A
RECIPE TO GET THROUGH THE CRISIS?
by Laurence Journez, Manager,
Vista Advisers
(courtesy of Vista Advisers)
The Customer is King
In the current telecoms turmoil, satellite operators are not being spared, as they face increasing difficulties in meeting their take-up rates objectives. When the market was booming, satellite operators could focus on high-end customers, such as large TV broadcasters or big ISPs, and dictate their own contract terms and conditions. However, the recession turned the tables on them, forcing them to be less selective in their targets and more flexible in negotiating contract terms. Bargaining power is changing hands.
Adjusting Marketing Policy
Customers’ requirements have not
changed fundamentally over the past year. Bandwidth expansion plans have just
been reviewed downwards, as the broadband market did not experience the
predicted boom and emerging regions grew slower than expected. Whereas large
ISPs and TV packagers used to be the ones to be wooed, operators are now
actively approaching smaller bandwidth consumers, such as small ISPs, telcos,
and independent channels.
Less than two years ago, some operators were
reluctantly selling half transponders, preferring to focus on full-transponder
consumers to increase sales efficiency. Those same operators are now fighting
to sell a few MHz or even less to emergent broadcasters or telcos.
The
growing heterogeneity of customers’ requirements has made the satellite
operators’ task of defining a marketing policy incredibly more complex.
Listening to Customers’ Requirements
Customers' requirements strongly vary
depending on their size, application (video, telecom internet) and market
positioning (e.g. VSAT vs. trunk). Chart 1 analyzes differences in requirements
for key applications and customers based on duration and bandwidth. Long leases
(ten years or more) are typically for neighborhoods (video packages, direct
Internet access), while short-term leases (less than one year) are restricted
to occasional users or new entrants with low financial means (e.g. small ISPs).
Large bandwidth transponders (72 MHz or more) are more appropriate to broadband
services, whereas multiple 36 MHz transponders leases are preferred for video
broadcast services.
However, decision criteria include more parameters
than just bandwidth and duration. Coverage, transponder power and eirp, and
frequency bands rank high on the list of decision drivers, their order of
importance depending on the application and the size of the
customers.
Hence, video contribution requires large coverage with medium power while distribution requires regional coverage with high power. Small and emerging players usually rank price far ahead of signal availability, so that some of them are ready to uplink on inclined-orbit satellites to benefit from significant discounts (up to 70%).
Differentiating the Offering
To enlarge their customer base and enhance
their differentiating factors on their current markets, satellite operators are
developing additional services.
In the video business, some operators
have become more than commodity providers by offering extended services, such
as multiplex, postproduction, or turnaround. To illustrate, New Skies has
purchased a three-teleport network in Australia to strengthen its position in
the video business in Asia.
In the Internet and corporate telecom
business, operators have deployed one-stop shopping services. Investing or
partnering with teleports is now a prerequisite to expand in Internet. PanAmSat
operates six US teleports and a transatlantic fiber link while Eutelsat now
operates its own VSAT network. The newly created satellite operator, NewSat,
reached a partnership agreement with IABG, a German teleport.
Defining a Pricing Strategy
Most operators follow a few basic rules.
Standard prices usually correspond to a full 36 MHz transponder leased for a
1-3 year period for non preemptible capacity, on medium power satellites
(typically 45 dBW in Ku and 30 dBW in C). Premiums and discounts are then
applied to this basic price based on technical characteristics (frequency,
coverage, transponder bandwidth, eirp, uplink frequency), contract duration,
restoration scheme, and any other issue that might impact the transmission
performance.
However, as official rate cards tend to disappear with the
privatization of former IGOs, the final price depends on the customer's
bargaining clout and market situation. Thus, anchor tenants, like StarTV in the
case of AsiaSat or worldwide players such as Viacom, will be offered much more
attractive contract conditions than a small TV broadcaster. Satellite operators
tend to keep their rates up on weakly covered routes, such as
Europe-Asia.
Understanding Price Drivers
Price drivers can be divided into two major
categories: those related to technical characteristics of the capacity product,
the major being frequency, coverage and eirp, and those related to contract
terms, essentially duration, guarantee of service and capacity
type.
Frequency is the most obvious price driver related to technical
performances. Ku-band is usually priced 10-30% higher than C-band for
equivalent capacity. However, this price difference can be offset by demand
situation. In Latin America and Asia, no price difference is being made for
medium power capacity. On the contrary, C-band prices in Europe are very low
($0.5 M in fixed orbit) as demand is almost exclusively for Ku-band.
In fact, coverage and eirp have a stronger
impact on prices than frequency band. Public prices of global C-band beams are
announced at $2.8 million. High power capacity in C-band (=38 dBW) or in
Ku-band (=50 dBW) is priced with a 10-25% premium over medium power, excluding
video neighborhoods premiums.
Contract duration is the most obvious
parameter related to contract terms. Maximum discounts are obtained for 10-year
leases (up to 30%) and maximum premiums (up to 50%) are charged for one-month
leases or less.
The restoration scheme, which defines the service
guarantee, can result in significant price differences (up to 40%) between
preemptible and restorable capacity, respectively the lowest and the highest
levels of restoration. However, due to the complex transponder fleet management
resulting from the availability of different restoration levels, most operators
offer non preemptible exclusively, which meets the needs of most
customers.
The highest prices are found on premium capacity, i.e. on hot
video neighborhoods, as a result of the strong demand to reach millions of
viewers receiving channels from this position. Premiums on DTH neighborhoods
can significantly impact the transponder price. For example, in Western Europe,
premium capacity can reach $7 million while a digital channel uplink can be
priced as much as $600,000 on Asian C-band hot birds.
Anticipating Regional Trends
Regional prices vary widely depending on
premium vs. standard capacity, and demand vs. supply by band. The table below
shows a weighted average of C-, Ku-, premium and standard regional market
prices, as of June 2002.
The highest prices are found in Europe as
premium capacity represents as much as 60% of Ku-band capacity. With three
leading DTH positions (Eutelsat-13°E; SES-Astra-19.2°E &
28.2°E), and several national DTH positions (Telenor, NSAB and Hispasat),
Western Europe leads market prices.
Regional transponder prices, $M as of June 2002
| $M | North America* | South America | Europe | Middle East Africa | Asia |
| C | 1.8 | 1.6 | 0.5 | 1.5 | 1.4 |
| Ku | 2.1 | 2 | 4 | 2 | 1.8 |
*Excluding Echostar and DirecTV
satellites
Source: Vista Advisers
In North America, the leading cable bird
positions have contributed to keeping the average C-band prices high. However,
cable positions in Ku-band are expanding, resulting in higher average Ku
prices.
After a recent period of expansion fueled by the Internet boom,
prices in Asia and Latin America have been strongly impacted by the current
crisis. An overcapacity situation in Asia and fierce competition in Latin
America are expected to contribute to keeping prices down.
The Middle
East premium capacity share recently increased with the expansion of Turkish,
Arab States and Egyptian packages. In Africa, transponder prices remain low as
most capacity is leased on low power satellites, with a majority of low power
C-band and only a few packages.
Increasing Customer Loyalty
As the broadband boom has yet to happen,
satellite operators are focusing on increasing customer loyalty: higher quality
of service, all-in-one service packages, etc. Commodity provision is outdated;
operators are shaping their new image of solutions providers. Those who stand
up to the test will be able to attract a larger clientele and charge higher
prices, hence improving both their take-up rate and revenue per
transponder.
Contact the author: Laurence Journez,
Manager, +33 1 5367 5249, ljournez@vistaadvisers.com
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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