The recent failure of the Astra 1K satellite launch could mean changes to SES Astra’s capital expenditure plans going forward (see related stories, this issue). Next year promises to be a challenging time for Astra, particularly as pay-TV markets consolidate. If the Canal Satelite Digital /Via Digital merger goes through in Spain, either Astra or Hispasat is likely to lose out. In an exclusive interview with Interspace Senior Editor Mark Holmes, SES Astra CEO Ferdinand Kayser talks about the failure of Astra 1K and how the changes in the European pay-TV markets will affect SES Astra.

Interspace: How big a blow to SES Astra’s strategy is the failure of the Astra 1K satellite to reach orbit? Bearing in mind the reliability of the Proton vehicle, how surprised are you about the chain of events?

Kayser: There is unfortunately no guarantee for space access. Space missions can always go wrong and it is something you have to live with as a satellite operator. Clearly, we are not pleased that after 13 successful launches without the slightest hitch, this looks like we are facing our first failure. The impact, however, is limited. The spacecraft had three missions. The first was backup capacity for the B, C and D bands and with Astra 2C at 19.2 degrees East, there is already sufficient back-up capacity up there. With respect to the second mission, what we are losing is the extended footprint into eastern Europe and the European part of the [former Soviet Union]. That is something we will have to evaluate and see how we can compensate that loss. With respect to Ka-band services, we have a Ka-band payload up and running on Astra 1H. There, the impact is limited. The failure is not pleasant, but it is certainly not a catastrophe. Also, taking into consideration that the mission is fully insured and that there is available capacity on the 13 strong Astra fleet, so we don’t need to turn down customers.

Interspace: When will a decision be made in terms of a replacement satellite for Astra 1K? Is it possible you won’t need to launch a replacement?

Kayser: At this stage, our primary aim was to stabilise Astra 1K and make sure that there wasn’t an uncontrolled coming down of the spacecraft. We have succeeding in doing that. This means that on the one hand, we now have the opportunity to evaluate very carefully what still can be done potentially with this spacecraft. At the same time, we are re- evaluating our needs, taking into consideration that there is available capacity on the fleet. We are looking at the market, which has certainly changed, so we are not going to rush into any new investment decisions at this stage. We will certainly need replacement capacity for the B, C, and D starting in 2005 with 1B. This leaves us ample times to make decisions on procurement.

Interspace: How would you describe your relationship with ILS? Would you consider changing your launch vehicle provider in light of these events?

Kayser: We have always had a dual launch policy. The Astra satellites have been launched either on Ariane 4, Ariane 5 or Proton. We have had five successful launches on Proton. Clearly, we are very interested in what the Russian Investigative Commission is going to come up with as an explanation. Generally speaking, you can’t call into question the reliability of a Proton because of this, simply because there is a track record of 250 successful launches. It is statistically speaking one of the most reliable launch systems in the world. It has served us well five times.

Interspace: Could you tell us about your capital expenditure plans going forward?

Kayser: There are no other Astra satellites in the pipeline for the time being. If the launch of Astra 1K had been successful, there would be no need for new satellites in space until 2006. We may have to revise this now.

Interspace: What impact is the rapid consolidation in the European pay-TV sector going to have on Astra’s operations going forward?

Kayser: First of all, I believe consolidation in the field of pay-TV and in particular digital pay TV is something that is going to happen due to the business models of digital TV. The economics of digital pay-TV are such that you have to look at the money operator’s pay on a per subscriber basis for the rights to content such as premium movies, sports etc. This means that if the number two player wants to gain the rights, he has to pay the price based on the number of subscribers of the number one player. That makes it very difficult, if not impossible, to be the number two player in a given digital pay-TV market. We should not forget that in most of the markets, except Scandinavia and France, we have already had consolidation or it is poised happen. The UK market was first and then many other markets followed. I believe there is a good chance that the other two remaining markets, Sweden and France, will also go down that path.

Interspace: Hispasat CEO Jacinto Garcia Palacios recently told Interspace that he was confident that Hispasat would be the platform of choice in the Spanish market. How optimistic are you that the combined company would choose Astra over Hispasat?

Kayser: I would not like to comment on what the Hispasat CEO said. In the Spanish market, we have decided to go for a very low profile approach out of respect for our customers. I don’t really want to comment on the speculation currently surrounding the developments of digital pay-TV in Spain. We are, of course, following the situation with a lot of interest. There is a political dimension to the merger. But, we have realised since April and May of this year that the best solution for us to take here is a low profile approach. We believe we are well positioned in the Spanish market. I don’t want to speculate on the possible decision of the operator should they go ahead with the merger. But for the time being, I would also like to point out that they are one of our best customers.

Interspace: In terms of capacity being used for interactive TV, when do you expect to see 25 percent of your capacity being used for interactive TV? What opportunities do you see in the occasional use market in terms of one-off broadcasts?

Kayser: Concerning interactivity, it really depends on the operator and the type of middleware they are using. What we see is that the operators using OpenTV middleware are the ones offering interactive services with the highest level of success. But, other operators are also doing OK in this area. The occasional use market is a market we want to develop. We believe there is potential here. We believe we have to adopt a much more pro-active approach in terms of these products. Up until recently, these had not been part of product portfolio at all because we did not have the capacity available. But, we have identified this area and we are working on a new project in this area.

Interspace: How will the conversion from analogue to digital in Europe affect your ability to increase revenues, particular in Germany and areas of eastern and central Europe?

Kayser: The conversion from analogue to digital is obviously an issue we have to face on a market-by-market basis. Germany is one of our most important markets, particularly in terms of analogue capacity. For the time being, I believe this market will be one of the last markets to make the conversion from analogue to digital. The public and established private broadcasters are quite happy with the current situation. They are not really keen to move from analogue to digital. They clearly realise that the conversion to digital will lead to a much more fragmented market. Surprisingly this year when we have contacted analogue capacity for some operators and offered them a digital simulcast, they have not been interested. But having said that, we are aware that we have to prepare for the digital conversion.

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?

Kayser: No, I don’t see much volatility here. First of all, concerning pricing, there is a difference in the product on which you are using satellite capacity. For certain products, there might be a higher volatility. But I believe the volatility in our core business of DTH will be limited. Operators who are buying DTH capacity know very well the value of this capacity. That makes a lot of difference in terms of DTH and other products. To give you an example, I recently had negotiations with a German operator. They were telling me they were surprised that the prices for capacity had not gone up. They realise the value of the product, and the fact is nowadays that they get much better value than they did years ago because of the increasing reach of our satellites. There is however a trend for people to go for shorter contractual terms. In a couple of years, you will not really see the 10-year contracts you have seen before. But, shorter-term contracts are not having a negative impact on pricing.