2004 Satellite Business Review

By Peter I. Galace

Fixed satellite service (FSS) operators earned consolidated revenue estimated at $6.7 billion in 2004 with the industry experiencing only a 1.5% increase in revenue caused by the continuous depreciation of the US$ with respect to their main trading partners. According to Euroconsult, at 2002 constant exchanges rates of the various national currencies, FSS industry revenues were stable in 2004 at about $6.2 billion but profitability of the industry was safeguarded, in line with the reduction in operational and capital expenditures.

The revenue report follows after a 3% fall in 2001 and another revenue decline in 2002 attributed mainly to stagnant transponder demand and decreasing transponder lease prices.

In its satellite business analysis for 2004, Euroconsult said the capex effort of the FSS industry should remain low in 2005 as only seven commercial orders were placed with satellite manufacturers in 2004 for an estimated market value of about $1 billion. This is close to the industry’s record low in 2002 of six units ordered while the recovery to16 FSS satellites ordered in 2003 was the result of delayed orders from 2002 combined with replacement satellites for those lost at launch in 2002 and for those experiencing technical problems in orbit.

Last year, 13 satellites were launched into geostationary orbit for 10 FSS operators, including the largest commercial satellite ever launched, Anik F2 of Telesat Canada, with a launch mass of 6,000 kg.

The firm also took note of the recent and massive interest private equity investors shown for the FSS operators that generated transactions totaling about $10 billion in 2004 on PanAmSat, New Skies Satellites, Eutelsat, and Intelsat. PanAmSat was sold in August 2004 to affiliates of Kohlberg Kravis Roberts & Co., L.P., The Carlyle Group and Providence Equity Partners, Inc. for $2.6 billion. Later in November, New Skies was sold to affiliates of The Blackstone Group for $956 million in cash, equivalent to approximately $7.96 per fully diluted share on June 5, 2004.

But the biggest sale was with Intelsat, Ltd when it was sold also in August to a consortium of four private investors for $5 billion marking the completion of the company’s transformation to a private company. Obviously, FSS companies are attractive to LBO investors due to their predictable cash flows based on long-term bandwidth sale contracts and recurring capital expenditures, notes Euroconsult.

Following the private equity transactions of 2004, 2005 expect preparations of public placements. PanAmSat’s new owners are considering a $1 billion IPO early in 2005 that would allow paying the owners a special dividend of about $200 million. The owners of New Skies and Eutelsat are also planning IPOs for 2005/06.

In another front is the direct-to-users satellite services, a market that is growing outside the US. Downstream in the value chain, direct-to-users satellite service providers are growing and multiplying, generating more demand for satellite capacity providers and for satellite manufacturers. Euroconsult says 13 of the 45 geostationary satellites currently under construction for launch in 2005 and 2006 are dedicated to direct-to-home TV broadcasting, digital radio broadcasting, and fixed/mobile broadband services (e.g. DirecTV, Rainbow, XM, Inmarsat-4).

The United States is still the acknowledged market leader worldwide for direct-to-users satellite services with four vertically integrated satellite broadcasters, Echostar and DirecTV for digital TV services and XM and Sirius for digital radio services. Echostar and DirecTV totalled about 25 million pay-TV subscribers at year-end 2004 with growth driven by local TV channels and HDTV broadcasting. XM and Sirius, that both launched service in 2001, had 3.2 million and 1.1 million subscribers, respectively, at yearend 2004. The US is also the market where consumer two-way broadband satellite services should finally be launched nationwide in 2005 by WildBlue Communications with Ka-band capacity on Anik F2, according to Euroconsult.

Beside the two US satellite TV broadcasters, 50 other DTH satellite TV platforms operate around the world, serving close to 65 million subscribers at yearend 2004 and totaling about $35 billion revenues in 2004. Two satellite broadcasters launched service in India in 2004 (Dish TV and DD Direct) while DirecTV Latin America and Sky Latin America decided to merge as a result of the creation of the DirecTV Group by News Corp.

Euroconsult predicts 2005 the multiplication of initiatives in high definition television. In North America, more than 100 HDTV channels are now broadcast by satellite TV platforms and offering continues to expand. Premiere in Germany and TPS in France should be the first satellite TV platforms to offer HD packages in Europe by the end of 2005, the firm said. In Asia, Japan, Australia and Korea emerge as the three leading markets for HD introduction in the region. In Korea, the Skylife satellite TV platform introduced its first HD channel at the end of 2003.

Mobile broadband services is also predicted to further develop in 2005 with the launch of Inmarsat’s first BGAN satellite permitting the introduction of 3G services, and the rollout of commercial services for mobile digital video broadcasting in Japan and South Korea by MBSat.