Long reads

Up and away: satellite operator strategies

Satellite operators are continuing to grow their business by expanding into emerging markets and adapting to new technologies and trends, including hybrid and broadband services. Graham Pomphrey reports.

On the face of it, satellite operators’ video businesses are facing pressure on various fronts: the digitisation of cable networks, the growth of telco-delivered services and the increasing popularity of on-demand and over-the-top platforms. Even in markets where DTH has blossomed, consolidation invariably follows. Against this backdrop, satellite operators could be forgiven for feeling a little nervous. In reality, they are broadcasting record numbers of channels and many have ambitious launch programmes.

Take Eutelsat, whose business continues to go from strength-to-strength, both financially and operationally, with video applications remaining the driving force. By the end of 2011, the operator was broadcasting over 4,000 channels, reaching the milestone following the launch of Arabic film channel Rotana Cinema at the satellite operator’s 7° West position. Eutelsat has seen particularly strong growth from satellites serving the Middle East, Africa, Russia and central Europe, boosted by 2011 launches of Atlantic Bird 7 to 7° West, W3C to 16° East and W7 to 36° East.

W3C and Atlantic Bird 7, entered commercial service late last year. The former, located at 16° East, offers expanded capacity to serve data markets in Europe, Africa, the Middle East, and central Asia. Pay TV platforms and public and private broadcasters using W3C include SBB, Digitalb, TV Max, Tring and TV Romania. SBB, the operator of Serbian pay TV platform Total TV, added two transponders to the six already leased at 16° East.

According to Yohann Leroy, Eutelsat’s director of strategy, the operator’s growth is indicative of the wider DTH market. He points out that subscribers worldwide increased from 132 million in 2009 to an estimated 176 million in 2011. Eutelsat expects to see capacity demand increase by over 5% per year in the next three years in the “fast-growing markets” that it targets in central Europe, Russia, central Asia and Africa. “In these regions, current pay TV offers will ramp up SD and HD content, and new platforms are expected to launch with premium HD for the higher income segment,” says Leroy. In more mature pay TV regions in western Europe, where pay TV operators’ efforts are concentrated on acquiring and retaining subscribers and building up ARPU, Leroy expects to see more HD services, led by HD, and DVR hardware for satellite-delivered VOD.[icitspot id=”22646″ template=”box-story”]

Long term, Leroy says the cost-effectiveness of DTH over other delivery networks “is an inherent competitive advantage” of satellites. “For a pay TV platform serving four million subscribers, the cost of broadcasting a digital channel by satellite is a few cents per month per home. In the terrestrial world, distribution costs become less cost-effective as population thins out, making it economically less attractive to attempt to serve all users.” The most extreme example is fibre where build-out cost per home can go up to ?10,000 for the most remote communities, according to Leroy. “So even in markets served by the most modern networks the cost-efficiency of satellites for one-to-many distribution over a broad area will be competitive for the long-term,” he says.

Eutelsat isn’t getting complacent; five satellite launches are scheduled by June 2014. With an eye on emerging European markets, it recently ordered a new satellite for the 9° East orbital position, scheduled for a 2014 launch. Eutelsat 9B, a 66-transponder satellite, will increase capacity at the slot by over 70%. One pan-European footprint will deliver coverage for channels seeking reach into satellite homes and terrestrial and cable headends, while four focused footprints will address high-growth digital TV markets in Italy, Germany, Greece and the Nordic/Baltic regions.

Like Eutelsat, SES also has an ambitious growth strategy, with eight spacecraft under construction or in preparation for launch by the end of 2014. SES’s vice-president of media relations Markus Payer says that 85% of this new capacity will be dedicated to growth markets, including eastern Europe and Asia. While room remains for growth in more developed markets (in Germany, for example, SES’s HD channels platform HD Plus is nearing a reach of two million households, although only around 250,000 pay for the service, and the SES-delivered French free-to-air satellite platform TNTSat had sold 3.3 million receivers by the end of last year), Payer says emerging markets and increased uptake of HD services will be the key growth drivers going forward. “The dynamic developments in many emerging markets as well as the continuous success of high definition across the board are expected to continue to drive our sector. Satellite remains an ideal infrastructure to broadcast to large geographies in the highest quality,” he says. “We see high demand for capacity in Latin America, Asia, India Middle East and Africa.”

Expanding coverage

Israel-based satellite operator Spacecom is undertaking a growth programme that is transforming the company into a multi-regional player. Its long-standing 4° West orbital position (targeting Europe and the Middle East), where the Amos-2 and Amos-3 satellites are co-located, has a fill rate of about 90%. To cope with increasing demand, particularly from central and eastern Europe, Spacecom is preparing to place an order for a new satellite to boost capacity at 4° West – Amos-6 – which is scheduled for a 2014 launch.

In the shorter term, the company’s main focus is on the emerging African satellite market, according to senior vice-president sales Europe and North America Jacob Keret. Amos-5 successfully launched with a pan-African C-band and Ku-band last December and began commercial services from 17° East at the end of January. The satellite is equipped with three Ku-beams covering west Africa, South Africa and French African islands. “While 4° West has been our ‘bread and butter’ we’re focusing on the African market, which offers huge potential,” says Keret. “The amount of investment being made in the continent’s technology infrastructure is huge. There’s a lot of competition, especially for VSAT and broadband services, so we’re pleased to get in there early. With broadband in particular, you can’t reach each home in such a huge continent with fibre or cable so there is considerable growth potential.” A burgeoning DTH market in Africa means Amos-5 will also be used for video applications, with Keret predicting that about a third of the satellite’s capacity will be used for such services.

Africa aside, Spacecom’s 4° West position continues to grow, with new channels and DTH platforms launching on a fairly regular basis. The most recent platform to launch on Amos-3 was Ukrainian service Xtra TV in a deal valued at up to US$19 million (?14.5 million). According to Keret, about three million homes in Ukraine have dishes pointing to 4° West, from where a number of free-to-air channels were already being broadcast, giving a potentially large audience for Xtra TV, which officially launched in December and is being marketed as an affordable, premium platform. It will face competition though, with NTV-Plus and Viasat Ukraine already serving the market. The addition of Xtra TV to 4° West takes the total number of European DTH operators broadcasting on Amos-2 and Amos-3 to four, the others being Magio TV in Slovakia, Israel’s Yes and T-Home Sat TV in Hungary, whose owner Magyar Telekom last year signed up for additional capacity in a deal worth US$7 million, matching a previous agreement.

Looking further ahead, Spacecom is eyeing growth in Russia and looking to India for the first time with next year’s launch of Amos-4. The satellite, to be located at 65° East will offer steerable Ku- and Ka-band beams to extend the operator’s footprint to South Asia and Russia.

Russian evolution

RSCC is the largest satellite operator in Russia and according to Sergey Plotnikov, head of infocommunication technologies and multimedia services, there are plenty of opportunities for satellite operator in the region. “Considering that satellite pay TV penetration in Russia is far from complete, there is plenty of growth ahead,” he said. “As of the end of 2011, penetration was about 20% and according to experts that will increase to about 52% in 2016, compared with 48% for cable and IPTV.” DTH customer bases, he says, will grow in areas where the only viable last mile delivery option is satellite delivery and in areas where cable infrastructure is “weak”. He also says that consolidation amongst existing Russian DTH operators is far from inevitable, while new players are likely emerge. RSCC is preparing for this potential growth with eight satellite launches planned, including two in 2012.

Another operator eyeing Russia and surrounding markets is Intelsat. Last year the operator signed a multi-transponder deal with Russian DTH platform Orion Express. Under the deal, Intelsat has moved a Ku-band satellite to 85° East to offer extended capacity to Orion for new standard and high-definition content. Orion is hoping that it can tempt more customers to pay for premium services in a country with a history of either free or very low-cost satellite services. The idea is to offer a budget entry-level package and then tempt customers to upgrade to more expensive bundles. “With the new satellite, Orion will be able to add layers of new content, including Russian and international channels,” says Jean-Philippe Gillet, Intelsat’s regional vice-president Europe and Middle East.

Gillet says the economic situation in eastern Europe, and the knock-on effect from western Europe, has made the market tougher, especially for new DTH entrants. But, he says, the fact that some markets are being served by multiple DTH operators and the ensuing competition means that those operators will be forced to add new channels and services, rather than competing on price. In Romania, where DigiTV, owned by Romanian operator RCS & RDS, recently renewed its contract for capacity at Intelsat’s 1° West, there are five DTH providers. “For new platforms, the number of markets where there aren’t already established players is limited. But there is still some growth potential. We are active in Bulgaria and I have a lot of hope for that market. Croatia and Hungary show potential, as do some surrounding countries,” says Gillet.

Another growth driver Gillet is anticipating for eastern Europe in 2012 is HD, which by his own admission did not develop as quickly as hoped last year. Some markets, especially Poland, have seen HD prosper, but there are plenty of other territories where there is either limited HD or none at all. “Some of our customers have HD on cable but not on satellite, because for DTH operators, the driver is really on having the lowest cost services,” says Gillet. Under those circumstances, it becomes extremely difficult to launch a satellite-delivered HD play. “I am expecting this to change in 2012,” says Gillet. “Some of these markets are so competitive that as soon as you have one operator launching HD the rest will follow.”

Despite talk of consolidation and the evolution of DTH services, there are still some markets in the region without a DTH presence, although the number is dwindling. In January SES began delivering Georgia’s first DTH service from its 31.5° East orbital position. MagtiCom, the Georgian mobile and telecommunication company, launched its MagtiSat DTH pay TV service in the country offering 75 TV channels arranged into three packages.

Further growth

Telenor Satellite Broadcasting has a major presence in the central and eastern Europe region. While revenues have declined in the company’s Nordic business, it has seen considerable growth in CEE, where it operates from the 1° West orbital position, servicing operators including Liberty Global’s DTH platform UPC Direct for Romania, Hungary, the Czech Republic, Slovakia and Moldova.

For Leiv Svenning, head of central and eastern Europe at TSBc, DTH in some areas of the region is now so developed that they should no longer be considered as emerging markets. While the growth of DTH start-ups may have slowed down “considerably” in recent years, Svenning says the potential market for satellite operators will continue to increase. “Growth is expected through the launch of new channels, HD gaining further momentum and the introduction of 3D,” he says. Last year TSBc began broadcasting High TV 3D, a 24-hour 3D channel for the Nordic region that is being distributed via Telenor’s Canal Digital DTH service,

Telenor certainly has high expectations for the CEE region – last year it revealed plans to boost capacity with the launch of Thor 7. The satellite will provide capacity for broadcasting services in central and eastern Europe and additional capacity for communication services for maritime use. The first payload will include 11 Ku-band transponders, all of which will be used to serve broadcasters in central and eastern Europe. It will also include further Ku-band capability for restoration capacity for TSB’s Thor fleet located at 1° West.

The effects on satellite operators of inevitable DTH consolidation in the region remains to be seen, but according to Svenning, the impact will be driven by the strength and size of their customers. “The impact of consolidation on a satellite operator will clearly be driven by the strength and size of its customers. Satellite operators with strong customers, and a large number of eyeballs looking at its satellites will be well placed to benefit from consolidation,” he says. “1° West has the two largest regional operators, and over 17 million homes receiving television from its satellite platforms. With Thor 7 coming on-stream we are confident that it will continue to be a leading platform in the CEE market.”

Moving with the times

The growth of on-demand and catch-up services has intensified of late, with two-way IP and cable connectivity being exploited to deliver interactive services. This begs the question of what role satellite operators will play in this new world. While satellite operators benefit from being able to deliver services over large areas, the lack of return path could be seen as problematic. Not so, says Eutelsat’s Leroy: “We believe that linear TV served by DTH has a long shelf life. New entrants, through connected TVs and DVRs will add OTT and VOD components to expand the overall video experience for users. This will reinforce linear TV rather than lead to its replacement with pure non-linear services.”

Eutelsat is developing satellite-delivered OTT and VOD services, using KabelKiosk in Germany and Fransat in France as the first platforms. This year, both services will begin using the HbbTV standard. In the case of KabelKiosk Interaktiv, red button applications will support on-demand information and video clips to complement linear TV channels. For Fransat the operator is preparing to launch satellite VOD and catch-up services to combine satellite-delivered DTT channels with non-linear content stored on user hard disks.

SES’s Payer points out that not only will DTH operators increasingly add IP connectivity as part of a hybrid offering, telco operators will also look to satellite to expand pay TV offerings beyond their terrestrial network: “We see that telcos, which are increasingly integrating video into their offerings, are looking to use satellite in order to roll their offers out to larger geographies.” Last year, SES and Deutsche Telekom combined the former’s HD Plus free-to-air satellite TV service with DT’s Entertain IPTV service and began marketing it under the Entertain Sat banner. At the time, DT’s managing director, marketing, Christian Illek, said: “With our satellite offer, we will address new customer groups and convince even more customers of our TV offer. Astra’s technical reach of more than 16 million satellite households in Germany and the switch-off of the analogue satellite reception in April 2012 represent a particularly interesting and attractive potential for Entertain Sat.”

The emergence of over-the-top delivery is at such an early stage that any talk of a threat to traditional broadcast delivery techniques is premature, says Intelsat’s Gillet. He believes that many markets, particularly emerging markets where DTH operators are still relatively new, are still trying to develop a basic offering. “A lot of our European customers are focusing their distribution on simple DTH. Developing markets will go for simple DTH, then add HD and eventually more advanced services on top of that,” he says. “Some of our customers have started doing OTT and VOD, but the satellite element is really the basis of the proposition.” Even if DTH delivery of video services began to decline, Gillet points out that satellite would still be used to deliver video to other networks. “All of these services are going to have to aggregate their content at the headends and there will always be a satellite play there. Where there is demand for content, there will be demand for satellite capacity, even if end-users decide to receive it via cable, satellite, DTT or ADSL.”