Regional operators like ABS, Spacecom, and StarOne have built strong satellite businesses mainly serving the broadcast community. However, the world is changing. With Direct-to-Home (DTH) businesses seeing more competition than ever, do regional operators stick or twist in the hunt for new revenue streams?
Jim Frownfelter is the new CEO of ABS, and took over from Jim Simpson. He comes at a time of great flux. ABS has deployed three large satellites over the last five years, and the priority will be to monetize them. In an exclusive interview to Via Satellite, he says ABS’ immediate focus is to fill these satellites to capacity before it invests in new satellites or new satellite projects. “At our current growth rates, I expect we will start evaluating new satellite projects around 2021. In terms of the fill rates, it depends on the satellites, but we are about 50 to 70 percent filled on those satellites,” he says. “I would say this is where we expected to be. If you look at a generic business model for greenfield satellites, which effectively all three of these satellites are, it takes about 5 years to fill to capacity. Some of these satellites (ABS-2A) were only placed into orbit two and a half years ago, so the fill rates are approximately on track with what you would expect for a greenfield satellite deployment.”
However, while it may look to investments in around 2021, these will not be in Low-Earth Orbit (LEO) satellites. When Frownfelter was asked about this, he was unequivocal. He says, “ABS is not interested in investing in LEO constellations. We are going to stay the course, make prudent financial investments to smartly grow our Geostationary Orbit (GEO) business. While a small few of these constellations may survive because of their particularly circumstances, I expect most of them will encounter challenges. The traditional GEO satellite operators will once again be viewed as the stable, successful, stalwarts of the industry.”
Frownfelter, who has a long history in this sector having worked for the likes of PanAmSat many moons ago, believes history could definitely repeat itself here. He points to the fact, that back in the early 2000s, there was a similar cycle to what we are seeing now. He adds that there were a number of new entrants coming into this space where deploying new constellations and satellite initiatives. These were based on “shaky business plans and exaggerated projections,” he says. “If you remember, there were a number of companies like SkyBridge, ICO, Iridium, OrbComm, Globalstar, OrbImage, etc. — I could go on and on. It was exactly the same sentiment then that GEO satellites were dinosaurs that was being rumored in the industry. What of course happened is that all of those businesses went bankrupt and the companies that survived were those GEO satellite operators which focused on financial fundamentals and stayed the course,” he adds.
Frownfelter believes history is on the verge of repeating itself here. “In certain circumstances these LEO constellations are being deployed, not because they expect to make money from their satellite operations, but to achieve some other objective and make their profits through some other business that the LEO constellation supports. In this case, those constellations may survive. But, those LEO constellations that are being deployed and being projected as generating huge amounts of cashflow just from the LEO business and selling into more specific Business-to-Business (B2B) and Business-to-Consumer (B2C) applications, I expect most of those will not survive,” he says.
While he is not positive about the prospects of some of these LEO operators, charting a successful course for ABS will be a challenge. The company has been the source of a lot of industry gossip over the last few years, but despite the rumors, there has been no change of ownership. Frownfelter comments on whether or not ABS still has the “For Sale” sign up. He says, “ABS ran a process back in 2016, and at that time, had a number of interested buyers, but we decided not to move forward with that process because of differing value expectations. The interested buyers were not willing to pay for the future revenue potential of the newly launched satellites, which at that time had relatively low fill rates because they had just been launched. So, the company focus over the last year, has been about filling these satellites, increasing cashflow, and executing on the value potential of our assets. We are not in an active sales role today. We are not engaged in a process. That is something that is not a high priority. Our priority is to increase cashflow, fill these satellites, generate ongoing financial stability for the business, and increase the value of the company for potential buyers in the future.”
As the new CEO, building revenues in markets where bandwidth prices have been eroded significantly, is a challenge not just for ABS and Frownfelter, but the industry in general. Frownfelter says the major challenge in the industry really comes down to a lack of pricing discipline. “The competition has launched satellite projects with failed business plans. They are fighting to improve utilization, and as a result, are dumping capacity into multiple markets. The result is that they are cannibalizing their own businesses and negatively impacting the industry as a whole. So, our challenge is to remain fiscally diligent, execute our yield management strategy and drive profitable growth for our business,” he says.
Israeli satellite operator Spacecom is also not averse to takeover speculation. Over a decade ago, SES tried to buy the operator. However, the operator has remained independent, and its CEO David Pollack will be responsible for growing the company’s business over the next few years. He admits that operator is “not surprised” by the changes to the satellite industry, and the decline in new GEO orders. “With new technologies that have been and are now being developed for a new generation of GEO satellites and the possible emergence of non-GEO solutions, capital investments should now be carefully evaluated. We are currently entertaining several options for our future investments,” he says.
However, the current lack of GEO orders may just be a cyclical trend. “The decline in the number of GEO orders is an industry-wide issue. Global and national economics and new technologies are changing the industry, its competitive environment, how we view the world and the ways our clients work with satellite technologies. The decline is not necessarily long-term because service operators and manufacturers have differing reasons contributing to the overall decline in the last two years,” Pollack adds.
Pollack was asked if operators such as Spacecom can survive as being pure GEO operators, moving forward. He says, “While launching GEO satellites was, until now, the most common way to provide satellite services, we now see a mix of satellites being planned for launch to other orbits, as well. We see these plans as complementary to GEO satellites’ services and as a multi-regional operator, think that we may also consider opportunities for cooperating with non-GEO satellite operators in a way to create added value for our customers and are certainly open for such partnerships.”
For Spacecom, it is an important year. Its AMOS-17 has been launched, and the company will re-introduce an African dedicated satellite under the AMOS brand into sub-Saharan Africa’s growing marketplace, in addition to the services provided today by AMOS-4 and AMOS-7. Pollack believes the company’s competitive advantages are its nimbleness and focus on customer relationships which keep the operator up to date on technologies, as demonstrated by its advanced AMOS-17 satellite.
However, the industry is changing. The likes of SpaceX and Amazon could be launching thousands of satellites over the next few years, which could change the face of the industry forever. So, how much pressure is it putting on the traditional players in this industry? Pollack says it remains to be seen if these projects will succeed, technically and commercially, and he says no one knows if they will change the industry for the better. He says Spacecom's approach is to provide continuous and reliable service to our customers. “At Spacecom, we plan for an uncertain future as we have always done. We understand the need to be nimble and open. Our commitment to our customers provides the added value that drives client retention and is one of our competitive advantages. We are watching developments in the industry including such billionaires’ programs and evaluating how to cooperate or compete in what is now a fast-changing competitive scene. We fully understand that today’s gold can be tomorrow’s flash in the pan, thus we need to be prepared for numerous options,” he adds.
One of the keys for any satellite operator going forward will be to generate revenues from new verticals. For operators like Spacecom, while they have a strong broadcasting business, it will be key to find new verticals to mine. I ask Pollack what new verticals an operator like Spacecom could target. He says, “In the past, a lot of verticals were not technically or commercially serviceable by communication satellites. With new technologies in space and on the ground, these verticals can indeed be introduced to the satellite industry. It is still a bit early to mark specific verticals, but we can comment that even within a specific vertical, some applications may be more applicable for GEO satellites, some for non-GEO satellites, and some not at all. An example will be the different Internet of Things (IoT) over satellite flavors — like big data harvesting versus real time monitoring.”
Star One, backed by Brazilian telco Embratel, is one of the key players in Latin America. In particular, Star One is a key player in Brazil, the region’s biggest market. Embratel Star One Executive Director Gustavo Silbert, when asked about the decline of GEO orders, says he believes this decline of orders is down to a market adjustment. “The market has been stable for many years and it seems now is time to face some changes. It is likely there will be certain adjustments in the way the market plans GEO satellites and builds them,” he says.
In terms of its own capital expenditure plans, Silbert was non-committal on whether Star One may invest in LEO. “This is a very complex issue, since the future mix of GEO and LEO, or Medium-Earth Orbit (MEO), satellites are not yet clearly defined. It is premature to establish any mix of investments between GEO and LEO’s now,” he says. “Embratel Star One believes there will be room for different combinations. There will be GEO-only operators and LEO-only ones. There will be also operators using both systems. In our case, we have a fourth alternative, which is to combine satellite with our terrestrial cellular backhaul. This hybrid architecture uses satellites to reach points of presence and from these points on, we reach the end user using our cellular network using 4G (and the 5G in the future). We are already doing it right now within the América Móvil network.”
The company believes its broadcast business will remain strong, but like most operators, is looking and expanding into new markets. Silbert highlights 5G as an area to watch. He adds,” Satellite will have a special role in the 5G ecosystem. There is no way to be everywhere in large territories unless you count with satellites complementing your terrestrial infrastructure. In case of the IoT, GEOs will have a mediation role using Very Small Aperature Terminal (VSAT) stations as terrestrial points of presence, to interconnect the IoT devices to the satellites. In the case of LEOs, certain types of constellations will have an interesting role, which is to allow devices to interconnect directly to the satellite, especially in areas with poor telecommunications infrastructure.”
In terms of broadcast, Silbert notes there is already a change taking place at the broadcasting market but it is not clear yet what will be the final configuration of it. “Will linear TV disappear, replaced by the Over-the-Top (OTT) types of services, or will it remain? If it remains, how will it be? The answer for that is not easy to find. One relevant point in favor of the traditional broadcasting is its ability to reach millions of people from a single point of distribution. No other architecture can do it so well as a point to multipoint one. It is very likely both architectures will coexist. The linear system will continue to be used for certain types of content, especially the live ones, sports included,” he says.
It is an exciting time to be a CEO in the satellite industry. “We are definitely living times of very relevant changes in the satellite industry. Maybe the most exciting ones in the last thirty-five years. The market is living times of disruption and innovation,” says Silbert. “Artificial Intelligence (AI), new materials, new architectures, Software Defined Payloads, new addressable markets, and new business models will call our attention very much starting now and more and more in the coming years.” VS