While market conditions continue to be tough for satellite manufacturers, Alcatel Space CEO Pascale Sourisse is confident the company’s prospects for revenue growth prospects will remain strong. Whether it is high-definition television (HDTV), satellite radio in Europe, or its role in the Galileo program, there are many areas where the company can experience a boost in revenues.
But while there are many growth opportunities for the company to target, new satellite contracts are likely to be at a premium. Sourisse is predicting around 15 commercial satellite orders in 2005. With competition still strong in the satellite manufacturing sector, the company will have its work cut out to pick up contracts.
There are also big changes taking place at Alcatel with the Alcatel/Finmeccanica merger in space activities becoming effective July 15. Sourisse believes this is a key move for the company and will strengthen its position across Europe.
In an exclusive interview, Sourisse talked to International Editor Mark Holmes about new opportunities for growth, her take on whether the two consortia bidding for the Galileo Concession contract will join forces, as well as the prospects for satellite radio in Europe.
Satellite News: There has been more talk recently that the two consortia bidding for Galileo could be ready to join forces. Is this the natural step to take?
Sourisse: The movement of putting the forces of the two consortia together would be something advantageous considering the ambitious deadlines of the Galileo Joint Undertaking (the organization formed to award the Galileo concession). It would combine companies with a good degree of complementary expertise. It also would allow for the possibility of putting together all those who have an interest in making sure that Galileo will be a success rather than dividing the forces that would try to build something around Galileo. We think this would be a positive move and a good way to deliver best value for the public sector.
Satellite News: The satellite manufacturing arena still seems to be a pretty tough place to operate due to the number of players involved. How many contracts are you hoping to win this year? How difficult is it for the company to build a strong business in this area?
Sourisse: Alcatel Space generates 45 percent of its revenues from the commercial satellite market and 55 percent on the institutional market. The commercial market is still a tough market. It is very competitive. There have been some improvements compared to what it was during the crisis in 2002. The market size we are expecting for 2005 is about 15 commercial satellites orders globally. Our plan is to take a 20-25 percent market share. We still believe that the market has growth potential. In fact, there are a number of services that could be growth drivers.
Satellite News: What are the markets that will drive growth?
Sourisse: First of all, we think that the broadcast domain, which historically has been a strong market for satellites, continues to remain strong and even growing with the introduction and developments in HDTV. HDTV is already a reality in North America and Japan and is starting to take off in Europe. This broadcasting market is going to remain strong.
Other markets of interest include mobile communications. You can look at broadcast services to mobile terminals, either digital radio or multimedia broadcasting. This is something that a number of mobile operators are showing an interest in.
Another segment is what we call enterprise and vertical markets, including institutions. The enterprise market is moving to broadband. They are users of VSAT networks, which used to be narrowband VSAT networks. They are moving to broadband, which will require more capacity, and the institutional market, including defense, is going to be a growing user of commercial capacity.
Satellite News: Do you think the involvement of private equity (PE) companies will bring greater financial discipline in the satellite industry? Will there be less new satellite orders as a result?
Sourisse: We see the investment of PE firms into satellite companies as a positive sign for the satellite operator industry. The situation before the investment by these firms was that satellite operators had shareholders who were unclear in what they wanted to do with their satellite branch. A number of shareholders wanted to dispose of their stakes in satellite operators and they were not very active in pushing for an aggressive strategy for satellite operators. The fact that the equity structure of satellite operators has changed was needed because the previous shareholders wanted to leave anyway.
You can make the assumption that PE firms believe there is substantial financial strength in satellite operators, which is a very positive sign for the market. What we can see is that a number of PE firms are shareholders in several operators. So, it raises the question of further consolidation among satellite operators. Some of these PE firms may think how to reorganize or restructure their own stakes in those satellite operators. We would expect some degree of further consolidation in the industry.
Satellite News: How will the merger with Finmeccanica effect revenue growth in 2005?
Sourisse: The merger involves two joint ventures. The first one, Alcatel Alenia Space, is focusing on end-to-end satellite systems, manufacturing satellites, etc. The second joint venture is Telespazio. The creation of the two companies is extremely powerful and each joint venture has a strong position in the market.
The combination of the two will enable us to leverage the presence of Telespazio in the field of services to develop new service initiatives, which will then be served by technology and solutions coming from Alcatel Alenia Space and vice versa. We plan to have a very coordinated approach between the two joint ventures and really use the presence and strength of the mother companies, Alcatel and Finmeccanica, to develop our market position for the two joint ventures. This is changing the picture for us in 2005. Alcatel Space was perceived as an essentially French company. We are now becoming a truly European company with Spanish and Belgium subsidiaries. We have a strong position in the commercial market but also in the large institutional market.
Satellite News: What impact will Ka-band satellites as well as the potential HDTV market have on satellite manufacturers such as Alcatel Space?
Sourisse: The question is not to say whether Ka-band is better than Ku-band or any other band. It is a question of which bands are still available to further develop satellite solutions. The use of one band rather than the other is also the consequence of a regulatory situation in any given country. We believe that Ka-band will be more and more used because there is some degree of saturation of Ku-band in certain regions.
These new Ka-band satellites will be used for either multimedia or broadcast services and we actually are working on new designs for those kinds of satellites. We combine the use of Ka-band satellites with the use of multi-beam payloads, which can offer a very substantial increase in capacity over a given territory. We believe Ka-band satellites will be used in the field of broadcasting, in particular, for HDTV. It will also be used to deliver more diversified television channels like local-into-local, and more genre channels and this will also be used for a large combination for the new types of services.
Satellite News: What types of business opportunities does satellite radio offer Alcatel Space?
Sourisse: We believe that digital satellite radio is an attractive opportunity in terms of services. It does not require too much thinking to determine that. You just have to look at the success that XM Satellite Radio and Sirius Satellite Radio are having in the United States. It can be very attractive business opportunity. We believe there is demand for these services in many regions of the world, not only in Europe. It can also be in Asia and other continents.
We have a lot of technology for those kinds of solutions. We have been the end-to-end systems supplier for Worldspace on both the ground segment and the satellite level. We are also involved in the XM program We have supplied all the XM satellite payloads. So we have a lot of technology in that field, both at the system and space segment level. The challenge for the moment is to find the right group of partners that would be ready to put together an initiative. We are ready to play a role, together with partners, in terms of structuring such an initiative and not only be a supplier of such solutions.
Satellite News: When do you see these partnerships being put together?
Sourisse: There are ongoing discussions with various categories of partners. You need to look at who could be the operator of the satellite. You also need to find the right partners in terms of broadcasters that will supply content. You need to find content aggregators that would put together the bouquet of channels that would be broadcast to users. So, you need to have the right partners in place.
You also need to have partnerships with car manufacturers so you can have vehicles directly equipped with the right receivers when they are for sale. That is something that is extremely useful and powerful and will help develop the market. It is difficult to say how much more time it will take to get there. I am quite positive about this initiative because various potential partners to which we are talking show us a strong interest, and they are all very impressed with the success someone like XM has been able to achieve.
Satellite News: Where will satellite radio in Europe be in two years?
Sourisse: Two years would not be sufficient to have a new satellite in place. You could start new services because such a solution for digital satellite radio will actually not be 100 percent satellite. It will be a combination of satellite solutions and terrestrial solutions–hybrid networks–using both satellite and terrestrial networks.
When you look at digital satellite radio systems, you need the satellite part to cover complete territories, but you also need to have terrestrial repeaters to make sure that in high-density urban areas, reception is sufficient and there is no transmission blockage because of buildings and things like that. So, you need repeaters. Thanks to terrestrial repeaters, you can start the service without having a brand new satellite, as that would take several years to launch. You can start with the terrestrial part of the solution. I think we would hope in two years, that is where things will happening in the field.
Satellite News: How do you see the European satellite services landscape changing within the next 12 months?
Sourisse: I am not sure we should expect much change. In addition to the implementation of our own merger, which is a major step in the satellite sector, I think we will see progress made in Europe on big programs like Galileo and Global Monitoring for Environment and Security. In terms of structural changes, we said there could be opportunities for existing satellite operator mergers. We will see how quickly that will happen. On the industry side, I am not sure there will be much change with the major players. Our view is that we have a very strong position and that we are here to stay. One issue is whether there will be any restructuring of the U.S. suppliers. I am not sure whether this will happen.
(Laurent Zimmermann, Alcatel Space, Laurent.Zimmermann@space.alcatel.fr)
