While many countries around the world discuss the best way to bridge the so-called digital divide, the Australian government has taken the steps to subsidize the rollout of satellite broadband services to help those who are not able to gain access to more traditional terrestrial means.

For Australian telecom and video services provider Optus, those subsidies have jumpstarted the company’s satellite broadband service offering. Warren Hardy, managing director of Optus Wholesale & Satellite, took some time with Satellite News Editor Gregory Twachtman to discuss the progress of the satellite broadband rollout in Australia, as well as competition and consolidation in the Australia and the Asia Pacific Region.

Satellite News: How important was government support in the launch of your satellite broadband offering?

Warren Hardy: [What made the launch] quite successful was the government here [creating] an active social policy. It put up a scheme called the HiBIS scheme, which stands for the High Bandwidth Incentive Scheme. Basically, the government recognized the fact that in a country like Australia, which has a very large geography and a very small population, there is a significant number in the Australian population who were spread out across the land mass and weren’t able to get access to broadband services through the traditional terrestrial methods simply because of the tyranny of distance. Satellite was the perfect vehicle for delivering that to these people. [The government] put a fund called the High Bandwidth Incentive Scheme which could be used to subsidized the cost of the CPE (customer premise equipment) and the installation to the end-user to overcome some of those barriers to entry such that after that, the customer would on only have to pay a monthly subscription fee for there access to broadband, not too dissimilar from what their cousins in the city would pay.

Our VSAT sales have grown very strongly in the last 12 months largely because this subsidy, which is about Aus. $1,500 ($1,140.42) for anybody who lives within 15 kilometers of an exchange or up to Aus. $3,000 ($2,281.13) for anyone who lives further than 15 kilometers away from an exchange. That obviously takes a huge barrier to entry from the market because the customer doesn’t have to put their hand in their pocket to pay for installation and a CPE. Once they are only faced with paying a subscription fee per month, which is much more modest, in the range of Aus. $50 to $70 ($38.23-$53.24) per month, then that is a totally different proposition. We have seen very strong growth in VSAT sales in Australia off the back of that scheme. The government is considering increasing the amount of funding that they are putting in that scheme going forward because it had been quite successful.

Satellite News: Are you meeting your subscriber targets?

Hardy: It has exceeded our expectations. We planned on this being a stimulus for the market and the stimulus has actually been greater than what we thought. People really flocked to it. People want to use broadband services for a variety of reasons and the fact that this now takes that barrier to entry away has made the entry into the market for the end retail customer a lot easier than it was.

Satellite News: Do you face any competition from other satellite services?

Hardy: Our major competitor in the market would be Telstra. Telstra does not own or operate their own satellite assets. We do. We are on the only telco in Australia that owns and operates them out of Australia and bills in Australian dollars. Telstra has to source their satellite capacity from other suppliers. I think we have been holding our own against them very successfully.

Satellite News: Do they also get the same benefit from this government program?

Hardy: The subsidies are available for all the satellite providers to use, although there is a cap on the percentage of how much of HiBIS can go to one particular player. Telsta, being the incumbent, gets the lion’s share, about 60 percent. But once they reach 60 percent, they are not allowed to have more than that.

Satellite News: Does the launch of the IPStar satellite have any ripple effect on your business?

Hardy: Assuming that testing goes OK, then obviously [Shin Satellite] has a different technology that they have deployed in orbit that has the potential to have quite a lot of capacity over the Australian marketplace. We see IPStar potentially being an opportunity for us in the sense that our satellite business is primarily dominated by broadcast and subscription television customers. There are about 1.5 million dishes in Australia and New Zealand that are pointed to the Optus satellites that take subscription television feed. We also have all the major broadcasters leasing capacity off us for distribution of their signals. The majority of the satellite business is driven by that. Our utilization rate that we have across our fleet of satellites is very, very high, perhaps the highest in the world. We have never found anyone with a high level of utilization north of 85 percent. The closest we could find behind us is about 72 percent.

We see that market for broadband, which is really what IPStar is looking at (they have spot beams over the major urban areas in Australia and then a large spot beam across all of Australia). We see opportunity for us to work with them potentially or we could be a distribution partner with them. We have the people on the ground here. We have the local know-how. We have the local knowledge. We have the local distribution channels. They have a new technology which is well suited for broadband, so we see this potentially as being an opportunity for us to work with them rather than being a threat.

Satellite News: Does the additional capacity that IPStar brings to an Asia-Pacific region that already suffers from overcapacity have any effect on your business?

Hardy: The issue is there are different types of market segments within the satellite space. For example, in the broadcast space, which is where the majority of our revues are generated from, that is not a space that IPStar will be playing in. To the extent that the vast majority of my business today on broadcast and subscription television is not affected by IPStar at all. It really plays in the space of VSATs and broadband applications, and given that our satellites are fairly full at the moment anyway, we see it as potentially being complimentary to us in providing extra capacity that is needed in the market to supply capacity to meet the growth in the demand for broadband. Australia is fairly lowly penetrated on the broadband scale compared to other countries and there still is a lot of interim growth to go in the Australian market.

Satellite News: Will the D Series satellites that are scheduled to be launched in 2006 be used for broadband or broadcast?

Hardy: [The primary role of our] D satellites, D1 and D2, are to replace our existing B series satellites. Our existing B series satellites are dominated by broadcast applications. Essentially, D1 when it is launched, will effectively replace B1 and we’ll migrate the services which are predominantly broadcast. When D2 is launched, we will be looking to migrate the services off of B3.

Satellite News: How big a role is high definition (HD) playing in your future and how will that impact your fill rates and the additional capacity you may need?

Hardy: HDTV is obviously something that is growing in importance and demand around the globe. Essentially, the decision as to whether pay television or subscription television operators in the Australian and New Zealand television markets wish to move to high definition television will be driven by the broadcasters themselves and will be driven by the demand in the marketplace for those services.

We have allowed in our future planning of D1 and D2 to have the capacity available to facilitate that were [the demand to grow]. We do have free-to-air operators in Australia that broadcast high-definition signals. At the end of the day, that will be a decision to be made by the subscription television operators themselves, but if that is the path they wish to go down, we think we are well positioned to deliver that in the future with our two new satellites.

Satellite News: How has the temporary loss of the B1 satellite earlier this year affected your business?

Hardy: We’ve managed around that. B1 is operating quite happily at the moment, and we have lots of contingency plans that our customers are happy with should anything unforeseen happen in the future. But at this stage, it is operating happily and we have not had any major fallout as of that at all.

Satellite News: How will the D series satellites reduce the potential impact of future problems?

Hardy: The D series coming along next year will do a lot to reduce the risk profile of our satellites even further, especially for our subscription television customers. They will have in-orbit redundancy effectively because to have in-orbit redundancy, you really need to be within four degrees of separation. For example, Sky TV in New Zealand, which is one of our large customers, when we have D1 and D2 up in orbit, they will have their primary signal being receive off of D1 at 160 degrees East. But they will also have backup capacity available on D2 at 156 degrees East. That literally means that if you had any failure in the future, we can switch from D1 to D2 almost instantaneously.

Satellite News: Many have said the Intelsat acquisition of Panamsat could be one of the last consolidation moves among the major global satellite operators and future consolidation efforts will concentrate on regional players. How do you see consolidation among the regional operators?

Hardy: We get this question all the time – is the Optus satellite business being sold or is it a target for acquisition? We get asked that question quite frequently because the Optus satellite business is a good business. It’s a well-managed, well-run business with high levels of utilization and a very strong market position. With those characteristics, it would be a potentially attractive asset.

We have always remained open-minded on those questions at the end of the day. We are [getting] paid to generate shareholder value. I suppose if somebody knocked on the door and said, “We’ll pay you an amount for your satellite business which is substantially higher than what you think you can generate yourself,” obviously we would be compelled to look at that to fulfill our responsibilities to our shareholders. I should say those types of discussions and knocks on the door have been going on for quite some time, and we have remained open minded about it but that is all I need to say at this stage.

Satellite News: Would you consider driving some of that consolidation yourself?

Hardy: I don’t think that’s within our strategic roadmap at this point in time. I think we understand the markets we operate in and we are trying to make sure we do the best job we can in those markets. But you have to remain open-minded. You can never say never. You never know what is going to happen in the future. But us going out and looking for other satellite assets to buy is something we are not actively engaged in at the moment.