By Roger Rusch

Planning for 2003 requires an assessment of what the future holds. While prognostication is an inexact science, we can extrapolate certain trends. Present conditions and “external forces” determine subsequent events. The following are a few predictions about what this year has in store for the satellite industry:

1) This will be another dismal year for the satellite communications industry. It would be unrealistic to expect a rapid return to the boom years of the 1990s. The commercial satellite business will lag behind the recovery in other economic sectors, but government-funded projects will partially offset this sluggishness.

2) Direct broadcast satellite (DBS) will be the brightest segment. It will continue to gain market share over cable, but subscriber growth will slow. Local-into-local broadcasting will be expanded.

3) Satellite radio will grow, but at rates that are much slower than originally estimated. XM Satellite Radio [XMSR] will dominate the U.S. market. Sirius Satellite Radio [SIRI] and WorldSpace will struggle to survive.

4) Fixed satellite service (FSS) demand will be essentially flat. Transponder capacity will exceed demand for several more years. Some satellite procurements and launches will be postponed and more satellites will be mothballed. Cost cutting will improve profit margins.

5) Inmarsat will continue to dominate the mobile satellite service (MSS) sector. Thuraya will be the most promising new entrant. Iridium and Globalstar will lose millions of dollars each month; replacement constellations will not be procured; management will endeavor to keep these systems active as long as possible, but eventually these low-Earth orbit (LEO) systems will be liquidated. As in the past, MSS revenues will surge in wartime. The Federal Communications Commission’s authorization of MSS use of ancillary terrestrial components (ATC) will primarily benefit the applicants using 2GHz, such as ICO, but ICO will not be able to raise sufficient funds to complete its constellation.

6) The number of commercial geostationary satellite orders will not increase significantly from 2002. More satellite orders will be cancelled. We expect fewer than 10 net satellite procurements this year.

7) Launches of commercial satellites will be less than predicted because service operators will defer costs and extend the operational lifetime of current assets. Launch failures will not be the salvation of satellite manufacturing.

8) Both European and American satellite manufacturing companies will resume merger discussions and other joint business arrangements. These negotiations will be hampered by a long history of competition.

9) Mergers of satellite operating companies will also be discussed intensely. Eutelsat will probably be sold to Intelsat. Although there will be European objections, it would be difficult to claim that such a merger would create a monopoly.

10) Service providers will avoid or postpone initial public offerings until the capital markets assign greater value to these companies. Private placements or sales may be possible, however.

Overall, the industry must “hope for the best but prepare for the worst.” Management is naturally positive when planning because much of its responsibility is to sell products and services. Overconfidence about the level of demand could lead to keeping costly capability and thereby reducing profits. Management will be more successful by assuming that the situation will get worse before it gets better. Although this may be another difficult year, market fundamentals are sound, and growth will return to the survivors in the future.

Roger Rusch is the president of TelAstra, Inc. The views in this column do not necessarily reflect the opinions of Satellite News. You can contact him at 310-373-1925 or via e- mail at [email protected].