SATELLITE SERVICE DEMAND: RELOADING THE MATRIX
15 December 2003
(courtesy of Futron Corporation)

Preface

For the eighth consecutive year, Futron has developed an updated forecast model of the worldwide demand for satellite services. As in the past, we have analyzed a matrix of video, data and voice service categories representing both wholesale and retail opportunities. Once again, we have “reloaded the matrix” refining these categories to better reflect the evolving nature of the services markets. This is particularly important now, as we are at the precipice of the launch of multiple enhanced satellite capabilities, including Ka-Band for two-way consumer broadband, HDTV on DTH platforms, and in-flight Internet access.

But if decisions have already been made to invest in these new capabilities, why forecast the demand for them? Every company will have its own reasons for needing such forecasts, but some of those Futron’s clients have found to be most compelling include:

• Understanding the movement of demand across geographic markets can help operators plan for the proper deployment and pricing of their new satellite assets
• Previewing the demand for additional new satellite capabilities can help satellite manufacturers focus their design and sales activities to anticipate potential customer needs
• Knowing which services are likely to take off fastest, and where, can help ground equipment vendors decide where to focus sales efforts and staff, or establish local manufacturing joint ventures
• Awareness of the trends in new services can help governments plan their acquisition and regulatory strategies

Comprehensive, rigorous market analysis can significantly reduce the risk inherent in all segments of the commercial satellite business. This is the reason Futron has invested so much time and energy developing its forecasting capability. There are several aspects to this capability that should be noted:

• Futron’s forecast model is internally funded – it is completely independent of all current or proposed satellite systems or organizations.
• It is based on the demand for satellite services – this is a more rigorous and comprehensive approach than a supply-based forecast for a ten-year period.
• It is a global forecast, evaluating over 200 countries and territories individually. It also uniquely forecasts sixteen different satellite markets.
• It is a capability, not a product. Futron does not sell its forecast in an off-the-shelf publication. Rather, we develop the forecast model so that we have the capability and understanding to perform businessrelated consulting projects for our customers. While top-level, generic forecasts can be useful in some situations, we at Futron like to solve our customers hardest problems, which are not as effectively addressed by a mass marketed report.

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Executive Summary

Yes, demand for satellite services will continue to grow over the next ten years. No, this growth will not be straightforward, and it will not be across-the-board.

Futron Corporation’s latest ten-year forecast of the demand for commercial communication satellite services shows continuation of recent trends in major service areas – video, private networks, basic telephony – but some more interesting and volatile trends in newer market areas.

• Overall, the demand in terms of number of transponders (36-MHz transponder equivalents) grows by more than 60% (see Figure 1).

Figure 1: Futron Satellite Demand Forecast

• The highest rates of growth in the short term ( a small current base – air telecom (including in-flight Internet access), Last Mile Data and Telephony. Fixed telephony, DTH and Private Data Networks experience moderate growth levels throughout the full ten years, as shown in Figure 2.

Figure 2: Growth Rates of Demand for Satellite Services - Short Term

• Success for satellite services will require careful timing to catch windows of opportunity as they appear in different regions. This is particularly true for the large, fast-growing, and extremely price-sensitive consumer services markets. As Figure 2 above shows, these markets have high growth in the short-term, but slow down in the later years. These growth patterns also vary by geographic region and must thus be evaluated individually.

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Futron’s Forecasting Methodology

Every year since 1996 the Futron Corporation has undertaken a detailed review of the future demand for geostationary commercial satellites. From these detailed assessments we have historically been successful in predicting the numbers and types of future satellites.

This year, as in the past, we have analyzed over a dozen separate markets, evaluating the ten-year trends in user demand for each market in over 200 countries. Futron has refined its classifications of satellite services as the telecommunications and media industries have evolved, and this years forecast matrix is shown in Figure 3, below.

Figure 3: Futron’s Satellite Services Matrix

Futron’s analytically rigorous forecasting methodology is summarized below.

• Identify fundamental drivers of demand for telecom and broadcast services

• Historical trends
• Emerging applications

• Apply constraints on satellite demand looking at key environmental factors

• Terrestrial competition – build-out, uptake, and pricing
• Regulatory environment
• Price and affordability
• Customer equipment distribution and uptake

• Translate into demand for transponders reflecting satellite industry trends

• Technology (e.g., data compression, frequency reuse)
• Communications payload profiles

• Normalize for current usage of commercial geostationary satellites

• Analysis transponder-level usage via Futron’s Supply Database

Some of the key drivers for the Video, Data, and Voice markets are discussed in the following sections.

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Video continues to be king

TV Relay (incorporating both broadcast and cable markets) continues to serve as the bread and butter of the satellite industry, with growth continuing at a reasonably constant rate throughout the forecast period. However, it is the consumer side – primarily DTH – that provides the most dynamic market.

As shown in Figure 4, below, in most markets satellite continues to take market share away from terrestrial pay TV providers. The one exception is the Africa/Middle East region, in which satellite subscribers already represent almost 40% of pay TV subscribers, as cable build-out has been slow given the geography and associated obstacles. Perhaps most interesting is the expectation that satellite’s share of subscribers will more than double in both Asia and Central/East Europe.

Figure 4: DTH Satellite Subscribers as a Percentage of Total Pay TV Subscribers

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Data is diversified as is its growth

Last Mile Broadband Access – here today and moved elsewhere tomorrow

Consumer broadband services include a mix of diverse sub-markets – last mile access for Residences, SOHOs, Small/Medium Enterprises and Large Enterprise. What these have in common is the anticipation built up over the past few years that these will be the next new big opportunity market for satellite data delivery. Unfortunately what they also have in common, as shown in Figure 5, below, is a future rollercoaster ride as market opportunities come, go, and move around. Today's short-term opportunities are in serving advanced economies that have a need for broadband, but that window is closing. Further down the line, at the closing years of the forecast the window will reopen in developing countries which will increase their demand for broadband but will still be underserved.

The key message for all of these markets, varying somewhat by time and geography, is that there is a window of opportunity, in particular for the business segments, which begins to close after 2005-2006. This window of opportunity closes first in the developed world with its increasingly rapid terrestrial broadband penetration.

Figure 5: Last-Mile Data Satellite Demand

Despite these variations, the key drivers and sensitivities for all the last mile access segments are basically the same:

• Exponential growth in content availability and individual user bandwidth needs
• Price competitiveness of satellite delivery, including user equipment and bundling
• Ka-Band introduction reducing the number of transponders needed to serve still-growing bandwidth demand

But these factors do not affect all regions or countries evenly. Today's short-term opportunities are in serving advanced economies that have a need for broadband, but that window is closing as terrestrial broadband grows. The window will reopen in developing countries in later years as demand outpaces availability of terrestrial buildout.

Private Networks – They Just Keep Going and Going

Private networks continue to be the dominant application within the data market, and the only one that is showing strong, consistent year-to-year growth. Most of this growth comes from bandwidth-intense applications surpassing narrowband requirements. Perhaps most interesting is the key contribution to this growth from the continued expansion of government networks. This market is not just confined to the US, although the US government – civil and military – is a major user, but is a global phenomenon in part because of the increasing presence of US government operations around the world. Traditionally referred to as the VSAT market, the Private Corporate Networks sector encompasses a range of closed data communication networks for businesses with multiple locations. This is a stable market with sustained growth. It is not as glamorous as newer applications. However, it is a strong business, which accounts for the majority of current and future data services demand, with bandwidth-intense applications surpassing the more traditional narrowband requirements.

While North America is the largest market, and continues to grow, the growth rate is fairly low. Asia exhibits the highest growth rates – in terms of both total number of terminals sold and transponders required.

ISP-to-Backbone: Good for Now, Not for Later While

ISP-to-Backbone (the direct connection to the fiber backbone for national operators serving ISPs and ISPs serving individual users) has been a surprising growth area for satellites, it has started to peak in many markets, and will begin a steady decline worldwide within the forecast period, as shown dramatically in the growth rate chart in Figure 2. Like other point-to-point applications, it was a limited time opportunity play determined by the unavailability of fiber. In some areas this growth will continue well into the forecast period, as illustrated in Figure 6, depicting the demand for both domestic and international backbone connections by satellite in Central/Eastern Europe.

Figure 6: Evolution of ISP-Backbone Demand for Central and Eastern Europe (Domestic vs. International

We know that others have forecast much higher rates of growth for services including Internet backbone, but we believe much of this is wishful thinking, and our demand-based methodology provides a more rigorous approach. This is because we believe that aggressive expansion of terrestrial wireless networks will continue around the world. While this will likely provide an interesting new opportunity for satellites to expand their role in wireless backbone services (as is now done in many markets for mobile telephony) the end-user market available to satellites will be reduced.

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Voice – a small but steady business

Satellite Demand Mbps This market includes domestic and international trunking as well as fixed telephony services such as satellite mainlines and satellite phone booths. Since the forecast data reported in this white paper is limited to geostationary satellites, it does not include demand for mobile services on non-geostationary systems such as Iridium and Globalstar.

The trunking markets have for years been turning away from satellite to fiber-optic cables, especially on the large, transoceanic routes. Nevertheless, telephone trunking experiences modest growth as total telecommunications traffic worldwide increases, including traffic with/among less developed markets.

Perhaps most interesting is the anticipated growth of the fixed telephony services, which are effectively a consumer market. This includes the “satellite phone booths” and other rural networking facilities unlikely to be served by terrestrial alternatives. As shown in Figure 7, even within one, quite active region for this service, growth rates vary by sub-market. This growth is dependent on installation of terminals in the most rural of the rural markets, which in turn is dependent on continued government commitment to subsidies for such build-out.

Figure 7: Latin American Last Mile Satellite Telephony Trends

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What Are the Next Steps?

The challenge facing the satellite industry as a whole – operators and manufacturers of space and ground hardware – is to seek out opportunities to maximize the value of the near-term markets, without overcommitting to those that will clearly decline in the longer-term.

Continued development is needed of satellites and ground terminals that can serve not just today’s last-mile growth business, but also tomorrow’s steady private network and DTH users. Understanding the individual needs of regional sub-markets will also pay off by enabling sales and capacity resources to be shifted as demand moves. Planning for all these broader and longer-term changes can reduce the business disruptions caused by looking at markets individually or only a few years at a time.

The detailed data and analysis underlying this White Paper can provide the tools needed to undertake such planning. Futron’s analysts can develop custom assessments of the opportunities presented throughout the matrix, connecting your business development to developments in the marketplace.

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Futron Overview

Futron Overview Futron Corporation is a technology management consulting firm. Futron applies analytically rigorous decision-support methods to transform data into information. We collaborate closely with clients to relate decisions to future outcomes and measures of value. Our aerospace consulting services include market and industry analyses, safety and risk management, remote sensing, and communications and information management. Futron was founded in 1986 and is headquartered in Bethesda, Maryland with a branch office in Houston, Texas.

Futron's headquarters in Bethesda, Maryland

Summary of Capabilities

Futron’s Space and Telecommunications Division is the industry leader in researching, analyzing, and forecasting space and telecommunications markets and programs. Futron offers our commercial and government clients a suite of proprietary, leadingedge analytic methodologies. Our world-class team of market and policy analysts, economists, and engineers bring unparalleled skills and expertise to each account.

• We have surveyed hundreds of aerospace firms to develop a unique revenue, employment, and productivity profile of the industry.
• We have developed country-by-country models of demand for telecommunication services that aggregate a global forecast up from the individual household PC or business network; these models have accurately predicted future launch levels and business changes in the satellite industry.
• Futron helps clients win competitions, analyze competitors, estimate costs and prices, and track opportunities.
• Futron also performs cost estimates and economic analyses. Futron generates bottoms up, parametric, and analogous cost estimates for commercial satellite and launch vehicle programs.
• Futron provides a subscription-based service providing information on every FCC satellite application filed since 1990. Futron’s FCCFilings.com is the only source for competitive intelligence and business data contained in FCC satellite licensing documents.

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