Sunday, December 1, 2013

China’s space industry is alive and zooming

(Published in 2006)

CHINA'S COMMERCIAL satellite industry is moving into the Big Time—big time.

The sale of a communications satellite (NIGCOMSAT-1) to Nigeria and the more recent sale of another satellite (VENE-SAT-1) to Venezuela are historic firsts for China’s commercial satellite industry and a space program that will celebrate its 50th anniversary on October 8.

The date marks the founding of China's first rocket research institution, the 5th Academy of the Ministry of National Defense, and is recognized as the beginning of China’s space program.

There is little doubt Beijing will pull out all the stops to honor a program that has made China a respected player in the world satellite industry, and only the third country to send humans into space.

The Year of the Fire Dog also marks the 30th anniversary of formal relations between China and the European Union (EU). The close business and scientific ties between China and the EU are underscored by their cooperation in the “Galileo Project,” EU’s equivalent of the US global positioning system (GPS).

China is the first country outside Europe to join the Galileo satellite-navigation system. Its investment of 200 million Euros in Galileo and its constellation of 30 satellites counts among the over 400 cooperation programs in science and technology between China and the EU over the past three decades.

These business coups illustrate China’s renewed focus on the commercial satellite industry after deliberately concentrating first on the development of new generation carrier rockets.

Its successful bid for Nigeria’s first satellite signals a China that has learned the ropes and is using its knowledge to outmuscle the Big Boys. The Nigerian deal is China’s first ever sale of a made-in-China satellite to any country.

China closed the deal in December 2005 and beat 21 companies from the United States, France, Britain, Italy and Israel, among others. Before the satellite sale to Nigeria, China only manufactured satellite components for other countries, but never an entire satellite.

Chinese quality was a major reason for Nigeria’s selection of China as the provider of its first satellite. Nigeria said China had submitted a "superlative proposal" and its technical capability and expertise had met stringent performance requirements. NIGCOMSAT-1 will be launched in 2007.

China Great Wall Industry Corporation (CGWIC) described the Nigerian sale as a breakthrough in China's international commercial space program since China asserted its capability as a manufacturer and launcher of satellites for foreign customers.

CGWIC is the sole commercial organization authorized by the Chinese government to provide international commercial launch services, in-orbit satellite delivery and international space technology cooperation.

On the other hand, the Venezuelan satellite is China’s first sale to Venezuela and to any South American country. China and Venezuela signed the deal last November in Caracas with Venezuelan President Hugo Chavez at the signing ceremony.

VENE-SAT-1 will be launched from China in 2008. The satellite will make Venezuela self-sufficient in telecommunications and will cover sparsely populated areas not yet reached by commercial telecommunications.

China will also turn over satellite technologies to Venezuela in a effort to help the latter build its own satellites. VENE-SAT-1 is also called the “Simon Bolivar Satellite” after the South American independence fighter.

NIGCOMSAT-1 and VENE-SAT-1 are based on the DFH-4 (Dongfanghong or “The East is Red”), China's latest satellite platform. DFH-4s provide telephony, broadcasting, DTH TV, Internet and other services. Both the Nigerian and Venezuelan packages include launch services using Long March rockets.

China’s position as the smart new kid on the Big Boy block isn’t only because it products and services are cheaper than those from the US, the EU or Russia. Chinese quality has come a long way from the humiliation of 1996 when China's Long March 3B failed in its first launch and destroyed the Intelsat 708 satellite.

China began to offer the Long March launch vehicles for international commercial satellite launch services in 1985. In November 1988, CGWIC signed its first contract to launch a foreign communications satellite, AsiaSat-1, on a Long March rocket. The launch was successfully carried out in April 1990.

Long March launch vehicles

From 1990 to 2004, CGWIC conducted 24 international commercial launch missions for 30 satellites and six piggyback payloads. CGWIC has grown from a single rocket supplier to a package service provider that offers satellite, carrier rockets and ground system facilities.

DTH: rocket fuel for growth
China’s continuing forays into space are fueling the growth of its satellite industry that has also profited from the recovery of the world commercial satellite industry thanks to massive US military spending.

Through wholly owned subsidiary China Telecommunications Broadcast Satellite (ChinaSat), China operates two in-orbit ChinaSat telecommunication satellites and is majority shareholder in Hong Kong-based APT Satellite Holdings Limited, which has four Apstar satellites in space including the new Apstar-6. There is also the SinoSat-1 satellite operated by state-owned Sino Satellite Communications.

SinoSat-2, China's first direct broadcast satellite and its largest to date, is scheduled for launch this year on a Long March 3B, China’s most powerful launch vehicle.

Such a small telecom fleet for the most populous country on earth underlines China's insistence of doing things in-house and outsourcing whenever appropriate. China says it currently has 16 in-orbit satellites including telecommunications, remote sensing and meteorological units. Even the Chinese admit this number is way short of the urgent needs created by China's rapid economic growth and national defense needs.

But China will soon need more satellites with the explosive growth of its economy (averaging 9% annually for the past 10 years) and the recovery of the world satellite industry.

The Satellite Industry Association (SIA) is confident enough to predict that consumer focused satellite services (the key growth driver in 2003 and 2004) will continue until the recovery solidifies in a few more years. US government satellite spending is expected to remain at a high clip until 2020.

SIA noted that while the satellite industry is still fighting its way out of the telecom downturn, companies from every major region and across each sector (such as operators, manufacturers, value-added resellers and carriers) are reporting improved business.

SIA is in no doubt as to the main driver of this recovery. It said 53% of all global launches in 2004 were U.S. government related while 47% were commercial.

It said other key engines of this growth were strong consumer demand for video services, and the deployment of new user applications and equipment in both markets.

While falling prices and profit margins exist in most sectors, current trends indicate growth over the next few years. The increase in satellite services should lead to a revival of the manufacturing and launch sectors, which then will lead to more satellites being ordered and launched.

DTH satellite dish
SIA noted that satellite services were leading the industry’s ongoing recovery from the telecom crash of 2000-2003, accounting for 63% of industry revenues totaling $97 billion in 2004. It said direct-to-home (DTH) satellite television services made up 81% of satellite service revenues.

China’s announced intent to begin DTH satellite broadcasting in 2006 opens the door to further strengthening the satellite industry’s recovery while opening China’s huge DTH market to major satellite industry giants such as Intelsat and SES Global and to regional players such as AsiaSat and Apstar.

Research firm IMS Research said China had over 25 million digital satellite TV households in 2004, almost similar in number to the US.

IMS projects the number of digital satellite TV households in China to grow over the next five years and could reach 60 million by 2010 if China launches DTH this year as expected.

China’s huge DTH numbers dwarf those in the rest of Asia. In 2004, the leading DTH markets were Japan (3.3 million subscribers), South Korea (1.6 million). Malaysia (1.5 million), Australia (890,000) and New Zealand (490,000).

On the other hand, the Cable and Satellite Broadcasting Association of Asia (CASBAA) estimates that Asia has 190 million multi-channel households (or those that receive satellite or cable services).

China’s telecommunications industry is estimated to have posted revenues of $72 billion in 2005, up 10% from 2004. China’s economy is expected to have grown from 9.5 to 10.3% in 2005 to hit $2 trillion. It is growing five times faster than Europe’s leading economies.

The launch of ChinaSat-9, a direct broadcasting satellite, in late 2007 is intended to exploit the coming boom in China DTH. ChinaSat-9, an Alcatel Alenia Space Spacebus 4000 C1 platform, will be fitted with 22 active Ku-band transponders for broadcast satellite services (BSS), including 18 36-MHz and four 54- MHz channels. A Chinese Long March rocket will be the launch vehicle.

SinoSat-2, ChinaSat-9 and Apstar-6 will lead China’s push into DTH. Apstar-6 will provide advanced broadband multimedia, new digital TV services and traditional telecommunications services to telecom and TV operators in Asia Pacific.

It will cover China with a dedicated high power Ku-band beam for broadband multimedia services. It will be the first civilian Chinese satellite equipped with an anti-jamming system to thwart attacks by Chinese government foes such as Falungong.

AsiaSat is forging ahead with it’s own DTH pay-TV service in Hong Kong, Taiwan and Macau. By moving into DTH, AsiaSat aims to increase its transponder utilization rate that in 2004 stood at 41% for AsiaSat-2; 74% for AsiaSat-3S satellite and 18% for its new AsiaSat-4.

The Ku-band payload in AsiaSat-4 offers spot beams for selected areas in either the BSS or the Fixed Satellite Service frequency band.

Peter Jackson, chief executive officer of AsiaSat, hopes that Chinese customers eventually will take up a large portion of the capacity aboard AsiaSat-4.

Enter the Big Boys
China began using foreign satellites for TV broadcasting in 1985. Since then, however, China’s promise of spectacular satellite service growth has been held in check by the government’s reluctance to open China to full-fledged foreign competition.

The conventional wisdom says China will remain more of a long-term player than a source of short-term growth. In recent years, however, China has loosened its tight regulatory grip, but remains less liberal than neighboring India.

Rupert Murdoch's Star TV has been a conspicuous beneficiary of whatever liberalization Chinese telecoms has had. Despite this seeming advantage,  Star remains on the look out for small online properties in China and aims to develop these assets into successful businesses in the long term, a strategy in line with the conventional wisdom about how to do business in Chinese telecoms.

Star said its consolidated operations in China during 2005 were close to breakeven. Its major growth driver was advertising revenues at Xing Kong, Star’s general entertainment channel. Star owns the world's largest library of Chinese films.

Star said China’s present regulatory framework for broadcasting casts a cloud of uncertainty. It felt pay TV lags behind the development of most other media while DTH and IPTV may be the means to boost development.

Because China continues to drag its feet on deregulation, non-Chinese satellite operators will have to partner with Chinese companies such as ChinaSat if they want to do business in China. AsiaSat has also complained about China’s restrictive policies.

This situation notwithstanding, formidable satellite operators such as Intelsat/PanAmSat and SES Global/Astra/Americom/New Skies Satellites stand poised to serve China’s needs for DTH and other digital services. Between them, both giants have 20 satellites serving Asia Pacific, including China. Intelsat operates 16 of these satellites.

These satellite operators still take the lion’s share of China and Asia’s satellite business. And they’re in Asia because of the region’s explosive growth in consumer satellite services. They’re also partnering with regional players to maximize their competitive strengths.

In December 2005, Intelsat and APT Satellite—the world’s leading and Asia’s leading satellite companies—signed a strategic cooperation agreement in which they agreed to market each other’s satellite capacity and ground resources, and to provide broadcast and telecommunications services to China and the Asia Pacific.

This strategic move allows Intelsat and its media and corporate data customers to access the Asia Pacific market through APT’s Apstar-5 and Apstar-6 satellites. On the other hand, APT will have access to Intelsat’s capacity in other regions of the world via Intelsat’s fleet of 28 satellites. This will expand APT’s reach and enable it to seamlessly carry traffic to wherever its customers need it.

Ni Yifeng, Executive Director and President of APT, said the agreement will significantly strengthen APT’s sales and marketing functions and allow it to provide more comprehensive services to its customers.

Intelsat said the agreement positions it to take advantage of any new business initiatives or opportunities that arise in the Asia Pacific region, including China, over the near and longer term.

Intelsat CEO David McGlade believes that entering into this agreement creates value at the company and customer levels. It also enables Intelsat to expand its service offerings in the region while creating a new avenue for customers of both companies to seamlessly take their traffic into or out of the region.

Intelsat has close ties with China, which historically is one of its top 10 customers. Twice in 2001, Intelsat came to China’s rescue when accidents knocked out China’s undersea cables, depriving up to 20 million users of Internet access. Intelsat used its satellites to restore Internet service to the affected users.

The 2008 Olympic Games in Beijing will present Intelsat and other satcos with the opportunity to dramatically grow their business. Intelsat, however, took 70% of the TV broadcasting business during the 2000 Olympic Games in Sydney.

The Net in China
Today, however, commercial satellite services such as DMB (Digital Multimedia Broadcasting) services via satellite and broadband via satellite hold the brightest promise for China’s satellite companies.

Satellite broadband looks especially promising and Northern Sky estimates $4 billion in revenues for this service by 2009. Driving satellite broadband growth will be broadband Internet access via satellite. Satellite Internet access might well become the satellite industry’s first truly mass-market service capable of competing against DSL on price.

Although China still limits Internet use and occasionally censors what it calls dangerous content, there is no stopping the growth of the Internet in China. The need for speed will be vital as China’s Internet users continue to rise, from an estimated 94 million in 2004 to 103 million in 2005. China had 22.5 million Internet users in 2000. The number of Internet users in China increases by 800,000 every week.

Private industry groups reported 43 million broadband subscribers in 2004 from 31 million in 2003.

PCs sold in China reached 22 million in 2003 (second after the US). There were 150 million cell phones sold in 2003 (1st in the world) while 1.7 billion text messages were sent from these mobiles.

These huge numbers make China the place to be for satellite service companies despite the tough regulatory environment.

The Chinese in Space
Two successful manned spaceflights in two years are enough to make any nation proud. China achieved this feat with its first manned spaceflight in 2003 and a second similarly successful mission by a two-man crew in 2005.

The success of the Shenzhou 5 and 6 missions is also a huge success for China’s launch industry. China’s participation in the Galileo Project is also being hailed as a triumph for its space program.

Next in line for China’s space program is a lunar fly-by mission. China has announced that the program’s monitoring system; launching field and ground application system have entered system integration and joint test. The first lunar satellite, called “Chang'e-I,” will be launched in 2007.

A space station is to follow suit but the crowning glory of China's space program will be a moon landing, probably by the next decade. And that's no starry eyed pipe dream.

Chinese "yuhangyuans"