RSCC Exec Doubts Success of New Constellations

It may be a celebration for RSCC as it commemorates 50 years of existence in an increasingly turbulent industry, but Yuri Prokhorov is in no mood to pull punches and delivers some harsh assessments on the industry and where it may go next.

Prokhorov believes some of RSCC’s significant achievements cannot be understated as it celebrates its 50th birthday. He points to the fact the company’s first Molniya 1 telecom satellite — which was launched in 1965, some eight years after the launch of Sputnik — was successfully used in pilot satellite TV and telephony communication sessions between Moscow and Vladivostok. “Moscow from Vladivostock is the same distance from Toulouse to Los Angeles; it is amazing. I am older than RSCC. One of my teachers actually contributed to the success of this first satellite,” says Prokhorov.

However, the company is changing and Prokhorov is now leading it into an era where it may generate as much revenue internationally as it does from Russia. This time may not be very far away.

“We hope to continue the stable growth we have had over the last few years. We hope to come to have 50 percent of revenues coming from Russia and 50 percent coming internationally in five years’ time. But, you have to look at the currency situation and the strength/weakness of the ruble when trying to gain these figures. Some of our new satellites which are coming will be delivering services in the Far East. So we have to think about the end customer and where the end customer will buy this new capacity,” Prokhorov said.

Thoughts on New Constellations

I met Prokhorov at IBC 2017 just after World Satellite Business Week in Paris, where the convergence of satellites in different orbits dominated conversations. One of the key themes was how traditional Geosynchronous Earth Orbit (GEO)-based satellite operators could survive and prosper in this new world. Prokhorov shares similar opinions to ABS CEO Tom Choi, who has been very outspoken in his views about some of the new Low Earth Orbit (LEO) constellations coming to market. “It is not a surprise that these discussions have come back. It is still vague, and the overall situation looks vague. There are certainly new players coming to the market, but I am quite surprised that there are some global satellite operators which are suffering from an over-capacity situation on the standard GEO orbit, and suddenly they are looking at LEO when they have a lot of capacity already on GEO,” comments Prokhorov.

Prokhorov is concerned that the industry is dashing headlong into an unknown market where the Return on Investment (ROI) could be far from guaranteed. “When I talk personally to these executives who are developing these new systems and I ask questions related to frequency coordination, and ask about the customer equipment and business plans, I do not receive clear answers to some simple questions. But these are critical questions. So now I start to doubt the profitability and viability of these systems. Are they commercially viable or not? For us it seems like the LEO system cannot provide an ROI in the short term,” he comments.

Prokhorov wonders how LEO operators will sell enough capacity to provide a return and admits he has doubts about some of these business plans. “Time will tell whether I am right or not, and whether there will be a real return on investment or none,” he adds.

Despite that, he is not ruling out RSCC itself ultimately looking at LEO satellites, if and when the business case can be made. “We are watching this market intensely. We are monitoring the key projects in LEO and Medium Earth Orbit (MEO). But we believe there has been a lot of unhealthy hype around LEO that prevents investors from putting their money into some real telecom projects that might create profit. I think the satellite manufacturers and launch providers will be the winners thanks to this hype,” he said.

Given these comments and talk of “unhealthy hype” around these new constellations, I ask Prokhorov directly whether he thinks a company like OneWeb will succeed. “We still don’t know where the market is, and that is the main issue,” he says. “I might say there are many executives of satellite operators which have a lot of capacity in GEO, and they can provide services right now, and much cheaper than LEO or MEO constellations. OneWeb may be relevant in two years, but it isn’t now?”

Acquisitions

Given that RSCC has achieved 20 percent annual growth in recent years, the company is in a pretty strong financial position, although the fluctuating price of the ruble can often have an impact on its overall profits and its ability to sell capacity. Because RSCC is an international operator with a strong presence in Russia, the company sits somewhere between the global satellite operators with no national market and the emerging national operators that have sprung up over the last few years, such as Azercosmos and Es’hailSat to name but two examples.

The company is unlikely to make any acquisitions as Prokhorov believes it is hard to find value when buying another operator. “I haven’t noticed any successful recent acquisitions in the satellite sector … There are also cultural differences to be aware of. Some of these could encumber any merger. One company simply may not be able to digest another company. One very eloquent example of this was Intelsat’s acquisition of PanAmSat. Separately, the two operators were quite successful but the combination has proved not to be as good as expected,” he says.

However, while the company may not be in the market for an acquisition, it could look to form more partnerships. It has had a long-standing partnership with Eutelsat for many years. “We also think about developing business models with other satellite operators. For example, [because] we have had a successful cooperation with Eutelsat, then we can have more cooperations like this,” adds Prokhorov.

Inflection Point

So, is RSCC at a key inflection point in its history? Some would argue yes, given the diversified revenue mix and entrance into new markets such as Latin America over the last few years. The company launched seven new satellites between 2013 and 2015 into GEO. “This has enabled us to increase the amount of satellite capacity on the market. It gives us a certain level of flexibility. We have built up the satellite capacity, and we have a good level of redundancy. Two more satellites are being manufactured at the moment – Express 103 and Express 80. We believe we will order three more GEO satellites,” Prokhorov said.

While Prokhorov may not be overenthused about LEO satellites, he is not ruling out other ambitious moves when looking at new satellites. “I do not cross out highly elliptical satellites from our plans because it is something we are looking at quite enthusiastically. It meets the customer needs in Russia and the Arctic region. Two-thirds of the Earth is covered by water, and this is the reason why I doubt these projects on LEO,” Prokhorov said. “We hope to develop applications which are associated with the use of Highly Elliptical Orbit (HEO) capacity. I would say that 7 percent of the Russian population lives in the Northern regions where there is no fiber, so satellite is the only way to bring communications to these regions.” VS