Five rays of light for the satellite sector: between price pressures and flat demand, Asia's satellite industry has seen better days. The pessimists say it will stay that way for at least the next year or two, but optimists say the slump is opening new avenues for the industry to pursue. Telecom Asia reviews five of the most talked-about new satellite service opportunities

Telecom Asia, June, 2004 by John C. Tanner

Asia's satellite sector entered 2004 with a strange yet understandable mix of doom and optimism. The "doom" part lay chiefly in the balance sheets--the satellite sector experienced its share of pain during the telecoms meltdown, and many operators forecast flat figures at worst but miniscule growth at best. However, recent financial results announced in the past few months show that many are still limping toward recovery as their bottom lines continue to be hammered by overcapacity, lower demand (due in part to advances in video compression that lower bandwidth capacity requirements for broadcast customers) and price pressure.

Hong Kong-based APT Satellite, for example, recently posted a net loss of HK$224.72 million ($28.8 million)--its first annual loss ever and much bigger than analysts were expecting. Turnover was down, as was utilization rates for the Apstar I and Apstar IA satellites, which company president and executive director Chen Zhaobin chalked up to the familiar culprits of high competition and weak demand for transponder capacity, Rival operator AsiaSat also reported lower turnover and profit for Q1, with chairman Mi Zengxin adding that the company saw no indication from the market that 2004 would be any better than 2003.

Last month, Thailand's Shin Satellite also posted bad news in the form of a 46% drop in Q1 net profit, despite a slight revenue increase, due mainly to heavy expenses in preparation for its full iPSTAR launch. In Japan, JSAT Corp spooked investors after admitting its expected consolidated net profit for the current business year through March 2005 would likely fall short of the market consensus by 2.6 billion yen (around $23 million).

Global operators also posted discouraging results. PanAmSat--currently being sold off by majority owner DirecTV Group to buyout firm Kohlberg Kravis Roberts & Co for $3.55 billion--reported rising revenues but a net loss for 0.1 due to charges resulting from a power failure in one of its satellites. Intelsat--itself a rumored buyout candidate, pending its government mandated IPO--reported lower Q1 revenue and profit, while New Sides reported Q1 revenues "consistent" with last year but lower net income on higher opex.

So where's the optimism in this picture? For many in the industry, it lies chiefly in one of two places: new growth in select existing segments (like pay-TV and government contracts) or new service segments altogether. Different operators have different game plans, but common themes have emerged in the past year. Telecom Asia explores and rates five of the most talked-about potential revenue generators for satellite operators, and their chances of leading the industry back from the brink.

SME VSAT BRIGHTNESS LEVEL: ****

WHAT IS IT: Like satellite broadband (see page 31), but for enterprises.

THE PITCH: Corporate VSAT has been a mainstay of the satellite sector for years, offering fast, easy private network connectivity for multinationals, especially those with offices in locations with underdeveloped infrastructure. However, with only so many MNCs to go around and the residential broadband market proving a hard nut to crack, satellite operators are keen to expand the business model to SMEs that don't have the same cost-limitation issues as consumers.

THE CATCH: The regulatory restraints for VSAT services can be murder--particularly in many of the markets where they're most needed, according to the Global VSAT Forum. Prohibition of international use is a common problem, as are domestic hurdles like high licensing fees, customs duties and overall brain-numbing bureaucracy. Also, satellite has performance issues with IP that include latency, security and support for IP-VPN.

THE BRIGHT SIDE: The Global VSAT Forum Regulatory Working Group says its "International VSAT Policy Declaration" of regulatory recommendations and guidelines for international VSAT services is being taken to heart by a growing number of regulators, many of whom have started implementing new policies based on the guidelines. Some have gone as far as to exempt VSATs from licensing altogether. The technological issues regarding IP are also being addressed--French vendor UDcast, for example, has developed a gateway that allows IPSec-based VPNs to run smoothly over satellite links. Meanwhile, analyst firm Northern Sky Research is bullish about the SME VSAT market, estimating that of the 1.1 million enterprise VSAT sites they expect to be operational worldwide by 2008, around a third of those will be SME sites (compared to almost 13% in 2003).

HYBRID FIBER-SATELLITE BRIGHTNESS LEVEL: *** 1/2

WHAT IS IT: A bandwidth service where traffic runs over both satellite and fiber systems interconnected via a gateway at a teleport facility. Satellite operators typically partner with teleports (which lease their own fiber capacity from local providers) and regional and global fiber carriers.

THE PITCH: If you can't beat 'em ... Like it or not, fiber is becoming so ubiquitous and cheap that demand is growing at satellite's expense. Mixing fiber assets with satellite connectivity helps satellite operators optimize their infrastructure by channeling more traffic (aggregated at the teleports) through their transponders. They can also go deeper into the value chain by targeting ISPs and smaller telcos rather than incumbent telcos. On the service side, fiber enables satellite customers to use satellite-based services without having to own or lease a satellite dish (video broadcasters, for example).