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North American Satellite Market Leads in New Applications
by Pacome Revillon
Manager Director of Euroconsult

North America has, almost always, been the first region where new satellite applications are introduced. This is especially evident since the early 2000s with the launch of digital audio broadcasting, high definition television, consumer broadband access, and asset tracking by satellite services that all translate into new benefits for households, individuals, businesses, and governments. In addition, North America is the first region to promote the effectiveness of hybrid satellite/terrestrial networks for ubiquitous communications with the new concept of Ancillary Terrestrial Components (ATC).

A number of factors favor the emergence of new applications in North America, as opposed to other regions. These elements include; early deregulation in service provision; a large addressable market; a sophisticated distribution network, and easier access than other locales to investment capital. As a result, the innovations brought to the market, and the pace of growth in new segments, have been impressive in recent years.

Digital entertainment as leading satellite business

Digital entertainment is the field in which innovative satellite services have appreciated the largest value creation to date. For fixed TV services, the US is the country with the two largest satellite TV platforms (DirecTV and Echostar), with a combined subscriber base of more than 30 million. The combined revenues of almost $25 billion in 2007 of these two, vertically-integrated satellite broadcasters have made North America the largest satellite payTV market in the world. These two platforms ordered a total of 10 satellites between 2000 and 2007, and have also been instrumental in the takeoff of high definition television in the US and Canada over the last two years. More than 350 HDTV channels were already broadcast by satellite in North America last year, including US local network channels, and the broadcast of two Canadian satellite pay-TV Platforms.

At the same time, leading FSS (Fixed Satellite Service) operators Intelsat and SES Americom have brought innovation to the marketplace, They have accomplished this with the offering of integrated delivery platforms for digital TV channels addressing emerging IPTV (Internet Protocol Television) platforms in rural America. Currently, both operators claim to deliver close to 600 video and radio channels and services to the market, and offer a relay for growth in C-band usage.

Digital radio by satellite has also taken off in the US ever since 2001, providing a proxy for the design of radio and multimedia satellite broadcasting systems in other regions such as Asia, Europe and the Middle East. The two vertically-integrated satellite radio broadcasters XM and Sirius have signed more than 16 million subscribers in the last seven years and built a business now close to $2 billion, served by seven satellites with several additional satellites currently on order.

Broadband access — a new field of innovation

The most recent innovation in the satellite communications sector has been the launch of consumer broadband access services by satellite in Ka-band in Canada and the US. Currently, 400,000 subscribers have been signed in both countries. While the market is rapidly growing, availability of satellite capacity appears to be limited. For instance, a number of the spotbeams of the Wildblue 1 satellite seem to have reached saturation. Competition may further accelerate growth in 2008, with the availability of SpaceWay and the launch of Viasat Ka-band satellite. While concerns about the size of this market niche have been expressed over the years, the market potential seems to be in line with Euroconsult’s market forecasts of more than one million subscribers by 2010.

Mobile communications facing the ATC challenge

New applications and business models in mobile communications may also see their beginnings in the North American market. While the development of asset tracking by satellite is already taking off rapidly in the region (with services provided either by dedicated systems delivered by Orbcomm, Iridium or Globalstar), the introduction of new generation systems appears more challenging. The Ancillary Terrestrial Components (ATC) systems planned for the US market, despite the attractiveness of allocated spectrum, may require several billion dollars per system, due to the cost of building the ground network. Business models that could include either communication or multimedia applications are not yet clarified. While head-to-head competition of new systems with terrestrial networks would be hard to imagine, strategic agreements that may be signed in the course of the year would shape this emerging business segment.

A leading role in the emergence of private earth observation systems

The emerging, commercially operated, Earth observation satellite sector is dominated by two US companies, DigitalGlobe and GeoEye (the only other historical player being Imagesat of Israel). DigitalGlobe and GeoEye were the first companies to be awarded a high-resolution data license, with a first satellite launched in 1999. The companies were further supported by the US Government, through its commercial Remote Sensing Policy with the National Geospatial-Intelligence Agency (NGA), which remains the companies’ primary customer.

With a new generation of commercial earth observation satellites, WorldView-1 was launched in 2007 (DigitalGlobe) while GeoEye-1 is planned for 2008 (GeoEye). Because of few commercial government satellites operating high-resolution systems, GeoEye and DigitalGlobe have emerged as clear leaders.

While the US government is acting as an anchor tenant, both companies look to explore further sectors. They have been given a boost by the emergence of virtual globes such as GoogleEarth and Microsoft Virtual Earth for which they both supply data. The benefits result in a mass exposure to their information and the capabilities of Earth Observation.

The most innovative market, presenting a large diversity of risk profiles

The North American market presents a significant risk profile, with a number of companies providing service in the region still not breaking even, or with large capex (capital expenditure) requirements for the coming years. Yet, it remains the most dynamic market worldwide and a test bed for most innovative commercial applications. Following the early commercial success of digital radio and broadband access by satellite in the US, dedicated systems for those applications may be available in Europe by 2009 or 2010. Thus, North America remains the first one out of the gate, with Europe coming in as a cautious second.

Pacome Revillon is the Manager Director of Euroconsult. He has contributed to numerous consulting assignments in the satellite broadcasting and communications markets for international satellite companies, manufacturers, banks, private equity funds and public institutions. Pacome is also the editor of several Euroconsult research reports.