IS
THERE A FUTURE FOR EXTRA LARGE TELECOMMUNICATIONS
SATELLITES?
by Eris Le Proux, President and CEO, Vista Advisers
(courtesy of Vista
Advisers)
Introduction
Since 1965, when Early Bird, the first commercial satellite, was launched, the size of commercial telecommunications satellites has been steadily increasing, to reach an average mass of 1.9 metric tons in 1990 and 3.3 metric tons in 2000. Today, high-end satellites reach a mass of 5.5 metric tons and carry in excess of 90 transponders. The current crisis affecting the telecommunications industry globally has raised questions about the actual need or relevance of extra large (XL) satellites for operators. Are advantages outweighed by risks? Can satellite manufacturers expect a significant share of their revenues from extra large satellites?
Unparallelled Advantages Of XL Satellites
In this paper, we consider that satellites
with a mass greater than 5.5 tons and with an onboard power of 15 kilowatts and
higher belong to the XL class. To give an idea, these satellites can easily
accommodate 120-190 transponders.
XL satellites provide two compelling
advantages over all other smaller satellites: (a) economies of scale and (b)
enhanced performance and flexibility.
In the current context where
market growth for transponders has slowed in many regions, economies of scale,
hence the possibility for operators to reduce transponder prices, are probably
the best way to revitalize a sluggish sector. With a cost per transponder five
times lower than for small satellites, XL satellites can significantly
contribute in this area.
The most recent technological developments
confirm that this indicator should continue improving with the introduction of
the XL satellite class, possibly bringing costs down as much as seven to ten
times less than small satellites within five to seven years.
Enhanced
performance and flexibility are key to adapting to a changing market. Not only
do they let operators target a very diversified client base, but even more
important, they can mitigate market risks by allowing sophisticated coverage
reconfigurations while satellites are in orbit.
With their onboard
power greater than 15 kilowatts, XL satellites provide the ability to extend
the footprint coverage while increasing the eirp and can carry complex onboard
technical functions, all features that drive technical design trade-offs made
by operators.
From an application standpoint, these functions, such as
onboard switching, onboard processing and onboard multiplexing, enable
operators to simultaneously tap broader geographic markets and secure new and
less wealthy customers, while reducing their business risks.
XL Satellites Are Far From A Panacea
Unfortunately, many other factors
considerably diminish the above advantages, to the extent that a great number
of satellite operators could be deterred from buying XL satellites.
Cash requirement is the dominant obstacle. The cost of an XL satellite can
easily reach US $250 million, compared to US$100 million for a medium-sized
satellite. If the launch and the insurance costs are added to the satellite
cost, the cash requirement is approximately US$400 million, just to start
operations. Unless operators have deep pockets or have already established a
substantial client base, the financial community will balk at financing XL
satellite-based projects in the current context.
Unreasonable
manufacturing time is also a major concern for operators contemplating XL
satellites. The last five years have shown that manufacturers need between 27
and 50 months to deliver a 5-ton satellite. In the current telecommunications
context, 2.5 years (30 months) is an eternity and the most carefully prepared
business plan could become obsolete by the time the satellite is delivered. The
issue is thus very simple for manufacturers: if XL satellites cannot be
produced in a reasonable standard time frame (e.g. less than 30-34 months), the
market might remain a small niche.
Other parameters may be even more
constraining for several operators. For example, slots with enough frequency
spectrum to accommodate an XL satellite, or the ability to secure underwriters
for insuring one at a reasonable premium, are not minor issues. Concerns have
also been expressed regarding an operator's ability to reposition an XL
satellite into a different orbital slot if the need occurs, or to negotiate an
acceptable launch price if only one or two providers can technically launch an
XL satellite.
Few Operators Can Afford XL Satellites
The typical profile of XL satellite
operators is, therefore, relatively simple to identify. There are two different
families: large deep-pocketed FSS/DBS operators, and mobile and broadband
operators.
Large FSS/DBS operators are by far the most likely users of
XL satellites as they have the capability to market, finance and bear the risks
of large satellite projects. More important, these operators have the ability
to migrate customers from a full satellite that is being retired to an XL
satellite slated to replace it. This migration, which can be made transparent
to customers, may permit filling an XL satellite by one-third to one-half of
its capacity from the start of commercial operations. These migration
opportunities will likely multiply with the current consolidation of satellite
operators across the world that manage big fleets of satellites and huge
customer bases.
Geo-mobile and broadband operators have no choice but
to use XL satellites to meet their technical requirements: high power
transponders, onboard processing and connectivity of a large number of beams.
This was observed over 1996-2001, when as much as 80% of mobile and broadband
projects were based on the largest existing satellites. Although most projects
for these applications are currently on hold or have been cancelled for a
number of well-known reasons, we strongly believe that they could become
substantial users of XL satellites in the medium term, as soon as the
telecommunications and capital markets become more rational.
A Significant Demand For XL Satellites Before The End Of The Decade
Over the next five years, we believe that
prospects for XL satellites are not particularly attractive. Our forecast shows
that only 72 satellite orders are expected to be placed over 2002-2006, and
that very large satellites would not exceed 17% of these orders.
However, five years from now, prospects for XL satellites are more promising.
Over 2007-2011, the increased needs for replacement of FSS/DBS satellites
should boost the number of orders, and new mobile and broadband projects are
expected to emerge again. We forecast that 115 satellite orders could be placed
over 2007-2011, and that 30 of them (26%) would be XL satellites. Even more
compelling is the analysis in dollar value: XL satellites could make up as much
as one third of the total satellite procurement market in the 2007-2011
period.
Both satellite operators and manufacturers could greatly
benefit from the introduction of XL satellites. The former may become more
competitive, while the latter may diversify their revenue stream. However,
little might happen unless manufacturers clearly demonstrate that they can
produce reliable XL satellites within reasonable delays.
Contact the author: Eric Le Proux, +33 1 5367 5250, eleproux@vistaadvisers.com
Satellite market forecasts by size class 1996-2012
About Vista
Advisers
Vista Advisers is a leading strategy consulting firm
specializing in the satellite and telecommunications sectors.
Vista
provides customized services from concept to implementation covering a wide
range of telecommunications services and infrastructures. Our impressive list
of clients includes blue-chip satellite operators, leading financial
institutions and space agencies, in addition to TV channels and telcos. We have
purposely composed a multicultural team combining marketing, economic,
financial and engineering backgrounds in the space and telecommunications
sectors.
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