Looming Reckoning for Satellite Telecom Sector?

The term “Death Valley” describes the difficult transition following the collapse of a business model before its replacement by a new model. Not everyone survives the passage. Cue the skeletons in the desert.

Is the satellite telecommunications business approaching a Death Valley moment? There were signs in 2015 that this may be the case.

First, the good news: There have never been as many satellite television channels as there are now, and satellite TV drives the commercial space sector.

Satellite ownership is so appealing that many nations are casting aside business logic and buying telecommunications satellites, irrigating the satellite manufacturing and launch businesses at a time when major fleet operators are reducing their capital spending.

Laos, population 7 million, launched LaoSat-1 in 2015 in partnership with China. Mongolia (population 3 million) wants one, too.

The biggest fleet operators say not all satellite capacity is created equal, and that launching infrastructure is the simplest part of building a successful business.

So far the national satellite programs have had little effect on the global commercial business, except in Southeast Asia — the world’s roughest neighborhood for selling bandwidth.

How long before the proliferation of national telecommunications satellites takes a large bite out of the major fleet owners?

Meanwhile, even in markets far removed from the one-satellite national systems, the OTT (over-the-top) TV delivery threat is growing, not shrinking. Satellite industry officials say it remains small relative to the total satellite broadcasting business, and that’s true for now.

Even so, an anecdote: At a recent round-table discussion of senior executives from companies buying satellite capacity for mobile applications, the panelists with teenage-or-older children said none of their kids was interested in linear TV.

If you’re in the satellite business, there were few chillier comments in 2015 than those from two big satellite bandwidth users, Encompass Digital Media of Atlanta and London-based Arqiva. Both said satellite bandwidth prices will have to fall dramatically in the coming years if satellite distribution is to remain viable.

Encompass said 70 percent of U.S. C-band capacity leased to cable head-ends comes up for contract renewal between 2015 and 2022. Indications are that less than half of it will be renewed, and for much shorter periods, the company said.

“Damn the C-band: Full speed ahead on HTS!” You hear that occasionally, and the day is coming when most ships and aircraft will have satellite broadband access — a big new market for satellite operators. The cellular- and satellite-connected car could also provide a growth avenue.

The question is whether these new high-throughput spot-beam satellites, in Ka- and Ku-band so far, will cannibalize some existing wide-beam capacity and pressure overall satellite pricing before the new mass markets fully develop.

The stock market isn’t always a good measure of an industry’s prospects, and every company has its own story. Still, 2015 was not kind to the sector, with some exceptions.

In a year when the S&P 500 was flat, Intelsat was down around 75 percent as the market focused on the company’s growth prospects relative to its debt.

SES was down 16 percent, some of it attributable to launch delays that forced the company to lower 2016 revenue estimates.

Eutelsat was up just 3.5 percent. Launch delays were an issue here too, as was the difficulty encountered by Eutelsat’s Russian customers.

Loral Space and Communications, which owns a majority economic stake in Telesat, was down 49 percent on the continued indecision of Loral and Telesat co-owner PSP Investments on a Telesat sale.

Inmarsat, the biggest company focusing on mobile applications, was up 40 percent with the completion of its Global Xpress broadband constellation after launch related delays.

The maxim says an optimist sees the glass as half-full, the pessimist as half-empty — and the engineer as double its optimal size. We’ll know soon enough whose assessment is most attuned to tomorrow’s satellite market.