Faced with a steady decline in the price of their basic commodity, satellite operators have turned to vertical integration to drive efficiency savings and create new business models which capture more of the value chain.
The price per unit of satellite bandwidth may be falling, but the revenue operators are able to earn from selling it is not, pointed out Ramesh Ramaswamy, executive vice president and general manager of Hughes Network Systems’ International Division. He spoke Tuesday alongside executives from Intelsat, Yahsat, and SES in a session on fixed satellite services at the SATELLITE 2021 conference.
“We're all growing revenues and we're making money,” Ramaswamy said, “The challenge we all face — and I'd like to think that we've stepped up — is to weather the price reduction on the individual components of the ecosystem, but then mitigate that by providing more innovative services and adding more value.”
He added that the key to success is to integrate those components and package them into value-added services: “You take the individual components, which are commoditized, but when you stick them together, you make sure that one plus one is three,” he said.
“The more vertically integrated you are, the more of the value chain you control, and the more willing you are to go downstream — the more likely you are to be one of the winners,” Ramaswamy concluded.
Amit Somani, chief strategy officer for UAE-based provider Yahsat, went further, suggesting that innovation in the business model — how services are bundled together and how partnerships form — trumps technological innovation. “To differentiate [Yahsat from competitors based on] the technology would be quite challenging. We have good satellites, but others are there with a similar kind of infrastructure.”
Instead, what had helped the company thrive is innovations in the business model. “Partnering, thinking about going downstream, thinking about hybrid models to do business. Product and business model is where we will do more innovation to capture that market,” Somani said.
Bill O'Hara, Intesat vice president and general manager for Media, gently disagreed.
“Maybe there are times where infrastructure can be enough,” he suggested, noting that Intelsat hasn’t turned to vertical integration in its video and media services. But the company has thrived nonetheless, because it distributes to large and wealthy European markets like France, Germany, Spain, and the United Kingdom.
“The value of our neighborhoods is such that we've kept a very robust book of business. And we haven't lost deals to others that have been more vertically integrated, for example, largely on the strength of our infrastructure,” O’Hara said.
“The value that we provide, the type of connectivity that we provide, at volume and scale is something that just cannot be duplicated from a terrestrial standpoint,” he added.
Indeed, traditional video distribution, either of live events to cable distributors, or Direct-to-Home (DTH), continues to be a major revenue stream for the operators. It currently represents about 60 percent of revenue for SES, said Elias Zaccack, the company’s senior vice president for Commercial in the Americas, and the rest is network services of various kinds — connectivity for governments, cruise ships, and airlines.
“The video business is extremely resilient,” Zaccack said, noting that the company announced earlier in the year that it had successfully secured long term renewals most of its major DTH providers. But, he added, this is a mature market that is not expanding.
“The growth is coming from the network side,” he said. “The data part of the business — whether it's government, cruise, aero, or cellular backhaul — is what's driving our growth at SES.”
On the other hand, O’Hara noted, the transformation of consumer media markets like the growth of Over-the-Top (OTT) services like Disney+ drives “an appetite and a desire to monetize viewers outside of the traditional media outlets that we provide such as Direct-to-Home services.”
O’Hara said Intelsat is “spending a lot of time understanding how we can help [our customers] monetize [their customer’s eyeballs] and what we can bring to the table that's unique, not commoditized, and provides additional value to them, in addition to what we're already doing.”
New technologies like dynamic resource allocation — in which beams are moved or powered up instantaneously in response to shifting demands — or software-defined satellites which can be updated in orbit, will help drive efficiencies and “enable our immediate customers to capture value in ways that they hadn't been in the past,” O’Hara said. VS