More challenging environment ahead for the satellite communications sector

Thursday, August 11th, 2011
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Growth still robust in a number of segments and regions

PARIS — Euroconsult, the leading international research and analyst firm specializing in the satellite and digital broadcasting sectors, announced today that the market reached new revenue highs once again. According to Euroconsult’s just-published report “Satellite Communications & Broadcasting Markets Survey, Forecasts to 2020,” the fixed satellite sector grew both in terms of transponder demand (+4.4%) and revenue, which reached $10.8 billion in 2010. However, this is set against a backdrop of slowing growth rates and a more challenging business environment in the next several years. Euroconsult nevertheless maintains an overall positive outlook for the future of the satellite sector with television broadcasting and emerging markets continuing to drive growth and high throughput satellite (HTS) capacity systems contributing to growth as well.

“While we have seen slowing growth rates in leased capacity, FSS operators’ revenue growth has continued to outperform the global economy, and operating margins remain high for most operators. In the near term, the difficult economic environment could weigh on the market.” said Pacôme Revillon, CEO at Euroconsult. “Still, connectivity needs and the growth of digital TV in emerging regions, combined with the launch of new generation high throughput satellite systems should continue to drive growth. The value of satellite capacity leasing should consequently grow at 7%1 over the next ten years.”

Slowdown In Capacity Demand And Large Supply Additions Raise Questions

Global demand for capacity usage slowed for the second year in a row, growing at a rate of only 4.5% last year. While growth remained strong in several emerging regions such as Latin America and parts of Asia, poor performance in North America and Western Europe, and slower growth in Africa (following the arrival of submarine cable connectivity in many countries), dragged down overall industry performance. This slowdown was nevertheless somewhat expected as it followed a period of high growth in the sector, and the progressive maturing of certain segments.

There will likely be challenges at both the supply and demand levels in the next three years. On the demand side, certain segments such as military communications could see slowing capacity demand if US forces progressively withdraw from the Middle East and Afghanistan. On the supply side, the launch of large capacities should result in a decreasing average fill rate for the sector, which peaked at 78.5% last year. While the situation will probably vary significantly from one region to another, lower fill rates in certain areas could put pressure on capacity prices and operator revenues.

Regional Operators Threatening International Leaders

In contrast to the historical FSS market, in recent years regional operators have been capturing a larger portion of new capacity leases and represent an increasing share of capacity supply. The four leading global operators’2 share of net capacity additions has decreased from roughly 70% in 2005-2007 to 27% in 2010. Although this may partly reflect different phases in operators’ investment cycles, it also underscores many regional operators’ aggressive development strategies and investments in new satellite systems.

TV Broadcasting Remains The Most Robust Growth Driver For The Industry

TV channels broadcasting continued to drive growth for satellite operators last year, with over 29,000 TV channels distributed by satellite worldwide. Growth in number of channels broadcast was supported by the launch of 15 new satellite pay-TV platforms which were launched in emerging regions, for a total of 126 satellite TV platforms serving around 155 million subscribers worldwide. Capacity demand for TV broadcasting consequently grew by over 9% in several regions including Latin America, Russia, the Middle East, Africa, and South East Asia.

The number of high definition TV channels worldwide increased by 42% last year to reach around 2,680 HD channels (excluding local networks in the US). While 70% of HD channels broadcast in 2009 were concentrated in North America, this share decreased to 58% in 2010, illustrating the proliferation of high definition worldwide. By comparison, 3DTV remains a nascent market with no more than 20 3D channels reported in 2010. Growth of 3DTV should remain very progressive, with ultra-high definition representing another growth driver in the long term.

High Throughput Capacity Leasing To Contribute To Growth In The FSS Market

Capacity offered through high throughput satellite (HTS) systems, primarily in Ka-band, should ramp up in the coming years, passing from 77 Gbps in 2010 to over 450 Gbps in 2015 based on announced satellite procurements. The number of HTS capacity suppliers should increase, with the operator strategies ranging from the addition of small payloads to the launch of dedicated satellites such as the KA-SAT from Eutelsat in Europe. Inmarsat, the mobile satellite service operator, could be viewed as a new entrant to the FSS market considering their current investment in a new constellation offering high data rates in Ka-band. Another 84 Gbps of supply should be added with O3b’s constellation of MEO satellites.

This new supply offering should stimulate demand for most telecom applications, including consumer broadband access, enterprise networks, traffic backhaul, military communications (including for UAVs) as well as video contribution. According to the Euroconsult report, overall capacity used on HTS systems should be around 950 Gbps in 2020, compared to 22 Gbps in 2010. Consumer broadband access could, for example, require up to 600 Gbps by 2020 to serve over 14 million subscribers worldwide.

Prospects To 2020

Euroconsult expects the global market value of capacity used for the traditional FSS market to reach approximately $14.8 billion in 2020, or $20.4 billion when including the wholesale market value of capacity used through emerging HTS systems.

Capacity usage on traditional satellites should continue to grow by close to 4% per year in the next five years, with much faster growth expected in emerging markets than more mature markets. The main growth driver should be digital TV broadcasting, well ahead of telecom applications.

Industry consolidation has currently slowed, but the increasing scarcity of spectrum and orbital positions is resulting in more partnerships and joint ventures between operators and with national governments. Although certain acquisitions could take place, the development of new operators should partially offset that trend to maintain a rather stable number of FSS operators. Meanwhile, partial consolidation has been observed at the level of service providers and end-users of satellite capacity, which could impact operators’ commercial strategy. Some operators are also beginning to manage hosted payloads for governments, representing another business opportunity in addition to direct capacity leasing.

Report Profile

Now in its 18th edition, Satellite Communications & Broadcasting Markets Survey, Forecasts to 2020 is the definitive business planning tool supporting investment decisions in the satellite industry. Released annually, it provides the most complete and accurate picture of market conditions and extensive, insightful analysis of market trends. The report includes analysis of all fixed satellite communications applications, an in-depth strategic review of satellite operators’ business models and financial performance; and a 12-region breakdown of the world including transponder demand trends and ten year forecasts by application and by region. The report also looks at transponder pricing trends, supply and demand match by region and frequency band, and operators’ market share by region and by application.

1. Compound annual growth rate (CAGR)
2. Intelsat, SES S.A., Eutelsat and Telesat