Upstart company ProtoStar is looking to leave its mark on the Asia-Pacific direct-to-home (DTH) market with a unique way to serve the needs of customers across the entire region. Rather than compete nation-by-nation in the region, the company will be taking a wholesale approach, focusing only on the needs of DTH operators in the region. And recent investments from private equity firms SpaceVest and New Enterprise Associates (NEA) suggest that ProtoStar may be onto something with its approach to this market.

“We have always found the direct-to-home application to be a very attractive application to go after because people have a tendency to pay more for that type of transponder capacity,” ProtoStar CEO Philip Father told Satellite News. “That kind of capacity is moved in larger blocks because a DTH operator may start off with four to six transponders but will eventually evolve to a 14 to 20 transponder purchase. That is why we started to focus in this area, because of the attractiveness of the customer base. A DTH operator will typically start with 60 channels of programming and over time, to compete and to broaden their market share, they will want to evolve to 200 to 300 channels of programming. We found that to be a very attractive application.”

The attractiveness of the DTH market is in general coupled with the growing DTH market in the Asia-Pacific region to create what Father believes, and ProtoStar’s financial backers agree, to be a lucrative market opportunity.

“The markets have opened up quite a bit” in the Asia-Pacific region, Father said. “Southeast Asia has been open but the granting of a DTH license [to one operator] and at least one other [license] pending in India, the timing to go after this is appropriate now.”

Making the move more attractive is a void that Father sees in that region right now. “While there is decent capacity available–FSS Ku-band–it is not in the large blocks or having the possibility for expansion. If you are a DTH operator and you need 14 or 15 high-quality Ku-band transponders out of one orbital slot to grow your business or to have access to back-up capacity, it just does not exist out there now.”

Enter ProtoStar-1

To meet capacity needs from a single orbital slot, ProtoStar plans on launching its first satellite in mid-2006. And as that time frame suggests, ProtoStar is actively seeking an alternative to constructing a new satellite for its first launch.

“We are looking at several partially constructed satellites that we will use as the first building block of a larger three-satellite platform,” Father explained. He declined to give any further details about the satellite ProtoStar was looking at because the company is in negotiations on several available spacecraft. However, he did suggest that the second and third satellites will be custom constructions. “I think it is fair to say that down the road we will pick up our own customized bird.” He noted that the company anticipated ProtoStar-2 would be launched 12 to 16 months after ProtoStar-1.

In addition to offering some insight to the satellite launch schedule, Father offered some predictions on the financing and capacity uptake on ProtoStar-1 without revealing any specific details on the anticipated cost of the acquiring and launching of the first satellite.

“We are taking the standard project finance approach to launching our space assets,” Father said. “We are doing construction and moving forward with the signing of anchor clients. To that extent, the pre-launch capacity requirements are really dictated by the equity markets. But it would be fair to say that a good amount of the capacity on ProtoStar-1 will be pre-sold prior to launch.”

From a technical perspective, Father offered a glimpse to the company’s strategy in terms of the transponders that will be used on its spacecraft and how those transponders fit in with ProtoStar’s wholesale strategy.

“Overall, we are trying to offer the best quality transponder at competitive prices,” Father said. “We define quality along several dimensions. First, we want to provide the highest power for Ku-band for two reasons: you need power to combat the rain attenuation conditions, which are particularly severe in Asia. Also the higher the power of the transponder, the less expensive the consumer set top box equipment and the ground equipment are.”

And the lower cost consumer equipment will be the difference for DTH operators in the region that purchase capacity from ProtoStar. “Given that DTH operators in this region are looking to deploy millions of those units, that is where some of the big cost savings will be generated. We are looking to differentiate ourselves on power, price and reliability.”

A Solid Business Plan

When queried about what makes ProtoStar an attractive investment, John Higginbotham, chairman of SpaceVest told Satellite News, “ProtoStar is bringing what we consider to be a sophisticated business model to the market of satellite service providers, being that it is a wholesale strategy with respect to its service area. Secondly, they have done, in our judgment, a very efficient job at thinking through the economics and capital plan associated with executing their plan. Thirdly, you have a very experienced management team, advisory group and institutional relationships executing the plan.”

Peter Barris, managing general partner at NEA, added, “The plan that ProtoStar has, that John referred to, was attractive to us because of its focus on the Asia-Pacific region, which we think is right for the kind of opportunities they are seeking. It also is an area in which we have been lately–the last 12 to 18 months–focusing a number of our investments.”

Expanding on the importance of ProtoStar’s targeting of the Asia-Pacific region with its wholesale approach, Higginbotham said, “we believe and ProtoStar believes that it is a critically underserved market from the standpoint of broadcast capabilities, particularly direct-to-home. It is obviously a large population with rapidly attractive economic developments so that the demand for these kinds of services, we think, is continuing to grow at extraordinary rates. The business model, being a wholesale model, maximizes the potential for ProtoStar partnering with the appropriate institutional partners in country to optimize service for a particular country, region, language or culture. Being a wholesale strategy, they are not competing with individual domestic interests based on the countries they are serving.”

And in that regard, ProtoStar is looking to be more than just a wholesale supplier of capacity in the Asia-Pacific region.

“Given the ProtoStar management team’s experience, we can take a more consulting and also helping them grow their business as opposed to just selling them the space segment,” Father said. “That is a big challenge for us to help meet those needs.”

–Gregory Twachtman

(Peter Barris, NEA, 703/464-9286; Philip Father, ProtoStar, 415/775-1599; John Higginbotham, SpaceVest, 703/904-9800, ext. 2007)