by Rachel Villain
Director, Space & Communications
In 2007 the fixed service satellite (FSS) and mobile service satellite (MSS) industries had combined wholesale revenue estimated at US$9.B, up 4.3 percent from 2006. While this is good news, in 2008, both industries will have to deliver growth in revenues and cash flows to finance new investments and/or to pay dividends to shareholders.
So what are the factors they are facing in order to reach this revenue and cash flow growth? In 2008, both FSS and MSS players will face challenges and opportunities in their businesses, first in relation to economic growth in the geographic markets they serve, and also regarding satellite launches, satellite financing and regulatory decisions.
The historic environment
Before delving into the specifics, a little background on the industries is in order
The FSS industry is larger and more diversified than the MSS industry, which counts only six companies trading satellite bandwidth for combined revenues of $1.15 billion in 2007 (compared to 38 FSS companies with revenues totalling $8.5 billion in the FSS industry).
Both industries have always been highly concentrated with the top four FSS operators (Intelsat, SES, Eutelsat and Telesat) generating 70 percent of revenues, while Inmarsat remains the MSS market leader with a market share of approximately 50 percent.
The FSS industry
As a result of the recovery in satellite orders in 2005 and 2006 and accumulated launch delays, the launch backlog for 2008 is busy, with 17 to 20 units to be launched during the year, three of those using a new launch vehicle (Land Launch). Of the FSS satellites to be launched in 2008, three are the first satellites of new operators backed by private investors (the case of Protostar) or by governments (Vinasat in Vietnam and Venesat in Venezuela). The others will be launched for established operators (e.g. Intelsat, SES, Eutelsat) as replacements for aging satellites in-orbit or to open new orbital slots.
As far as orders are concerned, 2008 should be as active as 2007 at 12 to 14 units, with several expansion satellites to be ordered by companies such as ABS, Nilesat, Measat, Quetzat, SES New Skies, Eutelsat, and newcomers acquiring their first communications satellite (e.g. Angola, New Zealand).
The horizontal concentration that started at the top of the FSS industry in the early 2000s should continue in 2008 with a limited number of M&A transactions involving smaller companies than in previous years. In China, the two mainland operators (ChinaSatcom and Sinosat) will merge into ChinaDBSat. Elsewhere, movements are anticipated in the ownership of operators in Latin America and Europe.
While there is plenty of activity in launches and orders, revenue growth in the FSS industry in 2008 will also be affected by two key variables: the growth in bandwidth lease prices and volume and continued weakness of the US dollar relative to the main trading currencies of the industry (, Yen, Australian $, Canadian $). Furthermore, in addition to infrastructure revenues, the industry also needs to generate more service revenues from the (service) companies acquired to provide end-to-end communications and broadcasting services to governments and businesses.
The MSS industry
The year 2008 will be especially important for the MSS industry as four new generation geostationary satellites will be launched (Thuraya 3, Inmarsat 4F3, ICO GEO 1, and TerreStar 1). At the same time, roughly 100 LEO satellites will be ordered for the second generation of the Iridium and Orbcomm systems.
After a pause in revenue growth over the past two years, the MSS industry is poised for a new phase of growth due to more cost-effective subscriber terminals available for a variety of applications and uses (broadband communications, asset tracking, short burst data) and by a larger service distribution network. The challenge for most of industrys players will be to increase the average revenue per subscriber unit (ARPU) in order to ensure a growing user base translates into higher revenues.
Mobile entertainment is one area of opportunity to drive ARPU. Mobile entertainment by satellite is already a business in North America with over 15 million subscribers to digital radio channels offered by XM and Sirius in the United States and Canada. Projects are developing elsewhere in Europe, Asia (India, China) and the Middle East (S2M) for mobile TV using S-band spectrum, taking advantage of the standardization of digital broadcasting formats. In Europe, at least four projects will compete for 60 MHz of spectrum in a bidding process managed by the European Commission. A call for proposal will open in 2008 with selection due by the end of the year or the beginning of 2009.
Despite all the activity, some uncertainty remains. The investment to develop the satellite and terrestrial repeaters networks is significant to provide ubiquitous communications and broadcasting services over large continental areas. While satellite financing has been secured for most of the systems, the same is not yet true for the ground component.
The FSS and MSS industries are starting 2008 with a great number of opportunities to generate the growth sought by shareholders and required to fund future investments. Nevertheless, factors of uncertainty continued access to financing, the US dollar weakness, lease prices and volume will impact how successful they are in actually achieving that growth.
Rachel Villain is Director, Space & Communications, at Euroconsult, the leading international research and analyst firm in the satellite sector. She has more than 20 years experience analysing the sector and providing counsel to leading companies in the industry.