In the middle of difficulty lies opportunity."
-Albert Einstein
It’s the Economy....
Beginning with what seemed like another promising year for the satellite industry, 2008 saw the world’s economy go down in a spiralling downturn that brought us into the world’s worst recession since the Great Depression in 1933. They don’t have a name for this recession yet (remember the "Oil Crisis" of the 70s and the "Telecom and Dot.com Bust" of the late 90s/early 2000s). But then again we are just in the beginning of this one. No one can really foretell what lies ahead, but it will almost certainly get worse before it gets better.
Soon after the financial markets came crashing down in mid-September, key satellite executives speaking at the SATCON show in New York were affirming that the fixed satellite business and by extension, the other satellite industry segments, are fundamentally sound. FSS operators said that they have huge backlogs and are locked into long-term contracts. This may be so, but we haven’t seen this kind of an economic downturn in most of our lifetimes--including the most senior CEOs of the industry.
In contrast, participants at the ISIS Satellite Invenstment conference in New York just a day before SATCON were more candid about the financial prospects in the industry. The participants at the conference were mostly financial analysts and their message was loud and clear: the satellite industry will be facing serious challenges in raising new capital and credit due to the downturn in the world financial markets. The bottomline is it will be almost impossible to get financing for high ticket projects and those that can get funding may have to pay more for it. So the consensus was that companies who are rich in cash are in the best position, while companies that are heavily leveraged will defintely have a rough road ahead.
If there is any doubt that the satellite industry will be affected by the economic downturn, check out the Satellite Market IndexTM in the Vital Satistics section of this website which tracks the stock performace of a composite of 25 publicly-traded satellite companies. Every one of them lost an average of 40% in value from their high in 2008. Compared with the performance of the Standard & Poor 500 Index, the Satellite Markets IndexTM has a comparable rate of decrease in value during 2008.
Leadership Change-Good for Broadband?
One counterbalancing development to the economic downturn is the historic change in leadership in the U.S.--the election of Barack Obama to what is arguably the most powerful position in the world today. From the perspective of the satellite and telecommunications industry, Obama aims to revitailize the broadband sector and promote greater access to the internet, which his administration has identified as a priority. The President-elect will have his work cut out for him, in addition to all his other concerns, he has to face a possible delay in the transition to Digital Television (DTV) in the US scheduled for February 17, 2009.
It is widely accepted that satellite technology will play an important role in any major effort to promote broadband access. The Satellite Industry Association has already started lobbying Congress to include satellite-delivered broadband deployment incentives and grants as part of any economic stimulus bill. In a letter sent to Congress in mid-December, SIA President Patricia Cooper
proposed focusing any incentives on end-user equipment and installation costs, an effort that could spur broadband adoption among more than 10 million consumers who are considered unserved or underserved by broadband.
India and China and a New Space Race?
2008 can be considered a banner year for the space industries of the emerging countries of China and India. Chinese companies built and launched in October Venezuela’s first satellite, Venesat-1. In the same month, Chinese Aerospace Science and Technology Corp. (CAST) that built the Venesat-1, signed a deal with Pakistan for Paksat-1R. China, India, Japan and the European Space Agency have been beefing up their space programs with very ambitious goals that hark back to the 60s Space Race between the US and the Soviet Union. China launched its first manned space mission in 2003 and in September 2008, a three-man mission did a space walk. Both China and India plan to land manned missions on the moon by the middle of the next decade.
The significance of this new Space Race is that like the Cold War Space race, it could result in many technological and economic dividends that could help alleviate the impact of the recession. "China has read the Apollo playbook. They understand everything the U.S.got the lunar program," said Joan Johnson-Freese ofthe Naval War College.
One big difference from the old Space Race is that this new Space Race features an increasing role from the private sector. Space entrepreneur Peter Diamandis, who founded the space tourism ventures, Space Adventures and Zero Gravity Corporation, has teamed up wtih Google to offer a $30 million Lunar X Prize for the first private company to land a rover to the moon by 2012.
A New Space Race will have many spin-off effects on the world’s economies. One only needs to look at the first Space Race betwen the US and the former Soviet Union which was started by the launch of the very first man-made satellite, Sputnik, and jump started the commercial satellite industry.
Fourth Time’s the Charm for SpaceX
Southern California-based Space Exploration Technologies Corp. (SpaceX), founded by internet entrepreneur Elon Musk finally succeded in its fourth try in launching is low-cost alternative launch vehicle, Falcon 1 in September 2008. In December, NASA made a surprising announcement by awarding the US$ 3.4 Billion Cargo Resupply Services (CRS) for the International Space Station contract to SpaceX and the Orbital Sciences Corporation. Both SpaceX and Orbital provide lower cost alternatives to launch services and beat Boeing and Lockheed Martin for this lucrative contract.
It would be interesting to see if lower cost alterantive providers like SpaceX are able to sustain this initial success and get a higher slice of the launch market pie. Already the Indian Space Research Organization (ISRO) announced in late December that it is developing a next generation rocket that aims to cut launch costs by half.
Consumer Satellite Services-Will They Survive?
One of the biggest stories of 2008 was the approval by US regulatory authorities of the merger of satellite radio operators Sirius and XM after a 17-month process. The merger was opposed by many groups saying it will create a monopoly, but regulators bought Sirius and XM’s argument that in the new media environment , the merged Sirius XM Radio will actually be competing against many delivery formats like the internet and mobile devices such as cellphones, personal digital assistants (PDA) and iPods, among others. In approving the merger, some analysts saw an opening which might lead to the revival of the Echostar-DirecTV merger which was rejected by the FCC two years before.
The Sirius-XM merger may have come too late. Despite having reached 18.6 milion subscribers in record time, the combined company is facing US$ 1.1 Billion in debt repayment due in 2009 and is struggling to rise the cash. The company is heavily in debt, partly because of lucrative contracts with high profile talents like Howard Stern, Oprah Winfrey and Martha Stewart, among others. Meanwhile, Sirius XM stocks have plummeted 96 percent of its high in 2008. If Sirius XM is unable to make the payments or renegotiate its debt, it may have to declare bankruptcy in 2009.
2008 also saw the bankruptcy of satellite radio operator, WorldSpace, and Japanese mobile TV business, Mobile Broadcasting Corp. The highly touted TU Media mobile TV service in Korea is also struggling to reach profitabilty. In the US, while DirecTV is holding steady, its competitor Echostar posted subcriber losses for the first time in its history. The one bright spot is consumer satellite broadband services like WildBlue and Hughes Network System’s Spaceway in the US which are steadily gaining subscribers from mainly the underserved rural areas.
Emerging Markets to the Fore
With the recession in full swing in the established markets like North America and Western Europe, it’s only natural to see a shift towards the emerging markets, which are not as affected by the turmoils in the global financial system. One company which launched in 2008 dedicated to providing satellite broadband services to the developing world is O3b Networks (see article on page 8). O3b is planning an all Ka-band, 16-satellite network to provide coverage to the poorest countries in Africa, Asia and Latin America, the first 8 of which are scheduled for launch in 2010. It has already announced that it has secured $200 million worth of contracts just in the last quarter of 2008, mainly from African service providers. It is estimated that only five percent of the population in Africa has access to the internet, making it a fertile market indeed.
Applications, Applications, Applications
The telecommunications industry has changed. Customers and users are "technology agnostic" meaning they don’t care how their service is being delivered as long as it’s fast and reliable and high-quality. Satellites technology does not have to compete head to head with other media such as fiber, cable or wireless but complements them. Most networks are now hybrid networks with satellite as part of the mix, providing extensive coverage beyond terrestrial limits .This has resulted in a shift towards applications. The right application is really the key to a succesful venture and here are few promising ones to watch out for:
Video on Demand (VOD). At the Consumer Electronics Show 2009 in Las Vegas last week,research firm Strategy Analytics revealed the results of a study that showed that the overwhelming majority of consumers saw video on demand services as the most valuable feature of broadcast services. Look for VOD to be driving demand for bandwidth for services not just traditional broadcast and cable TV, but IPTV to and mobile TV.
Digital Signage. Applications that deliver video to audiences in retail, hospitality, public transportation, office waiting areas and movie theaters are expected to continue to grow in 2009, accrindg to research reports. The demand is driven by consumers who are used to watching video and expect to see it everywhere such as while waiting at the gas pump or at a doctor’s office. Retailers also need the added incentive for customers to buy while in their store by adding targeted advertising messages in their video offerings.
In-flight Satellite Broadband Service. After the failure of the Connexion by Boeing in-flight satellite service in 2006, a company is revisiting this technology, with a more modest business plan. Row44 demonstrated their in-flight wi-fi service at the CES show last week and Southwest and Alaska airlines are trying out the service in a few of their planes this year. The services uses a signal from the Horizons-1 satellite providing an estimated 30 Mbps data rate per plane. Maybe this time starting smaller and more incrementally will finally bring back satellite wi-fi to the skies.
3-D Broadcast Services. Finally, one technology that has been around since the 50s may revolutionize broadcasting in the 21st century. 3-D is the stuff of science fiction, as illustrated in the television series, V, that showed life like 3-D images being broadcasted into people’s homes. But 3-D broadcasts of concerts like Madonna and Hannah Montana played to enthusiastic audiences in 2008 and this year, sports fans were treated to a 3-D broadcast of the Rose Bowl game and the forthcoming Super Bowl in select locations. 3-D broadcasts are still in a very early stage of development but this is certainly a technolgy that could drive bandwidth demand if it takes off.
Conclusion
Despite the worldwide economic downturn, the satellite industry should be well poised to weather the crisis and emerge from it as strong as before or even more, as it has done in other downturns. Staple satellite services like broadcasting and telecoms should not suffer very much from the crisis and there are many new applications in the pipeline with great potential. So there is enough reason to be , as satellite executives are prone say "cautiously optimistic."
