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SATCOM'S SORRY STATE
Industry trims ambitions as the weak market persists. New technology loses out to reliability, but operators still seek 'measured risks.'
FRANK MORRING, JR./WASHINGTON
Although there are some harbingers that business is picking up, resignation is growing in the commercial satellite industry that a full recovery from its present sorry state won't begin until 2006, a year later than many in the business were estimating only a few months ago.
Space Systems/Loral launched Intelsat 907 (shown) on the final Ariane 4 last month, but new orders haven't matched the old pace.
As a result, commercial-space suppliers of everything from leased time on orbiting transponders to the rockets and satellites that carry the business have donned foul-weather gear and are trimming sail for more rough weather. Executives of satellite users, builders and launchers told audiences at an annual international satellite business conference here last week that their companies can survive until the hard times pass, but the exciting predictions for business growth and new technology had been shelved.
"The good old days of build it and they will come are kind of over for our industry," Joseph Wright, PanAmSat president and CEO, told the Satellite 2003 conference, during a session on satellite-operator issues. "Most of the [orbital] slots are taken; we're all doing a pretty good job; we've got customer bases that are set up. The whole idea of just putting up another satellite and start taking orders, that's over, and the financial community pretty well knows it is."
After the worst year in two decades, enough solid requests for proposals are circulating among satellite manufacturers to support firm orders for about 15 new spacecraft this year, according to Bill Weller, vice president for marketing and sales, at Space Systems/Loral. Manufacturers in the U.S. and Europe counted just three new orders in 2002.
Futron Corp., a Bethesda, Md.-based consultancy, posted slightly more positive results for 2002, counting 12 commercial geostationary satellite orders for the year. But those included the resale of unlaunched "hangar queens"; sale of satellites for programs that Futron considered likely to be delayed, and one award that was made in 2000 but not announced until two years later. By comparison, Futron counted 28 orders in 2001--most of them solid.
"The activity we're seeing is still the FSS [fixed satellite services]," Weller said. "It's the core business. We're not seeing new services starting up like the DARS [digital audio radio service] world. There's activity there, but we're not seeing new applications. We're seeing established people either doing their replacements or expansion."
Loral built the Intelsat 907 spacecraft launched on the final Ariane 4 last month. The Alcatel Space payload on the spacecraft consisted of 76 C-band and 22 K u-band transponders (AW&ST Feb. 24, p. 31). Conny Kullman, CEO of Intelsat Ltd., told the conference that his company will continue to make investments against the day when business picks up, like the 30% stake it acquired in the WildBlue satellite broadband enterprise.
"We clearly have had a strategy to get into the broadband arena, and we have a two-pronged approach there," Kullman said. "One of those is to use the existing K u-band capacity, existing equipment for the customer, and put attractive packages together with strong service providers on the ground. The other is to make select investments like we have done recently in WildBlue to get access to the North American market and to create a business plan that we think can be copied to other parts of the world."
But even with investments from big operators like Intelsat, manufacturers and launch service providers suffer from the same overcapacity that afflicts the operators who drive their business. Weller said Space Systems/Loral has a program to retain skilled satellite workers through the lean times, while launch providers are living on backlog.
"We have the capacity up here to launch 70 heavy spacecraft a year," said Wilbur Trafton, president of Boeing Launch Services, of his peers on a space launch panel. "And what's the demand--15, 20 a year? . . . We're doing everything we can to ride out what we see as a three- or four-year very tough period."
Sea Launch, one of the operating units Trafton oversees, has five launches scheduled this year but no satellites at its Long Beach, Calif., home port to process for the ride to an equatorial launch site in the mid-Pacific. Jim Maser, Sea Launch president and general manager, said he has scheduled sea trials with the company's floating control center and launch pad to hone the crews' skills while they wait for a satellite to launch.
One hard-times strategy some satellite builders have adopted is to spin technology advances from the commercial market into military spacecraft, and vice versa. Boeing Satellite Systems (BSS) in particular has pushed that approach, shifting technology developed for Thuraya and other big BSS 702 platforms into military spacecraft like the Pentagon's Wideband Gapfiller, and contemplating enhancements to that series of spacecraft like laser crosslinks that it could spin into broadband commercial spacecraft later on (AW&ST Dec. 9, 2002, p. 58).
But in the current environment, satellite operators said they were reluctant to spend scarce investment dollars on advanced technology that might compromise the reliability they need to keep selling satellite "solutions" to picky customers. Randy Brinkley, the BSS chief who espoused the high-tech strategy, announced last week he was leaving the company on June 1, and a successor--Dave Ryan--was named to take over his duties "immediately."
"We don't do any more state-of-the-art," said PanAmSat's Wright. "We don't push technology going up. Now, it helps we are no longer majority owned by a satellite manufacturer. But it's too risky to do that. Reliability is key. We not only pay for it in terms of dollars, but also in terms of time to build additional margins in the satellite. Something normally is going to go wrong, and it's 22,000 mi. up, so you've got to build in your redundancy and you've got to build in your margins."
As a result, operators are moving away from the heaviest, most powerful satellites in favor of slightly smaller, simpler platforms that are less expensive to build, launch and insure. However, Intelsat's Kullman said satellite operators can't afford to stop moving forward technically no matter how bad the economic environment.
"I think when you're in a market that's slightly depressed or difficult, you still have to look for the opportunities, and you have to take measured risks to make sure you get on the growth path and can develop your business in the future," he said.
Top executives of the six big satellite operators represented on the Satellite 2003 panel--Loral, New Skies, Eutelsat, PanAmSat, SES Global and Intelsat--discounted suggestions that the present environment has increased the likelihood some of them will merge, even though they agreed there are financial benefits to consolidation that could eventually outweigh the barriers. But Wright and Eric Zahler, president and chief operating officer of Loral Space & Communications, said the time is ripe for a closer relationship with the terrestrial fiber companies that have been the satellite industry's traditional rivals.
"Our customers don't care how their signal gets to their customers, so you've got a value chain in terms of delivering that signal," said Wright.
©March 3, 2003 The McGraw-Hill Companies Inc |
