NEW YORK– Business conditions for the satellite industry are improving slowly, but the go-go times of the late 1990s will not return in the foreseeable future. This was the consensus of industry leaders meeting here last week at the annual SkyForum conference.

Joseph Wright, PanAmSat’s [NYSE: SPOT] straight-talking CEO, did not sugarcoat his view that satellite operators must change the way they do business. The days when a satellite organization could launch a spacecraft and charge customers high prices to earn a comfortable return have vanished. Now, satellite operators need to be run as cost-conscious businesses, he said.

The biggest problem for satellite companies right now is “too much capacity.” However, Wright sees growth opportunities in the North American video and government markets, as well as the European video market. Another opportunity is coming from high-definition television (HDTV) programming.

“Customers want more than capacity; they want services,” Wright said. Those services include teleport capabilities, as well as ground equipment that can be installed and maintained for them.

Heightened Service

The operators that answer the call from customers to provide a heightened level of service beyond what traditionally has been offered will hold an advantage, he added.

Rob Bednarek, executive vice president of corporate development at Luxembourg-based SES Global, offered a more robust outlook for the satellite industry by pointing to opportunities in broadband that his company is pursuing.

“There are signs of life in broadband,” Bednarek said. Past satellite broadband efforts had some “false starts” when the technology was not ready and the marketing was a bit “chaotic,” he said.

“I’m a little more positive about the business than what you may have heard Joe express,” he said. For example, the multichannel video business is “alive and doing well.” He added, “That drives demand that will filter though to the operators and vendors,” such as the launchers and satellite manufacturers.

Pricing Pressure

Pascale Sourisse, chair and CEO of Alcatel Space, said she is seeing more activity in the market for satellite and ground equipment manufacturing than in 2002. Indeed, “2002 was a terrible year,” she said. “2003 will be substantially better. It doesn’t mean that everything is rosy.”

One example of a continuing challenge for satellite manufacturers is unrelenting pressure from customers to reduce prices, Sourisse said.

“We need to do everything possible to reduce costs,” she said. Her company has achieved significant cost savings.

On the positive side, demand for satellites is strong from the direct-to-home satellite television services sector. On the ground segment front, a number of operators are looking at how to provide broadband services, she said, adding, “Clearly, things are happening.”

Jean-Yves Le Gall, CEO of Arianespace, said his company is coping with three crises. First, the heavy-lifting version of its Ariane 5 rocket failed on its inaugural launch last December. His company is spending 500 million euros ($579.15 million) to return an improved version of that vehicle to flight during the first half of next year.

The second crisis came from intensified launch service competition, Le Gall said. He cited the U.S. evolved expendable launch vehicle (EELV) program – the Delta IV and Atlas V – as producing overcapacity in the launch market. This worsened an already bad situation, he added.

A third crisis was the lingering weak demand for launch services. The demand for commercial launches has fallen from 30 missions a year in the late 1990s to roughly 10 a year now, he said.

Despite the challenges, Arianespace will be a long-term survivor in the marketplace, Le Gall pledged. Europe wants to keep its assured access to space and has been spending the money required to do so, he added.

Long-term Survivor

Another long-term survivor should be Boeing’s [NYSE: BA] Delta IV, Le Gall told SATELLITE NEWS during a follow-up interview after the conference. The Delta IV will focus on U.S. government missions for now, rather than compete in the commercial market for a limited number of potential missions.

The lowest-cost providers right now may have the most difficult long-term challenge to stay in the business, Le Gall said. Low salaries paid to engineers and launch service employees in Russia allow its rockets to be used at a lower cost, but those conditions may not always remain, he added. “I’m not sure they will continue,” Le Gall said.

–Paul Dykewicz

(Rob Bednarek, SES Global, 352/710 725 273; Joseph Wright, PanAmSat, 203/210-8606; Suzy Chambers, Arianespace, 202/628-3936; Josh Leskowitz, for Alcatel Space, 212/614- 5012)