In these times of declining
revenues and uncertainty, satellite operators are very
cautions when choosing their future strategy and
committing to large CAPEX investments (i.e. reduced
number of GEO Satcom orders). With the current pivot
towards new revenue drivers and the emergence of new
architectures, technologies and business models,
operators are in front of one
of the most challenging times with respect to fleet
planning.
What is the optimal mix of FSS and HTS assets to
continue generating revenues from legacy applications
like video while getting ready for future growth on data
verticals?
While HTS attracts the hype
and promises rapid revenue growth, the truth is that
today, FSS, and most specifically video, continues to be
the bread and butter of satellite operators. According
to NSR’s
Global Satellite Capacity Supply and Demand, 15th
Edition
report,
cumulative satellite capacity
revenues over the next 10 years will surpass $189
billion, with
widebeam FSS still driving 53% of these revenues. How
should satellite operators balance growth and revenues?
Understanding Revenue Drivers
Sources of demand for satcom
are evolving at an accelerated pace. As media platforms
are less reliant on satellite to reach customers and
distribute their content,
growth in traditional video
is diminishing.
On the other hand, declining
costs per Mbps, advanced ground segment, innovative
business models and the insatiable demand for
connectivity everywhere, anytime unlocks
solid growth for data
services.
Despite the current challenges for growing revenues, NSR
is optimistic these applications will drive impressive
opportunities moving forward with
capacity revenues growing at
6.8% CAGR in the next 10 years.
Capturing sustainable growth
in these emerging applications requires an HTS play. A
growing number of operators are
incorporating HTS plans as it
is increasingly clear that growth will come from this
architecture.
Having said that, one cannot ignore the potential that
is still available on FSS with a large base of revenues,
albeit the
long-term sustainability of
an FSS-only operator could be questioned
given pricing and revenue negative growth prospects.
Is Your Organization Ready?
Another key aspect that drags the transition to HTS is
the need to adapt the organization to the new
architecture. Widebeam offers established and proven
business models with long-term deals, a rooted network
of partners, well-known financial schemes and routine
technologies. However, adopting HTS means entirely
re-thinking the way the company operates.
Multiple early stage
deployments of HTS have had disappointing results as the
organizations adopting the architecture were not ready.
The customer profile changes radically, and so do the
sales channels.
Organizational structures and
asset planning need to be in sync.
Several HTS payloads have been slow in attracting
customers as the operators underestimated the effort to
develop sales channels. Similarly, network management
for a widebeam satellite is much simpler than for an HTS
satellite. Dealing with hundreds of beams and tens of
thousands of terminals is certainly not easy. The
investment and the set-up time for ground segment is
significant, and experience tells that operators tend to
underestimate this. Furthermore, the investment profile
for HTS also diverges from FSS as CAPEX requirements are
usually higher and investors should expect smaller
EBITDA margins.
Balancing Risks, Opportunities and Rewards
In order to navigate these
turbulent times, operators have more options than ever
when designing their future satellites. Each actor needs
to find its own balance between CAPEX exposure and
willingness to venture into new markets with
every single satellite
requiring its own business plan.
Even with declining revenues,
widebeam can still offer profitable opportunities when
cost efficiencies are achieved. Adopting new
technologies like electric propulsion, in-orbit
servicing or smaller satellites or leveraging different
approaches like condosats or multi-satellite contracts,
operators can
get good economies to
continue serving FSS markets.
One could eventually discontinue unprofitable payloads
and aggregate demand in fewer satellites.
At the same time, operators
need to think how to continue growing revenues and enter
the HTS game. Economies of scale are critical in this
segment, for those that cannot afford to invest in large
payloads, incorporating hybrid FSS-HTS payloads can be a
good intermediate solution to reach scale. Similarly,
for smaller actors that do not have the leverage to
develop their own non-GEO constellation, venture
investments and partnerships like the ones done by
Hispasat and SKY Perfect JSAT with LeoSat can open
opportunities unattainable with other approaches.
Needless to say, investing in
proprietary constellations
and VHTS systems could generate significant economies of
scale and open new greenfield markets, but not all
organizations are ready to be exposed to such levels of
risk.
Bottom Line
In the current state of transition, satellite operators
need to find the balance between continuing to extract
value from FSS markets and getting ready to capture
growth from emerging opportunities on HTS.
While FSS applications will progressively generate
smaller value, the 10-year cumulative revenue is still
formidable and superior to that of HTS. On the contrary,
HTS will grow spectacularly, becoming the main source of
revenues for the industry by early 2020s.
Organizational structure and assets must match.
Satellite operators will need to adapt to the HTS
environment. From sales channels to networking or
investment profiles, the transformation must be
profound.
The options for fleet planning are more open than ever
for satellite operators. Each satellite must find its
own economic raison d’etre. A number of innovative
approaches like VHTS, hybrid payloads, smaller
satellites or in-orbit servicing allow operators to be
more flexible when balancing CAPEX exposure, greenfield
markets and ROI expectations.
