The global satellite communications industry is undergoing rapid change today, with price declines, large increases in capacity volumes, and a general pivot of the satellite operator business model towards selling lots of Mbps, as opposed to relatively few MHz.
According to Euroconsult’s latest report, “FSS Operators: Benchmarks & Performance Review,’’ Geostationary Orbit (GEO) operators are challenged by the complex business environment over the past few years. FSS operators’ capacity revenue declined from a peak of $12.3 billion in 2014 to $11.5 billion in 2018. Yet the structure of the FSS market has been largely stable over the past few years.
The market remains concentrated at the top and increasingly fragmented at the bottom, as 11 new operators have joined the industry since 2013. Of these 11, more than 70% are national operators who mainly serve the domestic market. Direct–to–Home (DTH) platforms and service providers such as telcos primarily use state-owned satellite capacity. The operator Telebras, which serves Brazil, has a negative impact on global operators with a presence in Brazil. Operators such as Algerian Space Agency (ASAL), Turkmenistan National Space Agency (TNSA), and Laosat have smaller impacts on global operators, as these markets are not as significant as Brazil.
Satellite operators have traditionally been the beneficiary of large backlogs, due to long contracts with extremely strict cancellation clauses. DTH video broadcasting have historically been the longest contracts, with customers regularly leasing satellites for their entire lifetime. The traditional satellite video business is facing increasing competition from Over-the-Top (OTT), with the DTH platforms feeling the most immediate pain, but with satellite operators suffering collateral damage in the form of backlog structure. For example, the FSS industrial average backlog to sales ratio dropped from 4.2x in 2014 to 3.5x in 2018 with nearly all operators facing declining backlog. Usually video contracts have a length for 5 to 15 years. However, data contracts have an average contract length between 1-3 years. As the transition progresses, we would anticipate the backlog to revenue ratio to continue to decrease in the short to medium term.
To face this market situation, satellite operators have begun to focus more on data applications and services. The impact for satcom operators is that satcom operators are selling much more capacity at a lower price per Mbps. For example, ExploreNet committed 50Gbps on Jupiter-3 capacity for 15 years (with a contract value of $250 million) in April 2019. These types of large and long-term data contracts are very rare historically.
The features of High Throughput Satellites (HTS) better suit the need of data applications. Operators have been investing in HTS/payload with enhanced flexibility in terms of coverage, power and bandwidth allocation, and network connectivity. In 2014, there were only 13 satellite operators with satellite assets carrying HTS capacity. Comparably, in 2019, there are 27, and it is becoming increasingly rare to see any operator procure a “purely FSS widebeam” satellite.
For example, Eutelsat recently signed a letter of agreement with Thales to procure Eutelsat 10B and the satellite is planned to carry two multi-beam HTS Ku-band payloads targeting primarily
the mobility market, which is seen as the highest growth data application.
Customers are looking for solutions. In order to maintain competitiveness, satellite operators are offering more managed service into their wholesale strategies at the cost of higher operating expenses. For example, Intelsat offers centralized backend network management tools such as IntelsatOneFlex, and Eutelsat started to provide satellite OTT value-added service named Cirrus. SES and Inmarsat are promoting end-to-end network solutions for selected vertical markets and customers; Echostar and Viasat are fully vertically integrated to access the end-user. Moving forward, operators will increasingly be forced to vertically integrate into managed services — an expensive and risky proposition — or risk seeing their traditional wholesale capacity leasing model slide further into commoditization and pricing pressures. Those with scale and those with a strong presence in specific market segments such as mobility or government and military will have an advantage.
Non-Geostationary Orbit (NGSO) constellations have only added to the challenges of the GEO satcom industry. These NGSO constellations aim to provide terabits per second of capacity from mostly Low-Earth Orbit (LEO), doing so with billions of dollars raised from venture capitalists. NGSO activity in 2018 and 2019 was more intense than ever before, and several projects have recently begun to materialize. OneWeb, Telesat LEO, and SpaceX all have launched their first test satellites. While still likely at least two years away, the impact of NGSOs has already been felt in the adoption of a “wait and see” approach from almost all GEO operators, as few companies want to commit to major fleet renewal during periods of such uncertainty. Moving forward, regardless of the success or failure of the NGSOs (and there remains ample scope for failure), the impact will continue to be felt in the short run as pricing uncertainty and capacity gluts impact market pricing and customer willingness to commit. VS