Star One CEO Edson Soffiatti expects the operator’s broadband revenues to increase by more than 20 percent in 2005, with overall revenues of around $20 million. The operator is a major player in the Latin American satellite arena, particularly in Brazil. The company’s executives expect broadband revenues to reach more than 10 percent of overall revenues in 2005.

In terms of the market opportunity for satellite broadband services, Soffiatti told Satellite News, “In Brazil, because of sheer size of the territory, there is a big demand for many remote applications where the traditional network will never reach. In only two years of us offering satellite broadband services, we are expecting satellite broadband to contribute more than 10 percent of overall revenues. We are focusing on the big corporate networks; SoHo (small office/home office) and SMEs (small enterprises), however, are also important. There are plenty of these companies in Brazil and Latin America. One of the issues of growing the business still is the high cost of broadband. For our economy, it is a strong limitation factor. We see also an important growth in the government segment because of its social programs, which demands a variety of applications.”

Star One plays a key role in developing broadband services in Brazil. In many areas, there are no cable or terrestrial alternatives, so satellite commands a vital role in bringing high-speed Internet services to customers.

However, while the market opportunity for satellite operators may seem a considerable one, industry analysts are skeptical as to what impact satellite will ultimately have in the developing broadband markets in Latin America. Melissa Yocom, an industry analyst at IMS Research told Satellite News, “Although satellite has provided a good interim broadband solution for the demand for faster access in the Latin American region, I believe that issues revolving around satellite’s technical limits will prevent it from becoming a dominant form of broadband access in the market. The packet-loading nature of satellite broadband prevents users from experiencing real-time interactive environments that have become an integral driver of broadband uptake worldwide.”

She continued, “Peer-to-peer networking is not viable on satellite networks or any other interactive applications that require continuous uploading. Hence, a DSL or cable broadband alternative, although not readily available in many parts of the region, becomes a more suitable means of broadband access.”

Yocom believes that terrestrial players will start to get their act together in the region. “DSL technology has already begun to gain a significant foothold in the Latin American market and cable companies are working overtime to lay infrastructure in the region,” she said. “Once WiMAX solutions become readily available in the market, satellite broadband will have direct competition for uptake in rural areas.”

Intense Competition

Latin America is also a market where there are a number of satellite operators trying to get a slice of the action. Soffiatti admits the competition is intense and a lot of the company’s focus is spent retaining existing customers. “I think the competition is more intense here than anywhere else in the world,” he said. “All the major international operators are operating in Brazil. There is a great deal of focus on the communications market, so there are many offers compared to the actual demand in the marketplace. I believe the market will grow this year as the economy recovers. We are the leader in this market, particularly in Brazil, which is our main focus. So, we are the big target for our competition. Our short-term strategy is to retain existing clients. This is a fairly intense effort as we are being attacked by the competition.”

Despite the competition, Soffiatti believes the operator is better placed than most to take advantage of opportunities in the region. “We have had strong revenues and profits in 2004 and we are expecting similar results again in 2005,” he said. “We have now four satellites that are more than 90 percent full, which shows there is a good revenue stream. Obviously, we have two new satellites under construction and we have to manage its finance. However the business plan is very comfortable. We are part of Embratel, a very strong group, which has been acquired by Telmex. Telmex is also very powerful in the region and we feel very comfortable with consequent synergies; our long-term goals are definitely obtainable.”

Transponder Pricing

With a number of satellite operators present in the region, transponder pricing continues to suffer although Soffiatti is confident it will soon start to increase again. He said, “In 2004-2005, prices fell because of the excess of capacity compared to the real demand. Last year, we had sizeable declines in prices for transponder capacity. We are obviously affected when this price erosion happens. I believe it is still happening; however the economy is recovering, not only in Brazil, but also in Latin America. We expect that transponder pricing will go back to reasonable levels.”

Industry analysts have mixed views on the transponder pricing situation in Latin America. Maria Velez de Berliner, president of Latin America Trade Solutions, told Satellite News, “I believe there is still plenty of room for prices to go down, but I do not know what that threshold is going to be and when the prices are going to stabilize.”

Andrea Maleter, technical director at Futron Corp. is more optimistic. She told Satellite News, “There has been a decline in pricing, which coincided with the economic decline in the region, although there have been some adjustments in the last year or so. In particular, the local economies in Brazil have started to pick-up. There was a lot of concern within the investment community when President De Silva came in. But he has really proven to be a very positive force for the business community and investments. This is especially important because Brazil is such a big factor in the region overall.”

Other factors are also helping the situation. Maleter continued, “Intelsat and New Skies have chosen not to put newer, bigger, satellites in the region, as they originally were planning. So, this avoids further saturation of the market. At the same time, you have the Amazonas satellite, which was very heavily subscribed when it was launched, but which has had technical issues that will limit its useful life. The fact that it was heavily subscribed and traffic has started transferring over, however, is a good sign for the market.”

Capital Expenditure

Star One has aggressively invested in new satellites for the region. In January this year, it was announced that Alcatel won a new $150 million contract with Star One, for the construction of the satellite Star One C2 for South America, Mexico and Florida. It is the second satellite that Alcatel will build for Star One. This second satellite in the C series will be fitted with 44 transponders, 28 C-band, 16 Ku-band and 1 X-band.

Soffiatti said of the company’s investments, “We have very aggressive plans. We have in construction the C1 satellite and just signed recently with Alcatel Space a contract for the second satellite. Both contain C-, Ku- and X-bands. These satellites will start the replacement of our existing fleet and will permit our definitive expansion to Latin America in both C- and Ku-bands. These two satellites together with AMC-12, built in partnership with SES-Americom, represent more than $500 million in direct investment.”

DTH

While Star One will continue to focus on the satellite broadband market, and growing revenues there, it also hopes that revenues will be boosted in the direct-to-home (DTH) market. Soffiatti believes this is becoming a difficult market for the operator. He commented, “My impression of pay-TV is that we are very close to saturation. The existing DTH players do not show a significant growth. We do not see DTH as a very important opportunity in the Brazilian satellite market today. We have some DTH operators in C-band, which are trying to bring services to people with lower incomes. This scenario could change when we have Digital TV and HDTV in Brazil. We believe this may take a few years to cause overall improvements in the pay-TV market.”

Maleter added, “The DTH market in Latin America has tended to be heavily C-band, rather than Ku-band, and there is not a culture of Ku-band at the moment. Having the Ku-band market evolve is probably going to be critical to increased growth in the region. There have been concerns with the technical challenges of using the higher frequency, but these are being overcome. Moving to Ku-band will be important, in particular for movement into broadband services.”

In terms of the main challenges for the operator throughout the next 12 months, Soffiatti commented, “We believe the next 12 months for Star One will be very important. We are a strong operator; however, we have our efforts concentrated in Brazil. We believe having a stronger Latin American presence is very important, in particular with the new satellites. A first step in this direction is through the use of AMC-12, where we have 18 C-band transponders with excellent coverage in the continent. Furthermore, with C1 and C2 we shall have a complete offer through the region, including Ku- and C-band capability.”

de Berliner is confident that Star One will emerge as one of the key players in the region, despite the intense competition. She commented, “The reason why I am hopeful is that they have top notch, very knowledgeable management, but most importantly they are politically savvy. That gives me a tremendous amount of hope because that means they are going to navigate very successfully around the challenges that may come their way.” Maleter added, “In terms of growth in services and bandwidth use, there are two aspects, one is the percentage growth and the other is the number of transponders being used. I think in terms of growth rates, you are going to see some things, like the government subsidized fixed telephony, educational VSATs and rural broadband services growing rapidly; but in terms of the actual amount of capacity, video, especially DTH, will be the dominant force.”

—Mark Holmes

(Andrea Maleter, Futron Corp., [email protected]; Melissa Yocom, IMS Research, [email protected]; Maria Velez de Berliner, Latin Trade Solutions, [email protected]; Edson Soffiatti, Star One, [email protected])