Home >> December 2008 Edition >> The Age of Uncertainty
The Age of Uncertainty
by Robert Bell, Executive Director,
World Teleport Association


Collapsing investment and retail banks. Plummeting stock markets. Rising unemployment.

Aside from that unattractive news, how was 2008 for you? More importantly, what do you expect from 2009? SatMagazine is hardly alone in asking these questions – but the answers it offers may be different from what you read in the rest of the press.

Based on 25 years in business, the one thing I do not expect is that this will be a one-size-fits-all recession.

While we’re on the “R” word, let’s repeat it again. “Recession.” Not “depression,” as in “a recession, maybe a depression”, or, “the greatest financial crisis since the Great Depression.” How many times have you heard those phrases from radio and TV journalists in the past 90 days? Hundreds? Thousands? It’s little wonder, then, that consumer confidence tanked!

Tell people often enough that another Great Depression is around the corner and they start to believe you. However, it’s nonsense. The Great Depression was the product of terrible government policy – tightening credit in a downturn and launching an international trade war – that turned a stock market crash into a years-long nightmare. The private sector may be mighty, but only governments retain the power to thoroughly mess things up. Whatever is ahead, the central banks, the treasury and us officials of the industrial nations know why the Great Depression happened and what not to do next. Let’s please put the word “depression” back in the box where it belongs.

Now that I have that off my chest, back to our story...

Market indexes, unemployment levels, consumer confidence, and corporate revenue numbers are signaling we are in for a bad patch. When I say that one size will not fit all, however, I am remembering the recession of 2000-2002. That was the “telecom recession,” when massive overbuilding of fiber networks led to overcapacity, bankruptcies, and broken contracts throughout the terrestrial and satellite communications sector. That one was an arrow aimed straight at the heart of the satellite industry. The price of fiber capacity plummeted and all those transponder and uplink contracts to carry IP traffic dissolved in the face of the truth: that demand for Internet bandwidth was not growing at 100 percent per year, as was then the common wisdom. None of us wants a replay of those particular years.

This is not the telecom recession. It is a financial services downturn, a housing downturn, an automotive downturn, a surge in the cost of credit, and a downturn for the industries that make the durable goods that go into new homes. About 35,000 financial service employees in New York City, where our office is located, have lost their jobs. The city is forecasting the ripple effect could ultimately cost 165,000 local jobs. The Mayor is recommending serious budget cuts and predicting that he will be back in a few months to ask for more. That’s going to be very tough for New York. A U.S. unemployment rate that reached 6 percent in October and could go as high as 8 percent in 2009 will be tough for many Americans.

What will the employment figures look like for the satellite business? It’s far from clear.

As of this writing, companies in the sector are reporting “steady as she goes” numbers and forecasts. On October 27, SES reported continued strong results for its first nine months and the expectation that growth would continue, based on 10 new or replacement satellites in the pipeline. Intelsat, probably the company most challenged by the end of the era of cheap debt, reported record quarterly revenues in August and a record backlog of $8.5 billion. In April, admittedly a long time ago, Eutelsat forecast compound annual growth averaging 6 percent through 2011, based on adding seven new satellites to a fleet serving the most capacity-constrained region on the planet.

The small number of publicly-owned ground segment operators are also issuing decidedly non-recessionary results. On October 30, RRsat of Israel reported 34 percent growth in its third quarter revenues to $20 million and a record $178 million backlog. Globecomm Systems reported record revenues of $196 million for the year ended June 30, up 30 percent from the prior year. Its first quarter revenues, reported in November, were flat from the prior year, but included a 21 percent increase in recurring services income.
Raymond James analyst Chris Quilty, in a November 7 research note, maintained the firm’s “strong buy” rating on the stock of Hughes, despite the expectation of higher customer churn in the next three quarters, due to a low price-earnings ratio and forecast EBITDA growth of 30 percent in 2009 and 46 percent in 2010.

Can it all go south? Yes, and in a hurry, as we have seen in the global financial markets. Is the communications business just enjoying a respite before the ripples of recession to reach us next year? Possibly so. However, communications, whether one-to-many broadcast or vast peer-to-peer networks, have become so essential to every aspect of economic and personal life that hard economic times may actually increase demand. People watch more television in bad times. Businesses defer travel and, increasingly, may opt for video as a far-less-costly alternative. Distance learning, remote monitoring, and other applications that substitute digital bits for the movement of people or materials, will all get a boost.

Cisco Systems reported on November 6 that its October revenue fell 9 percent compared to the prior year and forecast a 5-10 sales decline for the quarter. It’s almost certain the people responsible for marketing Cisco’s revolutionary Telepresence videoconferencing system are upping their sales forecasts. And while television advertising revenue is sure to take a hit, with its knock-on impact on the broadcast networks, the satellite industry, as a whole, is far less dependent than it was even eight years ago on free-to-air TV spending.

WTA’s 2008 research (New Markets, New Services, New Competition), published in October, revealed that, for teleport operators, only 35 percent of the sector’s revenues come from media and entertainment, while enterprise, government, and carrier markets together now contribute 47 percent.

Certainly 2008, despite its surprises, has been a good year for our business. Looking forward toward 2009, optimism may not be justified — but neither is the world crashing down around our ears. Mostly, we will have to wait and see – and get used to living in an age of uncertainty.



About the author
Robert Bell is Executive Director of World Teleport Association (www.worldlteleport.org). WTA is headquartered in New York City and has members – teleport operators, satellite carriers, fiber carriers, and technology suppliers and integrators – in over 20 nations.

Robert welcomes your comments at rbell@worldteleport.org.