Expansion in the Skies
As 1996 draws to a close, it is quite clear that the five-year old satellite boom over Asia/Pacific, fueled mainly by video demand, is continuing without a stop. Like a long run up of a stock market, one begins to wonder whether the good times will continue. But so far, there seem to be few clouds in the future.
For example, even though Rupert Murdoch's StarTV continues to lose money, it continues to expand and diversify, setting the stage for future profitability, News Corp. hopes. StarTV's current losses certainly did not deter Telecommunications Inc. (TCI), the largest U.S. cable system owner and program channel investor, from taking a small, but symbolically important, share in StarTV.
The history of satellite television in Europe, in which Murdoch has played the defining role, gives industry observers good reason to expect a profitable future. Similarly, the remarkable take-up of direct broadcasting satellite services in the United States, despite that country's high cable penetration, further enhances expectations of success in an economically expanding Asia.
The latest satellite video developments have perhaps been among the most interesting, with not one, but four, satellite television ventures making major announcements in recent weeks in Japan.
PerfecTV, Japan's first digital satellite broadcasting service, began operations October 1 and has been averaging as many as 2,000 new subscribers a day for its 60 channels.
It will not have the market to itself for long, however. DirecTV Japan, an affiliate of U.S. market-leader Hughes, formally organized last month as well, and picked up giant trading company Mitsubishi Corp. as an investor and ally.
Other multimedia titans, Softbank Corp. and News Corp., have formed JSkyB, to be the latest "star" in Murdoch's enlarging constellation. To round out the competition for the Japanese audience, a group of eight satellite programmers have formed the "Skyport" group. The Skyport group has announced that it will begin offering services next year through both the Superbird, the initial home satellite for DirecTV Japan, as well as JCSat, systems. Thus, rather than choosing between alliances with PerfecTV or DirecTV, it has chosen to share a ride with both services.
The Indian market The maneuvering over Japan are as furious as those over India, seen as one of the largest directly accessible markets in the world. Lately, StarTV, already a major presence over the subcontinent, has been rumored to be in discussions with PanAmSat and Shinawatra representatives about a possible direct-to-home (DTH) venture for India.
Other homegrown and foreign programmers continue to seek market niches in India, in order to take advantage of a large middle class that many discovered existed only a year ago. Of note lately, too, on the video scene is that MEASAT has turned on its DTH venture as well, and taken on an investment from a government-backed investor in its broadcasting operation.
With so many programmers requiring so much capacity -- even with digital compression increased efficiency -- it is little wonder that Asia has become the primary destination for Western satellite manufacturing representatives. Perhaps only coincidentally, one of the three major U.S. manufacturers, Lockheed Martin Astro-Space, is moving its principle operations to California, from New Jersey. That will cut aircraft flight times for its staff to Asia by five and one-half hours when the move is completed next year.
The past year, however, has also seen increased European incursions into the Asian satellite market. Aerospatiale, of France, finally began its contract to build the government-backed Agila satellites for a consortium of telecom operators. In addition, Matra Marconi, an Anglo-French aerospace concern, broke through into the market, as well, snagging the ST-1 contract from Singapore and Taiwan. The European victories did not lead to laid off aerospace workers in the U.S., however, since the pace of satellite purchases has continued to accelerate.
The spread of satellites The list of countries in the region without at least one or two resident commercial satellite venture is getting shorter and shorter. If a country does not have its own 'native' system up or planned, then it is certainly within the coverage pattern, or footprint, of several other systems.
To illustrate the point, note that geographically compact, but economically expansive Singapore and Taiwan have moved to join Japan, South Korea, China, Hong Kong, Australia, Thailand, Malaysia, India and Indonesia with orbiting satellites. Laos, with financial assistance from Thai media mogul Sondhi Limthongkul, announced that it would be the 'home port' for two new satellites - L-Stars. Naturally, Sondhi promises they will deliver services directly to homes and businesses throughout Asia. L-Star 1 will be launched late next year.
The Laotian government, along with three other Thai companies, plus companies controlled by Sondhi, are shareholders in Lao-Star the operating company. Similarly, The Philippines has two projects underway, with the first, Mabuhay, already up and operational with an old Palapa spacecraft and its first satellite ready for launch soon. Its competitor, Agila, sought to beat it into service with a leased Intelsat satellite, but decided that the price for being first was too high and backed away from a deal in June.
In recent months, however, the continued growth in demand has encouraged some existing operators to buy even more satellites, or at least think about it. Japan Satellite Systems, operator of the JCSat system, purchased its fifth satellite from former investor Hughes Space and Communications. The satellite is expected to be launched by late 1997 or early 1998, reflecting the shortened production times now being achieved by satellite manufacturers.
Similarly, Pacifik Satelit Nusantara (PSN), of Indonesia, has recently been reported to have jumped further into the fixed satellite service market by purchasing a 50-transponder Multimedia Asia (M2A) spacecraft from Space Systems/Loral. PSN entered the market some years ago with bargain-priced services using end-of-life Palapa 2 satellites. It is also an investor in the Philippine Mabuhay system and is the lead investor in the ACeS mobile satellite project.
Not to be outdone, state-owned Telekomunikasi Indonesia (Telkom) is also reported to be shopping for a new satellite system. Telkom recently had to turn over operations of the Palapa system to privately-owned Satelindo, with the inauguration of the Palapa C generation of satellites, the third generation in Indonesia's 20-year-old satellite communications era.
Intelsat's activities Perhaps one of the most intriguing moves being considered is by the oldest operator in Asia, Intelsat. In September, Intelsat's Board of Governors decided to issue a request for proposals from manufacturers for the Intelsat K-TV satellite. K-TV would be an all Ku-band spacecraft which would be located at 95 degrees East, over Southeast Asia. Intelsat asked for proposals to be turned in quickly, focusing on 'off-the-shelf' hardware -- as opposed to the typical custom sizing Intelsat demands. The Intelsat Board could decide as early as December on a spacecraft.
The rapidity of the decision by the Intelsat Board to proceed, at least with the release of a request for proposals was breathtaking for those accustomed to Intelsat's usual deliberateness. The decision was tabled and approved at the same meeting in September. In fact, the decision to proceed may finally end two long-running debates within the organization: where to locate a satellite specially built for the DTH market, and what to do with the 95 degree location.
It staked out a new operating region, the Asia/Pacific Region (APR) between roughly 70 and 150 degrees east, a few years ago, to emphasize its commitment to greater service for the Asian region. However, it has been hard pressed to find anything but aging Intelsat V's to relocate to the region. Low on stationkeeping fuel and thus prone to drift in orbit, these spacecraft have not been the most attractive satellites for Asian operators, especially any trying to use them for business or video services.
Intelsat will begin to rectify its shortcomings in the region with 11 transponders of leased C band capacity from Insat 2E, to be launched late next year. The K-TV spacecraft will be an even more dramatic restatement of Intelsat's interest in the region. It will have only Ku band transponders to ease coordination difficulties in the congested orbital arc above Asia, where use of C-band has predominated.
Interest expressed in having a DTH-type satellite located over Asia by Intelsat signatories from India and Japan solved an embarrassing situation for Irving Goldstein, Intelsat Director General and CEO, as well. Goldstein had been trying to lead Intelsat into the satellite video boom market with a plan to launch such satellites for some time. Scandinavia and Latin America were the first target markets, but signatories from both regions expressed skepticism and demanded Goldstein make a better business case.
The loss of Intelsat 708 in a Long March rocket failure earlier this year further set back Goldstein's DTH plans. A consortium consisting of News Corp, TCI and TV Globo were going to launch a Latin American DTH venture using that satellite, even though it was not a true DTH spacecraft. After the loss of the satellite, the group promptly cancelled their contract and switched to PanAmSat.
While Intelsat brought satellite communications to the region in the 1960s, it has been under increasing pressure over Asia, as the number of competitors has increased.
Intelsat's primary business is providing international, especially transoceanic, telephone connections and video exchanges. It also leases transponders to countries for domestic services. For decades, Intelsat provided most of the transoceanic connections between Asia and North America and Europe.
Today, in this region and in the Atlantic basin, it faces tremendous pressure as telephone traffic is moved to undersea fiber optic cables by many of Intelsat's owners, the national PTTs.
Intelsat is responding in a number of ways, including placing increasing emphasis on provision of private corporate networks for business users, as well as thin route services for rural and remote areas. Since it is headquartered in Washington, D.C., this year it responded to its remoteness from the booming Asian market by opening regional sales offices in Bombay and Singapore.
Plans to buy the K-TV satellite caught Intelsat at an odd moment, like a butterfly emerging from a cocoon. Intelsat decided more than a year ago that it had to restructure or, to put it too simply, to privatize. Two separate working groups have been looking at proposals for how to restructure the organization for the last year.
During the summer, the process seemed to indicate that the working had settled on a U.S. backed plan to divide the organization into two. The basic plan would see the creation of a subsidiary which would compete in the markets that are not core to Intelsat's founding treaty, such as provision of corporate private networks and video services. Shareholding in the affiliate would be diversified away from the present ownership over time. A core of the old international organization would remain and provide basic interconnection services for all the nations of the world, especially the poorest.
Final recommendations are expected by the end of the year on the new form of the organization, but no one is discounting some minor delays into early 1997. Because Intelsat was established by treaty, the restructuring proposals will have to be approved by both national governments and the telecommunications operators who own Intelsat. The round of meetings which took place around the Intelsat Board's September meeting indicated, however, that there still is a great deal of anxiety among the less developed members of the organization over the details of the restructuring.
The K-TV proposal apparently won quick backing because it clearly would be placed under the privatized subsidiary and market conditions required a decision now, rather in 1997.
The result of Intelsat's restructuring will be an opportunity for the region's entrepreneurs to invest in a property with great name recognition, and a fleet of satellites already in orbit. 'Intelsat Inc' is expected to inherit several, even half, of Intelsat's 24 orbiting satellites. In addition, the region is likely to see a reinvigorated competitor, which is now being shouldered aside by aggressive newcomers. It is needless to observe that erstwhile competitors of 'Intelsat Inc' in Asia are not waiting to see what happens. Insat IID and Measat 2 are both scheduled for launch soon, along with Thaicom 3.
While video tends to get most of the attention, other services are likely also to become increasingly important to satellite operators. Hutchison Telecom's Corporate Access venture is still breaking down national barriers so that it can provide transborder corporate network services throughout the region. With business booming in the region, the only barrier to expansion of such services are antiquated regulatory structures and the resistance of national telecom operators to the breaking of their monopolies.
In addition, with telephone penetration below 10 per hundred population in much of the region, especially China, India and virtually all of Southeast Asia, countries have gone on massive telecommunications infrastructure-building projects. Satellites can offer a quick means to lay in trunk lines throughout a country, as well as reach out to remote communities with just a few telephone circuits.
Forthcoming services On the horizon for telecommunications users in the region are entirely new classes of satellite services.
Inmarsat recently moved a powerful new Inmarsat-3 satellite into the Indian Ocean region. Inmarsat has been offering mobile satellite communications services for nearly 15 years, mostly to ships and oil platforms. The on-board power of the INMARSAT 3 will allow INMARSAT to offer businessmen service directly through what it calls Mini-M class terminals. These terminals, about the size of a laptop computer, with a built-in handset and antenna that must be pointed in the general direction of the satellite in geostationary orbit above the equator, will permit users to phone, fax or e-mail from anywhere within the coverage pattern to anywhere in the world. Neither the terminals nor the calling charges will initially be cheap, but they may prove indispensable for some businessmen and government officials who need to be in reach of a telephone at all times.
The Mini-M is a taste of things to come. Several regional competitors have emerged in the last year or so to challenge INMARSAT before it gets much of a grip on the land-based market with its new service. PT Asia Cellular Satellite (ACeS) plans to launch its first Garuda geostationary mobile satellite system in 1998. It will provide coverage over a wide swath of the continent, from Mongolia and China to India, Indonesia and Papua New Guinea.
ACeS is owned by PSN of Indonesia, an affiliate of Satelindo, the Philippine Long Distance Telephone Company and Jasmine International Overseas company, Ltd., of Thailand. It will offer services to customers with handheld, mobile (truck and car mounted) or fixed terminals.
Voice, data and facsimile services are planned, along with paging and related alerting services. Its primary mission will be to provide cost-effective, fill-in service for cellular operators and users, where ground-based terrestrial systems do not reach. Handsets are planned which will operate with both the terrestrial cellular and the Garuda satellite at the option of the user.
ACeS faces potential competition from two other organizations from the region. The first is Afro-Asian Satellite Communications (ASC), lead by Subhash Chandra, the Indian communications entrepreneur. ASC plans to launch satellites to serve India and other countries in Central and South Asia, the Middle East and eventually Africa. ASC has been rumored to have had disagreements with its satellite manufacturer, Hughes Space and Communications, and possible financial difficulties. Nevertheless, it is should not be counted out yet as a strong competitor for the handheld market in south Asia later in the decade.
In addition, six companies from Singapore and China formally founded Asia-Pacific Mobile Telecommunications Satellite (APMT) in the waning days of 1995 and then chose Hughes, again, to build a satellite to cover the same vast region as ACeS' Garuda will. APMT also plans a 1998 launch and operational date.
These three, if they make it into orbit on time -- no small feat for satellite ventures using highly advanced technology and finicky rockets -- will likely face competition of another sort as well. Starting next year, as many as four satellite systems offering similar handheld services will begin launching satellites into low earth orbits (LEO) covering the entire planet. The four are Iridium, Globalstar, Odyssey, and ICO Global Communications.
All four plan to launch what are being called constellations of satellites into orbits closer to earth than the geostationary orbit used by ACeS, APMT, ACS or INMARSAT. That means they have to launch more satellites to provide global coverage, but also that users will not have to put up with annoying delays caused by the distance a signal must travel from earth to geostationary orbit.
Iridium, Globalstar and ICO all have put together international partnerships and distribution channels spanning most or all of Asia. Odyssey has yet to announce its full line-up of investors and the start of its satellite manufacturing contract.
Market access will be the key for any of these systems. They have tried various strategies to assure access, including signing up investors and agents in as many countries as possible. Only lately have the three American companies agreed to stand together regarding how globally their narrow frequency band around 1.5 GHz should be divided among TDMA (Iridium) and CDMA (Globalstar and Odyssey). ICO will operate around 2 GHz.
Perhaps even more encouraging were the results of the recent World Telecommunications Policy Forum in Geneva. Sponsored by the International Telecommunication Union (ITU), the forum issued non-binding opinions and a draft Memorandum of Understanding regarding international transport of mobile satellite handsets that the future operators considered highly positive for their prospects.
Thus, within a few years, the fierce competition for satellite customers will extend to mobile satellite services. Asian users will surely benefit from competitive prices and innovative service packages.
The economic boom in Asia is fueling the boom in satellite services. The barriers so far are the availability of orbital locations and frequencies associated with them. The "wars" over orbital locations seen a few years ago seem to be settling down, though coordinating the operations of so many new satellites is keeping a handful of satellite radio frequency engineers so busy they can be regularly seen in airport waiting areas throughout the region. They are easy to spot. They have worried, but somehow happy looks on their faces.
There is nothing a good engineer likes more than a challenging problem. The success of the satellite operators in Asia will partly depend on these engineers' imagination and the operators' own willingness to be flexible, so that as many as possible have an opportunity to take part in the boom.