Asia’s satellite industry: slow but big wins the race

(Published in June 2006)

AESOP'S FAMOUS FABLE about the tortoise and the hare does hold a lesson or two for Asia’s long-suffering regional satellite operators.

Falling revenues and profits; Ku-band overcapacity; bewildering regulatory environments; overabundant fiber and political interference hobble Asia in its race to reap the rewards of a world satellite services industry profiting from conflict and consolidation.

The wars in Iraq and Afghanistan demand massive satellite bandwidth to support coalition military operations. Northern Sky Research says the U.S. presence in these countries will sustain satellite industry revenue growth. It believes that military use will generate 46% of all satellite service revenues from 2002 to 2007.

On the other hand, regional Asian satellite companies continue to rely heavily on TV and DTH as its revenue movers. Both 2004 and 2005 were marked by weak demand for satellite capacity from Asian broadcasters.

As for consolidation, this phenomenon has been the province of the Big Boys that dominate the world satellite services market. It hasn’t, as yet, helped Asia run faster in its race for revenues.

Asia, however, will win the race by doggedly plodding on bereft of the immediate push from conflict and consolidation. After all, it’s not a race to cross the finish line first.

It’s about who can stay in the race the longest—and profit the “mostest.” And Asia/Pacific, with more than half the world’s population and a horde of developed and soon to be developed economies, will win the race by sheer force of its numbers. Slow but big will win this race, as it did in Aesop’s fable.

Nowhere is Asia’s dominant potential as a satellite services market more marked than in direct-to-home (DTH) broadcasting. Excluding China and India, Asia had some 8.5 million DTH subscribers in 2005. Including both populous nations, that number jumps to astronomical heights.

China promises to become the world’s largest DTH market in less than a decade. Some 260 million households are the potential market for DTH, said the State Administration of Radio, Film and Television (SARFT), China’s broadcasting regulator.

Analysts expect China’s DTH subscribers to hit 30 million by 2008 if the government launches DTH this year in time for the 2008 Beijing Olympics.

Chinese DTH satellites, however, are poised for launch in preparation for the official coming of DTH. SinoSat-2 is to be lofted into orbit later this year and ChinaSat-9 by late 2007. They will join the in-orbit Apstar-6, another DTH satellite. SinoSat-2 is China's first direct broadcast satellite and its largest to date.

China has about 360 million households, of which 100 million receive cable TV programs. Analysts expect satellite growth to outpace cable by 2009 due mainly to China’s satellite-broadcast industry.

For the present, however, China’s satellite industry is preoccupied with non-commercial pursuits such as sending a satellite into Moon orbit in 2006; conducting the first Chinese spacewalk in 2007; beginning construction of a space station in 2009 and landing a probe on the Moon in 2010.

India began commercial DTH operations only in October 2003 and by December 2004 reported over three million subscribers. Hong Kong-based research firm Media Partners Asia (MPA) said India is poised to become Asia's leading cable market by 2010, the largest satellite market by 2008 and the most lucrative pay TV market by 2015.

Indian DTH finally materialized in October 2003 with the launch of “Dish TV” from Subhash Chandra’s ASC Enterprises. That was followed in 2004 by the launch of “DD Direct Plus” from state-owned broadcaster, Doordarshan.

Rupert Murdoch’s Star TV is expected to roll out its DTH service in mid-2006 under the banner of “Tata Sky Ltd,” an 80:20 joint venture between Tata Group and Star TV.

Also set to go is India’s fourth DTH provider, Noida Software Technology Park Ltd (NSTPL), which is to begin its service in 2006. Two more players are scheduled to enter the DTH arena: Sun Network and the Reliance Group.

The Satellite Industry Association (SIA) said satellite services were leading the industry’s recovery from the telecom crash of 2000, accounting for 63% of industry revenues of $97 billion in 2004. It said DTH contributed 81% of satellite service revenues.

SIA noted that while the satellite industry is emerging from the telecom downturn, companies from every major region including Asia and across each sector (operators, manufacturers, value-added resellers and carriers) are reporting improved business.

Consolidation?
Last year’s big wave of consolidation among global satellite operators—like the five-year old war on terror—hasn’t been a crock of gold for Asia’s regional satellite operators. But it’s been great for newly merged Intelsat/PanAmSat and SES Global/Astra/Americom/New Skies Satellites, which have moved into new markets, but mostly outside Asia.

Both consortia have 20 satellites serving the Asia Pacific, including China. Intelsat operates 16 of these satellites.

Peter Jackson, chief executive officer of regional Asian satellite company Asia Satellite Telecommunications (AsiaSat), said the recent spasm of mergers and acquisitions created larger global players focused mainly on generating business in the USA.

“I don't think it will have significant impact on us as we are focusing on the regional Asian business,” he told media.

Jackson expects consolidation to continue and some analysts forecast that Asian regional carriers will be involved in the coming wave.

AsiaSat, which claims to be Asia’s leading regional satellite operator, has three in-orbit satellites with one more due to launch in 2008. It is minority-owned by SES Global of Luxembourg.

About the closest any regional carrier got to consolidation last year was the strategic cooperation agreement in December between Intelsat and Hong Kong-based APT Satellite Holdings Ltd.

The agreement between both operators was to market each other’s satellite capacity and ground resources, and to provide broadcast and telecommunications services to China and the Asia Pacific. APT has four in-orbit Apstar satellites including the new Apstar-6.

The partnership gives Intelsat access the Asia Pacific market through APT’s Apstar-5 and Apstar-6 satellites. APT will access Intelsat’s capacity in other regions of the world via Intelsat’s fleet of 28 satellites, expanding APT’s reach.

Analysts say the agreement also puts paid to persistent rumors of consolidation between AsiaSat and APT. But it does leave APT as a prime candidate for future consolidation moves with other regional or global carriers.

Growing stronger
One reason for the tepid interest in Asia is that Asia’s commercial satellite industry continues to recover from the telecom crash of 2000. Many in the industry see 2005 as the last of the slow growth years in which transponder overcapacity stood at a high 60% to 70%, and 2006 as the start of a real recovery.

Jackson noted that the transponder leasing market is “recovering slowly,” an opinion shared by Paul Brown-Kenyon, chief operating officer of Malaysian satellite operator, Measat Satellite Systems Sdn Bhd.

AsiaSat sees demand picking up in 2006 with continued growth in Asia Pacific economies, especially China. This growth, however, is not immediately expected to translate into a recovery in transponder prices, which historically lags behind economic growth.

AsiaSat saw both revenue and profitability fall in 2005. Sales dropped two percent in 2005 compared to 2004. The company’s satellite-utilization rate, however, increased to 54% in 2005 from 46% in 2004.

Jackson forecasts that major growth areas will be TV distribution and multiple location private networks. He expects satellites to move into new applications such as video content for 3G mobile phones delivered to terrestrial networks.

He is enthusiastic about HDTV and forecasts that all television will eventually be recorded and broadcast in high definition. HDTV will require satellites for the dual illumination that makes HDTV possible, hence the buoyant mood of the industry about HDTV.

New commercial satellite services such as DMB (Digital Multimedia Broadcasting) via satellite and broadband via satellite hold the brightest promise for Asia’s satellite companies, say analysts.

Northern Sky Research sees bright prospects for satellite broadband and estimates that revenues of $2.7 billion in 2004 should grow to $4 billion in 2009. Driving this 7.8% CAGR will be broadband Internet access via satellite. Northern Sky believes that satellite Internet access might well become the satellite industry’s first truly mass market service capable of competing against DSL on price.

Still hungry
The recent acquisition of Thailand’s Shin Corp by Temasek Holdings Pte, investment arm of the Singapore government, positions Singapore as Asia’s top satellite operator.

Shin Corp is parent company of Shin Satellite plc (ShinSat), Asia's third largest satellite operator. The deal, which will give Temasek control of Shin and its subsidiaries (including ShinSat), will dramatically boost Singapore's presence as a regional telecoms player.

It will also give Singapore and SingTel control over ShinSat’s fleet of four satellites, including the iPSTAR-1 Broadband Internet Satellite or Thaicom-4. Thaicom-5, to be orbited in 2006, is a dedicated DTH satellite.

SingTel already controls Australia’s SingTel Optus Pty Ltd, the second largest telecommunications company in Australia, and its fleet of satellites (four in-orbit; two to launch) while owning capacity on four other Asian satellites (three from Apstar).

Its ownership of both Optus and ShinSat plus ownership of the ST-1 satellite launched in 1998 makes SingTel Asia’s largest satellite fleet operator with 12 satellites.

Temasek followed-up the Shin Corp acquisition by buying a 9.9% stake in Tata Teleservices for an undisclosed sum, giving Singapore a foothold in India’s rapidly growing mobile phone market.

Despite these huge investments, Temasek said it retains a big appetite for more acquisitions in Asia. Managing director for investment S. Iswaran said that underlying the company’s investment binge is its “positive view of Asia and its growth prospects.”

He made no mention of further investments in Asian satellite operators such as APT, however. Temasek has US$103 billion available for investments.