Recent news items from around the world give a strong indication as to the path that governments will follow in procuring satellite capacity in the coming years. The issue at hand is finding an answer to the ever increasing demand for bandwidth, and the solutions lies either with commercial satellites or a growing number of government-owned platforms. This means the impact on commercial operators’ revenues for government bulk leasing is at risk of declining, and here's why:
First, in late 2009, President Evo Morales of Bolivia traveled to Geneva to meet the International Telecommunications Union in Geneva to secure an orbital slot for a satellite over his country. To conclude his trip, he met representatives from China to discuss purchasing a $300 million satellite that will be named after a Bolivian indigenous leader who fought against Spanish colonial rule. This strong signal of independence from a South American government in dealing with its own needs for communications is nothing new in the space business, but it is adding a new and dynamic competition parameter in the business for commercial satcom in emerging markets. The delegation from Bolivia expects to sign on the dotted line during an upcoming trip to China to seal the deal and see the start of construction of their first national satellite.
Also late last year, an emerging power in Asia has started a procurement process to keep an orbital slot but also to get more capacity since its first satellite is already 70% full. Vietnam’s Vinasat-2 project was kicked off in the spring of 2009 and has been accelerated recently when the capacity of Vinasat-1 was found to be used faster than expected. The government of Vietnam said that the entire capacity of Vinasat-1 could be well be used up this year, so it is urgently working on a follow-on bird to be launched at the earliest in 2012. Costing over $300 million and funded entirely by the Vietnam Post and Telecommunication Group’s (VNPT), Vinasat-2 will bridge a gap for data and broadcast customers in government and private industry (oil and gas notably). Vinasat-2 will cover Vietnam, Laos, Cambodia, Thailand and part of Myanmar and will have up to fifty percent more transponders than its predecessor. Until it is launched, VNPT will sign short-term contracts with regional satellite companies, which will give a reprieve to commercial operators in Asia.
Lastly, early in the New Year, it was reported that Astrium Services signed a small contract from the European Defence Agency (EDA) to pool the demand for commercial satellite capacity from European Union members in order to offer economies of scale compared to today’s spot market rates they are paying. Much like the United States Government did with the Future Commercial Satellite Acquisition (FCSA) by consolidating the DSTS-G, Inmarsat and SATCOM II Program managed by two agencies, the EDA hopes to pass on savings to governments of up to fifty percent from today’s capacity prices.
The exercise, if put in place successfully, could reduce revenues for satellite operators starting as early as next year as demand is aggregated and results in reduced leases of bandwidth.
So with government-owned spacecraft bringing more competition in the field and aggregation of demand savings on what are perceived to be high-costs transponders, it is quite likely that operators of commercial satellites will have to deal with some reduced revenues from government leasing contracts. These initiatives are likely to be repeated as Nigeria, Venezuela and other countries such as Kazakhstan purchase more satellites.
Plus, the steady stream of military satellites lifting off is likely to continue adding capacity that is not sold on the commercial market. The latest launch contract announced for the fourth Wideband Global System (WGS) spacecraft, WGS-4 slated to enter service in early 2012, is another step in the direction of deploying publicly-financed and operated satellites that compete head-on with privately-funded ones. And these satellites are not used for just one application but for myriad of needs that range from maps for soldiers to two-way data and video from UAVs, voice calls, messaging, and even television broadcasts and e mail for troops on the ground. Late last year, the French government’s €35 billion "Grand Emprunt" (large national loan) was reported to be the likely source of financing to accelerate the joint military Ka-band Athena-Fidus project with Italy. This is to supplement the capabilities recently orbited on the French Syracuse-3 and the Italian Sicral-2 satellites, which are already providing much needed bandwidth for these two countries and other friendly nations.
As these large government customers continue to increase their demand for reachback capabilities and communications to and from headquarters to theatres of operations and remote locations, government and military users continue to have requirements for solutions that give them security they need at the lowest possible risk (and cost) for their users on the ground while at the same time balancing budgets. The solution is obviously a sophisticated hedging plan that includes proprietary capacity and commercially-operated bandwidth leases. But while planning for the next twelve or fifteen years (which is the usual life of a satellite), these customers are seeing the gap growing and as such, realize that these needs will require internal capacity to be deployed at a faster rate. NSR believes that while there will certainly be a lot of commercial capacity aimed at government and military users in the next decade, much more supply of satellites funded and operated by government and military entities will be put into operation.
The number of proprietary government-owned satellites under construction or currently in-orbit will offer a minimum (and likely much more) of about 15 Gbps of throughput. This is a significant increase, and it means that some contracts using commercial capacity will go away over the medium-term, as users are taking up internal asset services. In the U.S. alone, some reports indicate that as much as two-thirds of the capacity currently on commercial satellites could be migrated to systems such as WGS. Finally, even if tangible benefits will be realized in the short-term in the bulk leasing market from sending more personnel and troops to Afghanistan, the announced downsizing of these contingents will impact the market negatively starting in 2012.
The Bottom Line
More internal (i.e. government-owned) transponders launched mean a migration of users away from commercial bandwidth. Nonetheless, given the restructuration of large cancelled programs and troops’ deployment in the Middle-East, a reprieve of a few yeas in the bulk leasing market is expected until about 2012, when all systems under construction are launched and aggregation of demand accelerates.
Information for this article was extracted from the NSR report entitled: Government & Military Satellite Communications, 6th Edition
