Trends and Prospects of FSS Capacity Supply and Demand in China

China is the world’s second largest economy. With a population of 1.3 billion, it is increasingly playing an important and influential role in the global economy, politics and culture. According to Euroconsult, the country is estimated to have the world’s fourth largest government expenditures for civil space programs, and has made a number of achievements in manned space programs, lunar exploration, satellite remote sensing, satellite launchers, etc. However, the commercial satellite communication market in China is still in the developing stage.

In 2014, the Chinese domestic market used about 360 commercial satellite transponder equivalents (36 MHz), which represented only 5 percent of the global commercial satellite communication demands that year. In terms of available satellite capacity, the Chinese market currently stands for approximately 2 percent of the global commercial satellite communication supply. Regarding satellite capacity price, the Chinese market is also about 13 percent below the global average. Among other factors, regulation is one of the most important obstacles for the development of the domestic market, particularly for businesses related to broadcasting.

We do see a large range of applications requiring increasing satellite capacity in the Chinese market.

However, rather than speculating on the possible regulatory changes in the future for the Chinese market, I would prefer to focus on the structural market demand. In fact, the Chinese satellite market has posted continuous growth in the last 5 years, with a Compound Annual Growth Rate (CAGR) of 3 percent in capacity demand, which is in line with the global average. By comparison, much more matured geographic markets, such as North America and Western Europe, have all experienced continuous decrease in capacity demand mainly due to economic downturn, optimizations from broadcasters and switch off of analog channels.

At Euroconsult, we do see a large range of applications requiring increasing satellite capacity in the Chinese market. The Chinese government has been committing significant investments in improving communications in rural areas. A large amount of satellite capacity, mainly from China Satcom, APT, and AsiaSat, has been procured to support cellular backhaul, Public Switched Telephone Network (PSTN) and Internet Protocol (IP) trunking, corporate VSAT networks, village communications, emergency communications, and, more recently, maritime and aeronautical communications, among others. China Mobile is one of the largest customers, leasing a considerable number of transponders on Chinasat 5A (formerly ChinaStar 1) and Chinasat 6B. The majority of this capacity is used to carry cellular traffic in remote areas, while the rest is reserved for emergency communications. In addition, a variety of organizations, primarily from the military, law enforcement, utility, and finance sectors, as well as, more recently, schools, use satellites for private communications networks. Examples include the People’s Liberation Army (PLA), the People’s Armed Police Force (PAP), the Ministry of Transport, the Ministry of Water Resources, the People’s Bank of China, China Pacific Life Insurance, China National Petroleum Corporation (CNPC), China National Offshore Oil Corp., China Tobacco, and the Civil Aviation Administration of China (CAAC).

On the broadcasting side, at present, China Satcom has a monopoly position in the market. According to Regulation 129 issued by the Supreme State Department in 1993, the individual ownership of satellite reception equipment is prohibited in China. Although no modification of this regulation has been released, in 2008 the State Administration of Radio, Film, and Television (SARFT) and the National Development and Reform Commission (NDRC) jointly issued a new document allowing authorized organizations to install Direct to Home (DTH) satellite antennas in remote villages. China DBSat has been designated by China Satcom as the dedicated subsidiary for DTH service and is responsible for the DTH satellites’ (e.g., Chinasat 9 and the future Chinasat 9A) operations. The DTH service from Chinasat 9 has been highly successful and a large number of DTH antennas have been quickly deployed in remote regions across the country. Meanwhile, the SARFT reported that no fewer than 60 million unauthorized antennas had also been installed across the country to receive TV signals from Chinasat 9. However, despite the fast development of DTH service, the current main video service of China Satcom is still content distribution to cable operators and local terrestrial broadcasters. The backbone for the content distribution service consists of Chinasat 6B and Chinasat6A (formerly Sinosat 6).

Looking forward into the next decade, we see the demand will continue to grow across all major vertical markets in China. In particular, we anticipate that the demand will gradually move from government-centric to business-centric applications. Enterprise network is expected to have the highest growth rate at 9 percent CAGR. Even if the regulations for broadcasting do not change significantly in the future, we expect a 4 percent CAGR for broadcasting applications, which will mainly be driven by the development of cable TV, an increasing number of TV channels and the fast migration toward HD and Ultra-HD. The telecom trunking business is still expected to grow by only 2 percent CAGR, mainly due to the overall development of terrestrial networks. All in all, the China commercial satellite communication market is expected to grow faster than the global average in the next 10 years, however its market share will not exceed 10 percent of the global market, unless there are significant changes in regulations and foreign satellite operators are allowed to enter the domestic market.VS

Wei Li a senior consultant of Euroconsult based in Paris, France focusing on mobile satellite communications, and analysis of FSS satellite operators.