Some Satellite Companies Saw Growth in International Markets, Expansion In Ka Band, MSS

Last year, there was an overlay of supply and demand in the satellite market, said Jay Gullish, Futron Corporation space division director. “We've seen … an actual robust growth in the number of channels” and in the type of channels available, he said. “HD is growing all over the place.” Across the board there’s maturity, but also pockets of opportunity and risk, Gullish said. The Ka band market has the potential “to be a bit of a game changer for the industry,” said Chris Quilty, Raymond James senior vice president. It’s mostly theoretical, he said: “There’s been a lot of movement in the Ka market and we expect to see new entrants in the future."

Ka-band consolidation and budget constraints in the military market changed the market, Gullish said. “I think Ka band is going to be growing as a market and there’s going to be a natural evolution, [and] perhaps some disruption that’s tied into Ka band.” There’s been a reset in the military market, he said, as a result of the troop draw-down in Iraq, which resulted in cancellation of some major contracts. The reset also is due to the “budget requirements that the military’s hitting against.” It’s forcing the military “to rethink some of their architecture and how they balance their requirements between external commercial use and internal systems,” he said. The geography will move from Iraq to Afghanistan, Gullish added.

An oversupply of Ka band, FSS hybridization and other trends could be disrupting factors in market growth, Gullish said. There will likely be an increase in Ka-band companies, he said. But, there’s a possibility that “one or more of those ventures may not be successful.” Failures and consolidation could be a factor, Quilty said. It’s uncertain whether Iridium will be fully financed to launch its satellite constellation, he added.

Hybridization of FSS may have a disruptive effect, Gullish said: The delineation “between MSS narrow-band and FSS wide-band is definitely blurring.” Managed and integrated services also could come into play, he said: “Customers are going to launch satellites as part of a broader solution, that includes fiber optics.” Spectrum is scarce “for the services that we tend to provide,” said Dara Panahy, a Milbank Tweed attorney. The industry will have to address the scarcity going forward, he said.

The global growth of the market is facing uncertainties as some nations are recovering economically, said Claire Jolly, a senior policy analyst for the Organisation for Economic Co-operation and Development. Indicators show “timid signs of expansion in the U.S.,” and a slowing down in China, she said. Uncertainty over the global economic recovery “could lead to declines of institutional and consumer demand over the next 24 months.” However, some economies grew last year in some Asian countries and Brazil, she said.

Some satellite companies do expect strong growth internationally, financial executives said during a later panel discussion. Hughes is experiencing growth in its international market, said Grant Barber, its chief financial officer. He said the company is pleased with its integration efforts following its sale to EchoStar: “We finished the year … with very strong growth led by our consumer market.” In that market, more than 626,000 consumers use Hughes as their primary high-speed Internet, he said. Even with Viasat 1 and the launch of EchoStar 17, “we're still barely scratching the surface of what the demand is for high-speed Internet over satellite,” he added.

Intelsat has more than 2,000 transponders and its growth could help increase revenue, said Michael McDonnell, Intelsat CFO. The company also expects more revenue from its resale capacity and its extensive fiber network, he said. “We have a lot of pieces to our business” to help revenue grow, he said. There are five satellite launches scheduled for 2012 and one in 2013. There is a slightly higher growth in pricing trends in Latin America, while growth in Africa is weak, McDonnell said. There also was a decline in “point-to-point channel services business and in network services business.” The rest of the world remained pretty stable, he added.

The Export-Import Bank of the U.S. isn’t expected to rein in lending as a result of the current budget environment, said John Schuster, a vice president of the bank, as part of a separate panel discussion on satellite industry investing. That’s due, in part, to the bank’s ability to bring in money to the U.S. Treasury through the loans, he said. The satellite industry has been an especially successful program for the bank, he said. “A lot of other things we look just don’t have the growth that space does,” said Schuster. While the EmIm Bank does provide some loans to new satellite entrants, it’s much more attracted to companies with a successful background, he said. One of the first things Schuster looks at while considering loan requests is the number of satellites already launched, he said. There are other factors that compensate for a slim track record, such as having enough equity and a good market outlook, he said.