NEW YORK-Led by dramatic expansion of television, mobile telephony and multimedia services, global satellite industry revenues will skyrocket to $171 billion in 2007 from $38 billion in 1997, according to projections by Merrill Lynch, Pierce, Fenner & Smith Inc., New York.
Within the next year or two, certain developments will serve as leading indicators of the industry’s near-term prosperity, said Thomas Watts, vice president of Merrill Lynch U.S. Fundamental Equity Research. Watts is lead author of a recently released report titled, “Global Satellite Marketplace ’98-Transforming Mass Market Dreams to Reality.”
The initial commercial experiences of Iridium and Globalstar could set the pace for the rest of this developing industry.
“Early success could charm the capital markets to fund even grander schemes, [like] Bill Gates’ and Craig McCaw’s $10 billion Teledesic venture. Disappointment could condemn a number of worthwhile but early-stage projects to financing purgatory,” the report stated.
Major players
Others players to watch include: Pasific Satelit Nusantara, which plans to launch its low-cost regional Asian Cellular Satellite service next year in Indonesia; “well-funded” ICO Global Communications of the United Kingdom, which is expected to go public later this year; Thuraya, backed by the national telephone company of the United Arab Emirates and on its way to commercial service in 2000; and three other contenders-Ellipso, African Continental Telecommunications and Constellation Telecommunications Inc.-which “may complete core financings enabling them to proceed.”
Merrill Lynch projects a global MSS subscriber base of 32.4 million, or 2.3 percent of cellular subscribers, by 2007 “consisting primarily of dual-mode cellular users who rely on MSS for service outside cellular coverage.
“We expect intense competition to emerge by 2001 for providers of handheld satellite telephony service, pushing down prices and expanding the addressable markets dramatically. Local distribution strength should differentiate leaders from also-rans.”
New low-cost satellite launch vehicles are on the near horizon, and they will reduce space access costs, thereby facilitating lower retail service prices.
Major electronics manufacturers, like Ericsson Inc., Philips N.V. and Sony Corp. “have picked up the mass market television and handheld telephone segments.”
Hughes Network Systems and Gilat Satellite Networks dominate the very small aperture terminals, or VSATs, market. VSATs are used for satellite data and multimedia services. Other players include NEC, AT&T Tridom (now owned by GE Americom), Scientific Atlanta, STM Wireless and Comstream.
The additional use of VSAT’s to provide village telephony services in under-served areas is being pioneered by Pasifik Satelit Nusantara in Indonesia and by Gilat affiliate Global Village Telecom in Chile. The latter also plans to offer similar service in Mexico and the Philippines. Merrill projects “this segment could grow to as many as 100,000 terminals in the next few years.”
The development of many smaller opportunities, like satellite mobile data and imaging, offer “exciting investment potential.” These niche players “require investments of only a few hundred million dollars vs. the multibillion dollar systems that have captured headlines.”
Little LEOs
By 2007, Merrill projects 58.5 million little low-earth-orbiting terminals generating $5.4 billion in revenues. Vehicle tracking and pipeline monitoring likely will comprise the largest markets in the short run, but two-way messaging “could emerge as a substantial source of demand in the longer run.
“By virtue of its early entry, [American Mobile Satellite Corp.] … (a geostationary carrier) which acquired terrestrial data carrier Ardis earlier this year … could emerge as major provider for satellite data and messaging services within the [United States].”
Orbcomm, which plans to start commercial operation this summer, is expected to be the first Little LEO system out of the box. Leo One USA, Final Analysis and Esat, which is controlled by direct broadcasting satellite company EchoStar Communications, just received licenses this year. Orbcomm has filed to go public, and the others may approach the public capital markets within the next 12 months.
Because of limited spectrum availability for additional little LEO systems, “this niche arena with high entry barriers should produce substantial returns.
“Outside the United States, many companies have announced plans to enter the Little LEO market; most of them, however, do not have spectrum allocations or appear likely to be able to coordinate the spectrum they intend to use,” according to the report.
The Asian factor
Another significant development to watch results from Asia’s economic troubles, which are weakening many local satellite partners in that region and therefore creating opportunities for industry consolidation.
“As many as eight operators in Asia reportedly are in discussions regarding strategic alliances, (and) the next few months seem likely to produce several significant transactions.
“Major operators such as Loral (Corp.), Lockheed (Martin Information Systems and Technologies) and PanAmSat Corp. (which is majority owned by Hughes Electronics Corp.) have also said they are considering investments in the region. The combination could transform the competitive landscape both in Asia and worldwide.”
Notwithstanding possible consolidation among satellite carriers in Asia, Merrill expects the universe of publicly traded companies in this sphere to expand to at least 30 within three years, up from 21 today.
“The three-part combination of established satellite operators [going] public, established public companies transforming themselves into satellite companies as Hughes did earlier this year, and [initial public offerings] of new ventures, has created a dynamic new investment sector.
