 | Issue: | Asia-Pacific I 2007 |
| Article no.: | 19 | |
| Topic: | Satellite infrastructure in Asia-Pacific | |
| Author: | Eddie Kato | |
| Title: | Vice President and General Manager | |
| Organisation: | Alcatel Alenia Space | |
| PDF size: | 456KB |
About author
Eddie Kato is Vice President and General Manager for Alcatel Alenia Space’s space solutions businesses in the Asia-Pacific region. Before joining Alcatel Alenia Space in Singapore, he held various senior positions in the US at Orbital Sciences Corporation, Lockheed Martin Corporation. Previously, Mr Kato worked at Mitsubishi Electric Corporation of Japan. Eddie Kato holds a bachelor’s degree in international relations from Yokohama City University of Japan.
Article abstract
Asia-Pacific satellite communications is facing numerous challenges. The fleet will soon need replacement, but unless new sources of capital are found – such as condo-sat, where partners share transponder capacity and capital investment on larger satellites – it will be hard to sustain the traditional business model. Mergers and acquisitions are not considered practical, but partnerships between multiple operators to plan, finance, procure and market capacity might work. Two new markets, however, are growing – satellite mobile telephony and military communications.
Full Article
Communications satellite operators in the Asia-Pacific market have been facing numerous challenges. First, Asia-Pacific is a growing but relatively small market in which more than 20 regional operators are competing, along with majors such as Intelsat and SES. It is also a very fragmented market compared to the US or Europe. In the US and European markets, three or four top operators occupy 60 per cent of the market but, in Asia, 60 per cent of total market is shared by 14 to 15 operators. Secondly, many of the Asian regional operators need to offer innovative new services since they are competing in saturated markets. While some of these operators are still protected by parent companies – including large telcos – with diverse business portfolios, or by favorable domestic regulations, the environment is changing faster than ever. In this context, the ability for players in the sector to be able to adapt to a frequently, if not constantly, changing environment will be even more critical. Compared to the situation just a few years ago, the Asian satellite communications market is showing the first signs of a recovery, driven by growing demand for services such as video transmission, DTH, HDTV broadcasts and IPTV. Clearly, video applications are becoming a life-line for the satellite communications business in Asia. Demand for cell phone network backbone connections is also showing growth, especially in Southeast Asian countries such as Indonesia, Philippines, etc. At the same time, competition with terrestrial networks and among the satellite operators is becoming increasingly fierce. The extremely low transponder lease prices seen reflect the competitive and fragmented environment of the market. This often happens when operators have significant undersold on-orbit capacity which they offer on the international market, instead of within their own domestic market. Many operators bought large satellites with massive transponder capacity in the middle to late 1990s’ when the Asian economic situation was booming. Regional operators are facing the challenge of dealing with their fleets of aging communications satellites. Replacements for satellites launched in the middle to late 1990s, when the Asian economy was booming, will have to be found during the next three years, 2007-09. Operators will have to consider replacing about a dozen satellites across the region. Many operators need to identify sufficient demand to support their business models and justify sufficient return-on-investment, ROI, to attract new funding. Reflecting the difficulties they have been experiencing, the operators are more careful than ever before with new investments. Operators, consequently, are seeking to improve business efficiency, starting with their procurement plans for the replacement satellites. For instance, they may try to find partners to share transponder capacity and capital expenditures. This is known as the ‘condo-sat’ approach, and it could prove beneficial, especially with a considerable boost in satellite payload size to lower significantly the cost per transponder compared with a smaller dedicated spacecraft. The overriding objective is not low cost per transponder in-orbit, but rather low cost per transponder sold. The concept seems simple, but finding suitable partners and making viable agreements is not easy. However, this trend should gather steam since it is one way for Asia-Pacific operators to survive. The condo-sat method also enables global operators to test market entry at lower risk, especially in Southeast Asia for instance. An approach based on acquiring local operators would not work very well in the Asian market because of cultural, business and regulatory hurdles. In contrast, the condo-sat approach is one solution for quick market entry using existing orbital slots and business assets provided by local operators. This type of approach may eventually trigger mergers between regional operators and market consolidation in general. In fact, preliminary talks and initiatives are already under way. In most cases, a conventional M&A, mergers and acquisitions, approach will not work in the Asia-Pacific market, in my opinion, especially in Southeast Asia, because the local operators are comparatively small and the market is not large enough to justify future growth. Moreover, potential players will have to overcome other barriers, such as national pride and regulatory restrictions, including orbital slot and satellite ownership issues. One possible business model would be a structure that allows multiple operators to establish jointly a new entity to promote and implement business alliances through joint planning, financing and procurement of satellites, as well as the joint marketing of satellite capacity to a certain extent. This model would allow each operator to maintain independent ownership of its own satellite capacity and manage its leased businesses. The future satellite infrastructure in Asia-Pacific will therefore be heavily influenced by the regional operators’ decisions. If the condo-sat concept is indeed implemented and consolidation occurs, satellites will become much larger, with enhanced payload flexibility. This would by accompanied by economies of scale that offer greater efficiency and a far more viable business model. The lower cost per transponder of a larger satellite, increases the operators’ competitiveness and improves their financial health. In contrast, if the condo-sat concept does not prove to be viable, operators will not be able to support their traditional business models and may have to buy smaller satellites or even – in a worse-case scenario – renounce their satellite replacement plans entirely. The decision on the next-generation satellite infrastructures is probably the biggest challenge that operators are facing today. This decision will affect many different aspects of their businesses and will directly affect the future of their businesses in many ways. When we consider tomorrow’s satellite-based infrastructure in the Asia-Pacific region, two major trends emerge. The first is mobile satellite service to personal handsets. In addition to the successful broadcast and broadband data services available today, mobile TV services are gradually emerging as a possible new driver of business growth in the Asia-Pacific region supported by the rapidly growing number of cell phone subscribers in the region. This, at the same time, is becoming a global trend. Personal mobile service is growing into a major mass market. It has the potential to boost operator’s revenues and is currently driving 3G usage, as shown by the uptake of the mobile operators’ TV services. S-band or L-band mobile satellite services, supported by the tremendous growth in cell-phone subscribers and emerging services could become a killer application for tomorrow’s satellite services. The Asian market is already seeing initial efforts in this direction, following recent developments in the United States and Europe, where Eutelsat and SES are partnering to deliver mobile TV services. There is a mobile TV broadcast project in the region, which aims to provide broadcast television for cell phones. The hybrid solution, based on S-band spectrum, combines satellite and terrestrial networks; offers full indoor and outdoor coverage and an unlimited number of channels. The second area is military communications. Reflecting the unstable situation in the region and worldwide, armed forces from a number of countries are considering the introduction of satellite capacity in their networks, either as payloads on commercial satellites or even as dedicated systems. This is a slow but steady trend, and could shore-up the satellite industry’s business depending upon how the systems and services are implemented. Today, there are several countries in Asia, such as Japan, Korea and Australia, which use commercial communications satellites for some of their military communications.
