top of that, you have got broadband. The GlobalConnex services are an extension of our existing segments. A lot of the new services there are part of the overall IP segment. So, it is a more expanded offering in this segment.

Interspace: So, are revenues from ISPs going to overtake video services in the near future?

Stanton: It would depend on how successful we are in either of the two segments. If it stays on the growth track we have had over the last 3 to 4 years, then, yes, it would. But, of course, the IP business is not growing quite as fast with the ISP bubble having burst to some degree. It is on a somewhat more modest trajectory these days, but with a continued underlying demand for bandwidth – people haven’t stopped using the Internet.

Interspace: What levels of take-up have you had for your GlobalConnex services? What levels of revenues have you generated so far from these services?

Stanton: We have had a very encouraging level of interest from right across the globe for GlobalConnex services and a pretty decent conversion rate of that interest into contracts. We have got seven customers up and running today. They are in seven different countries. We have got something like another 10 contracts signed with customers who are about to come up on the system. We have got quite a number of verbal agreements that are in the process of contract negotiations. There are more than 10 of these. We are pretty encouraged by this progress, given that it has only been a few months that the service has been offered. We are already seeing a lot of customers … coming on to the system in that way. Most of the contracts are relatively small to medium compared to, for example, a 72 MHz transponder, but that is often because they are customers who are starting relatively small and expanding their networks as their business model proves up. In terms of a competitive advantage, GlobalConnex service is just one piece in the armoury. The vast majority of our revenues still come through distributors who are far and away our dominant channel to market. Nonetheless, we have seen a subset of customers who either weren’t working to an existing distributor, or who wanted to be able to come and get a complete solution from us. GlobalConnex is working in that niche for us.

Interspace: Are the numbers for GlobalConnex in line with your expectations? How soon do you think you will hit the 50 and 100 customer mark?

Stanton: The level of take-up is broadly in line with what we had anticipated. I think it took us slightly longer than we hoped to get all of the network elements in place and functioning to our desired standard of operational capability. We have probably been slightly slower out of the gate than we had originally forecast. But the network is now in place and we are leveraging off that.

Interspace: Could you tell us about Intelsat’s expectations in the broadband market? As a key revenue generator going forward, what are your ambitions in this area? What do you see as your main target market?

Stanton: It is probably the most debated topic in the satellite sector over the last five years. Many of the fairly heroic projections that were made 4 to 5 years ago for the speed of demand growth for satellite via broadband have simply not been realised yet. Notwithstanding that, we continue to believe that broadband services via satellite will be a strong, sustainable market in the future. There are a number of variables that will come into play to make that a reality: the costs and the value proposition, both in terms of the capacity you are able to direct from space, and also the costs of the CPE or the ground segment equipment. At Intelsat we have taken an evolutionary approach to broadband. You might say that the score for us in broadband so far is 2 to 0. That is to say we have developed two full-blown broadband-via-satellite systems and we have not decided to procure either of them yet. We started with an all Ka-band on-board-processor satellite system design. We took that around the world to all of our major customers and distributors several years ago to work with them and adjudge whether it was the sort of system that they needed for their end user requirements. The result of that work in 25 countries is that we threw that design away. We have also developed a hybrid Ku/Ka spacecraft design. That may be the approach that ultimately we will take. But, for the moment, judging where the market is and where we see the demand happening with our customers and distributors, we have taken an evolutionary approach. We have developed a system based on our existing Ku- band space segment. We are using a Gilat 360E platform. Our first commercial network is operating in Colombia, South America, with more than 150 end users [that include] libraries, government offices, small enterprises etc. We have recently moved from the trial phase to a fully commercial network there. We are looking at a number of other opportunities in Latin America, Africa and Asia. We believe there will come a time when there will be a requirement for spacecraft that are more specialised for broadband access services.

Interspace: You recently announced a deal to provide broadband services in Colombia. What opportunities do you see there being for Intelsat in the Latin America market?

Stanton: It has been an extremely valuable experience for us, simply in putting together the elements to create a successful solution, and that is everything from choosing the ground segment equipment, choosing the service provider, and understanding what we need to make that relationship work so it is a seamless and efficient service for the end user customer. We had to understand the tariffing, the provisioning, all of the different elements that go into putting a service together. It is the first network we have done like that. It already has provided the potential for other opportunities in Central and Latin America. I can’t say what they are because they are not signed, but certainly there is potential in those markets. We have a commercial service there and nowhere else. That is the first place we gained some traction. We have been working in Asia for a number of months with potential service providers there. We will be looking to move sooner rather than later in Asia.

Interspace: Do you expect any volatility in terms of the pricing for transponders going forward? Do you see the supply and demand dynamics changing in the near future?

Stanton: I think it varies region by region. There are some areas of oversupply in some parts of the world at some frequency bands – but there are still many opportunities as well, and some areas of under-supply. The satellite industry has some art to it in a sense, because you can’t easily respond in a matter of months with new capacity because of the time cycles involved in procurement and launch. So, you do have to take a forward-looking view. We have been fairly prudent about the amount of capacity we have procured. We take a stringent approach to the business cases we build for any new spacecraft proposition in terms of demand. In some areas, there has been a lot of price pressure on transponders in the last 12 to 18 months. There have been some fairly heroic pricing decisions taken by some operators in the market. I think that we anticipate the value you can deliver from a transponder will continue to be recognised.

Interspace: What impact do you think your plans will have on capacity utilisation rates?

Stanton: We were at our historical high of close to 85 percent 18 months ago for a number of reasons. The market was very strong. We hadn’t launched any satellites for a number of years. That was prior to the nine series. Inevitably, when you launch a new series of satellites, your utilisation goes down. I think most operators have seen some reduction in the average life of their backlog. The 15-year commitments are not as common as they once were. We are still in the high 70 percent range for capacity utilisation. The average life of our backlog is in the five-year range.