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Eye On Europe
Arqiva - Ready For Expansion!
by European columnist, Chris Forrester

Arqiva, amongst other assets, operates the United Kingdom’s largest Earth Station portfolio. A handful of years ago, the company itself was up for sale and was eventually acquired by Australian financial interests headed by Macquarie. Arquiva has since mopped up rivals and new businesses at an impressive rate. Its latest toy is operating much of the uplinking for the UK’s embryonic Freesat rival to BSkyB’s Sky Digital pay-TV operation.

Freesat is backed by the UK’s main terrestrial networks, in particular the BBC and ITV. They’re hoping Freesat will enjoy some of the success that its terrestrial ‘big brother’ has enjoyed with Freeview. Either way, Freesat will tap into those homes where (a) terrestrial reception is a challenge, and/or (b) where consumers are reluctant to fund pay television.

Freesat will launch this coming spring and Arqiva’s Nick Thompson (Managing Director, Satellite Media Solutions) says Freesat will have free-to-view HDTV as one of its central thrusts. “At the end of the day, they have a list of between 80 and 120 channels and brands that are looking to launch, and many of them will end up with an HD product. Whether they’re all on Sky today is another question, but without doubt, there’s a strong opportunity for an HD element to be part of the Freesat platform, and perhaps even first on Freesat. However, what is clear is that the two main sponsors of Freesat, BBC and ITV, have a great deal of HD content that they’d probably want to get out [in front of the public].”

Freesat operates from the same SES Astra satellite platform as Sky Digital (at 28.2° E). In many cases, the same transmission will be visible as free channels on both Sky and Freesat. However, Freesat demands its own electronic program guide (EPG) ‘look and feel’. Finding space for this extra data stream hasn’t been easy, especially where transponders are operating at full capacity.

“I have to say the actual EPG task for Freesat is something of a logistical nightmare for us. The main problem is that most channels simply don’t have what you might describe as bandwidth headroom, especially if they are already in a StatMux (Statistical Time Division Multiplexing). And it’s good business practice, from everyone’s point of view, to run the Muxes (multiplexers) at a full rate. It might all amount to an extra half a Megabyte per transponder, but it’s a half we don’t have. So first up, it’s technically tricky, and asking someone to pay for it is even more of a challenge,” jokes Thompson.

“For the BBC or ITV, it’s easy,” he continues. “They have 4 Muxes and can re-engineer and squeeze a bit of extra capacity out of their systems, and make the bandwidth overhead available. Where the Mux is shared you obviously get another set of problems. It might be assembled from 10,12 or 14 channels, and it could be that only half of them want to be on Freesat, so you end up with a very complex set of challenges. In other words, the channels that want to be on Freesat are all over the place. In very round figures it is just that half Meg per transponder. What we’d ideally like to do is to squeeze the Mux in order to achieve the extra data traffic, and then as we move forward, we can plan and position the overall demand into some new configuration.”

Freesat will transmit in MPEG-2, although any HD transmissions will use MPEG-4. Asked how long he saw MPEG-2 transmissions continuing, Thompson believes the UK – and much of the rest of the planet – wrapped up within MPEG-2 for years to come. “The question is, for how long? There’s a huge amount of legacy kit out there, most notably in home set-top boxes. The STB’s, and the platform owners, will decide the future route.

“From our point of view, we have, I guess, 20 or so Muxes. The cost of refurbishing those into MPEG-4 will have to happen one day, and is wholly manageable, but first there has to be a base of subscribers to make it meaningful for the platform owners. Nobody is going to make a first move without that audience beginning to build. However, there’s a certain inevitability about a scenario where a transponder is carrying new MPEG-4 signals alongside MPEG-2 traffic. And to a certain extent, Sky is again a pioneer in this regard. But the future will see multiple legacy Muxes.

“Taking the UK as a perfect example, you can see how today’s huge legacy MPEG-2 box universe will, over time, be churned out in favour of higher specified MPEG-4 units. Sky will either up-sell to an HDTV MPEG-4 box with a PVR (personal video recorder), or – and I am not sure that Sky would like this – whether a new player like Freesat comes in and steals their thunder, but at the consumers cost. One way or another, the legacy boxes will be upgraded. Everyone wants MPEG-4, but someone has to pick up the bill. But will it be Sky, or the viewer, who has to make the investment?

“I have no doubt that broadcasters would like this to happen tomorrow, with technically attractive new boxes with high functionality. People pay high prices for any of the PlayStation consoles, and think nothing of having a Wii and other stuff as well. It’s the way the market works these days. They’re almost disposable items. Why should set-top boxes be any different? And these days, with seemingly the whole world investing in high-priced flat-panel TV sets, why should anyone want an ‘old’ set-top box?”

On the question of HDTV’s progress, Thompson admitted that four years ago, he was something of a sceptic. “I am totally converted as to the merits of HDTV, both as a viewer and as a basis for our business and its expansion potential. It isn’t a bad business to be in! My only frustration is that today there are only a dozen or so channels, and from where I sit, too much of that content isn’t true HDTV. I only discovered the other day that the HD box is [pushing programming to the hard drive] and storing material for me to view in HD. I simply wasn’t aware, and I suspect I am not alone, but 9 and 10 year-olds all understand it, as do teenagers—it’s us [older folk] who are the idiots.”

Thompson says Arqiva is having solid discussions with customers about their HDTV plans. “I think we’ll see a number of enhanced channels, using either existing content or from newly-commissioned material. The new Sky high-def EPG looks terrific, I understand. The bandwidth crunch that everyone anticipated hasn’t really happened. We have adequate capacity on line, and the trick for us is to draw down the capacity that’s needed on a ‘just in time’ basis. We are about to light up a new EuroBird transponder, in 72 MHz, and we’ll bring that on about springtime.

“What we are doing is looking at whether we can create a hybrid service that carries both MPEG-2 and MPEG-4 on the same transponder and for all of the signals to be in the same MUX, which filters down to our operational level, and is technically quite complex. The mindset has been to keep MPEG-2 and MPEG-4 separate, but we are looking at the efficiencies possible. It is more difficult when the MUX is all-HD to fill every last gap in the MUX.”

Last year, Arqiva acquired most of the assets of British Telecom’s Broadcast Services Division (BTBS). The purchase added considerably to Arqiva’s portfolio of teleports. “Post the acquisition of BT Broadcast Facilities in April, we have fully retained their London Docklands site,” says Thompson. “Initially we were told that Docklands was full. However, discussions with the local staff showed there were gaps in their system. We found that all matter of capacity was potentially available, and that some of the dishes should have been in museums. In other words Docklands does have capacity.

“BT’s Madingly [Cambridge] site was not part of the sale. Some of its services are coming to Bedford, some to Chalfornt, some to Docklands. But importantly, we have good expansion just about everywhere. Bedford, in dish terms, is no more than half full. We have plenty of land. It’s the same here at Chalfont and also at Winchester. Docklands was once the most prime of prime real estate for the industry, and it is tough to say whether with today’s fibre solutions such is still the case. However, in its strong favor is the fact that it is in almost at the heart of the London 2012 Olympics site. Fibre is just about everywhere, and incidentally where we are putting in fresh fibre, we think the site could be very interesting.

“The advantage of multiple teleports is very strong. All of our sites are fully manned. But each time you add another shift, it means a little extra in those costs, but overall, we are spreading the load across all the facilities, especially when you consider disaster recovery. In Britain, we have 4 main hubs (Chalfont, Bedford, Docklands and Winchester) as our primary locations. Morn Hill at Winchester gives us good expansion there, and the old BT site at Martelsham we have retained as secondary sites. Martelsham can see Intelsat 710, the old PAS satellites, which are very low on the horizon from the UK, and we see this site continuing for the long term. We have two major sites in Paris, one in the centre of town and the overflow over near the EuroDisney park at Marne. Again, this allows for excellent expansion. Any expansion scheme has to cover the usual technical questions of line-of-site, frequencies and interference issues, but we can always find a solution.”

Arqiva’s financial year ends June 30. Last year’s purchase of British Telecom’s teleport assets is only now being full recognized. “Our guidance to the market is that this current full year will generate somewhere North of £200m, [$400m] which will be at least double our pre-acquisition numbers in the year to June 08,” says Thompson. “We have also been able to take out significant costs from the acquired businesses. This doesn’t all mean staff, far from it. BT had run down their own staffing, so where it has been necessary and made sense, we have added to staff numbers. But we have also looked at being more cost effective, just about everywhere.

“We have improved BT’s profitability, and have a proper sales focus in the USA. There was too much uncertainty there, and this has been remedied as a result of the purchase. They simply didn’t know what was likely to happen, and that’s understandable. We inherited good customers and long-term contracts, and we are renewing them now. We are talking to clients saying ‘we’re still here, and will be for the long term’. It is all core business for us, and is a good growth business.

“Simply adding good commercial people into North America has improved local relationships. It is the same with relationships with satellite operators. It was never bad in the Arqiva world, but with the enhanced business the likes of Intelsat, the new Telesat, as well as Astra and Eutelsat, they all see us now as having good – and important – critical mass. That’s crucial to their own businesses. Some of these were beginning to get active in the direct selling of capacity to their customers, perhaps bypassing us completely. We see that as having mostly ended.”

Arqiva’s relationship with Australia’s Macquarie bank is close, and Macquarie has spent heavily buying up UK broadcast-related assets, although not all sit under the Arqiva umbrella. Thompson explains. “Macquarie’s interests in Australia are limited to Broadcast Australia. We best describe them as ‘distant cousins’. It runs the Australian terrestrial network and is a parallel business to our UK terrestrial business. There’s a slightly different shareholding structure. We have an 80 percent Macquarie ownership, and they have a 100 percent Macquarie ownership, so we are very much at arm’s length. We talk regularly, and look at joint opportunities wherever we can.

“There’s another, even more distant cousin in Red Bee Media, the old BBC entity. But the one gap we have in our global reach is southeast Asia. We can serve some clients from here or California, but it is a territory that we continue to look at closely. We are on the record as saying that if you look at the map then a gap exists. How we might fill that gap, through ownership, or partnering locally? Those questions have yet to be answered, and the options are open.

“We are not ready to make any commitment just yet, but it is an obvious fit. At the end of the day, our shareholders want us to make money. Just a couple of years ago, people were leaping into regions – and losing money. We won’t do that. It has to be the right fit, and largely customer driven, and there are things we are keen to do in the United States probably ahead southeast Asia. We are also looking at new platforms, new technologies. And these are our core skills. If we can leverage those skills with clients, then we will do so, even if it means buying or investing in a new area, or facilities. But the fit must be right. More and more clients like to deal directly with a single player to look after all, or most, of their solutions. The Middle East is interesting, and so is South Africa.

“There are also the obvious pressures from our shareholders who are keen to be ready for the next ‘thing’, whatever that might be. We have a certain mass now that’s rolling forward in an attractive fashion. This prompts questions such as ‘What are you going to do next week or next month’. These are very attractive problems, and far better than, ‘We have problems, so don’t come asking us for more cash’.”

Arqiva owns and operates
  • The ITV commercial transmission towers
  • Transmission for Channel 4
  • Total of 1154 Tower sites
  • 10 satellite teleports
  • Radio transmission
  • Playout
  • Compression
  • SNG and OB systems

London-based Chris Forrester is a well-known entertainment and broadcasting journalist. He reports on all aspects of the TV industry with special emphasis on content, the business of film, television and emerging technologies. This includes interactive multi-media and the growing importance of web-streamed and digitized content over all delivery platforms including cable, satellite and digital terrestrial TV as well as cellular and 3G mobile. Chris has been investigating, researching and reporting on the so-called ‘broadband explosion’ for 25 years.