The economic outlook is still mostly gloomy, but satellite stocks have remained attractive throughout the recession
Analysts believe that intensified demand for transponder capacity, the rapid adoption of HD channels, huge growth in emerging markets like Africa, and government services’ increasing utilisation of the technology, are all factors in satellite’s current growth spurt.
Morgan Stanley Analyst Patrick Wellington highlighted SES and Eutelsat gains as an example of what is to come. “We expect SES, with 22 per cent revenue growth, and Eutelsat, with 23 per cent, to outperform the media sector in 2011. Despite an expected 20 per cent industry-wide increase in satellite capacity over 2011, Wellington expects utilisation rates to remain greater 80 per cent. In fact, over the last year, there has been limited negative news for providers outside non-core equipment sales.
According to consultants like System House, demand is decreasing for internet based services typically delivered via hubs in Europe or USA, normally using cross-strapped transponders. This sector is facing stiff competition from terrestrial solutions, including fibre and wireless (WIMAX, 3G, etc). The cost of delivering traditional satellite services is so steep that they simply cannot compete against the terrestrial options. There is, however, still strong demand for VSAT connectivity within a country or region, primarily for corporates (Wide Area Networks) and in many regions there is high demand for Ku band capacity, particularly in East Africa and Southern Africa.
Backup with satellite
In the last two years, much has been made within the satellite industry of transponder shortages and higher capacity pricing impacting the Sub-Saharan African market. Roy Blatch, an analyst with System House in South Africa, confirms that there are still transponder shortages. However, he says he is not aware of any technical problems with satellite services other than incidents of interference from terrestrial services, specifically wireless systems operating in 3.5GHz band. “On the other hand, the reliability of the terrestrial solutions, especially to land-locked countries connecting to the cable POP via fibre or microwave, has been very poor,” he warns. “There remains therefore a need for satellite backup, but typically only a fraction of the terrestrial capacity is backed up due to the extreme difference in price, with terrestrial coming in at as low as $100/Mbps and satellite Internet trunk costing the service provider a minimum of $1000/Mbps to land at their teleport. End customers are very reluctant to pay the higher price for the backup service.”
Blatch believes there are still many opportunities for deploying Ku band VSAT solutions in the retail and banking sectors where they are used for point of sale terminals, ATMs, and access to central databases and applications. “Clearly, outside of urban areas, terrestrial connectivity remains limited in many countries and users in these areas still rely on satellite, but that is only a very small percentage of the market and usually less commercially active.”
Many of the recently launched satellites with continental high power C band coverage (eg. NSS-12, Arabsat 5A) have minimal capacity left so demand is high, but according to Systems House the supply side will likely catch up during the year as the new satellites come online. The higher power C band capacity is allowing service providers to lower the cost of delivery due to more efficient modulation and coding being possible and smaller VSAT terminals, which are then less expensive to deploy.
More capacity
To deal with capacity issues, satellite operators are planning several satellites that will shortly be available to deliver service including New Dawn (already launched), Amos 5, Eutelsat W3c, SES-4 and Yahsat. In terms of existing capacity on orbit, where there is strong demand the operators naturally respond with higher prices. In terms of capacity used for internet trunking, many service providers have defaulted on their payments since their market has been completely eroded through the arrival of fibre (SEACOM, TEAMS, Eassy, etc and shortly WACS and other cables). Service providers are doing their part by cutting costs, trying to improve efficiencies on networks, both on RF and IP side, targeting corporate customers instead of broadband, and concentrating on niche market segments like maritime.
For example, among the operators, SES President and CEO Romain Bausch has confirmed that “for the next four to five years, we will add 20 percent capacity to our overall fleet. Around 80 percent to 90 percent of this new capacity will serve emerging markets. We also see really good demand for the O3b capacity under construction.” Bausch, however, strikes a note of caution in terms of one continent. “What is a little bit of a concern is the political situation in some markets in North Africa. We see some potential investors in the media field hesitating right now because of the political situation.”
The African market is also one that Intelsat is targeting. “We did a tremendous job of drawing in demand (for capacity in Africa) ahead of launches,” McGlade said. “We have seen other satellite capacity come into the market and then undersea cables come into the market. Fiber prices have seen dramatic falls, but overall, we will see more growth in Africa. Long-term Africa will be a strong market.”
In Africa, Intelsat’s 68.5ºE orbital location is a leading video neighborhood for DTH platforms, populated by the Intelsat 7 and Intelsat 10 co-located satellites, which will be replaced in early 2012 with the planned launch of the Intelsat 20 satellite. During the first quarter, leading African DTH provider, MultiChoice, renewed capacity commitments on Intelsat 10 and contracted for new capacity on Intelsat 904 to support launch of its digital terrestrial television service.
Intelsat penned agreements with three of Africa’s largest users of commercial satellite capacity, involving sizeable portfolios and resulting in increased commitments and contract extensions. The complex agreements cover up to 10 satellites that will be used for applications including communications infrastructure, data networking and cellular backhaul.
Vodacom is also building its plans around the arrival of Ka-band satellite services in Africa, as evidenced by its purchase this year of new Hughes Network Systems Ka/Ku terminals. Vodacom opted for the high power HN9200 and HN9400 Ka/Ku-band terminals, which it believes will aid the company in its aggressive expansion plans around converged service offerings in South Africa and beyond. Vodacom Business Services offers these solutions over a range of technology platforms to enterprise, SME and public sector customers, including managed VPN, broadband data and Internet connectivity and converged hosting and application based services.
Sean Victor, principal specialist for Converged Satellite at Vodacom Business Services, says the HN and HX systems will be used to strengthen the firm’s portfolio of “customised, managed VPN, overlay and broadband satellite services.” Since the unit was opened three years ago, explains Victor, Vodacom has looked to invest heavily infrastructure to bring services like next-generation IP voice, managed networks and infrastructure, Internet access, hosting and storage services, to its African customers.
Soheil Mehrabanzad, assistant vice-president for the Middle East and Africa at Hughes, believes that Vodacom will benefit from the HN and HX technology largely due to the IPoS/DVB-S2 and the ACM (adaptive coding modulation) feature, which enables highly efficient bandwidth utilisation and should enable Hughes’ customers to contain costs as they develop their businesses.
In other developments, System House’s Blatch believes the introduction of the Newtec Sat3Play VSAT technology (as used for Astra2connect in Europe) into the region will have a major impact as this provides the benefit of low cost self-install VSAT terminals and cheaper delivery of internet based services via VSAT. ”The solution has been rolled out in West and East Africa and will soon be available in Southern Africa and should be competitively priced against terrestrial wireless offerings,” he predicts.
By Barry Mansfield
