The Satellite 2009 conference and exhibition held annually in Washington D.C. is always a good bellwether of how the industry is doing. More so today, when the global economies are reeling from the worse downturn in decades. Unlike in other conferences in recent months, when the severity and seriousness of this downturn was not yet fully evident, the timing of the Satellite show presents a unique opportunity to provide a fuller perspective of the state of the industry. With over 9,000 satellite executives including many of the CEOs of leading companies descending on Washington, D.C. for four days, no better picture can be had of the impact of the global economic crisis and the true state of the industry.
The consensus seems to be that the satellite industry as a whole is well-poised to weather the ongoing economic storm. Coming of the heels of posting record revenue growth last year, the mood was clearly optimistic among the big four global satellite operators featured in the opening session of the conference. The CEOs of the big four companies, namely Giulano Beretta, Eutelsat; Dan Goldberg, Telesat; David McGlade, Intelsat; and Romain Bausch, SES, took turns in describing how well their companies did last year and how they expect to continue growth this year. Factors such as healthy EBITDAs, huge backlog of orders, solid revenue streams and high transponder utilization rates, were cited as clear indicators of the industry’s overall health.
This view was affirmed by analysts who participated in the financial panel. Hoyt Davidson, Managing Partner of Near Earth LLC cited the ground segment as one of the more promising sectors of the industry. "There is a lot of innovation, and these companies make good strategic targets. These companies tend to have unique technology and client bases," he said.
One impact of the recession on the satellite industry that everyone can agree on is the tightening of the credit markets. It would be virtually impossible for a start-up no matter how compelling the case to get funding in this environment. This puts at an advantage companies with low debt levels and huge cash reserves. However, there is still some money to be had out there. Tom Watts of Watts Capital cited the PIPEs or Private Investment in Public Equity market. He cited the recent case of Sirius Satellite Radio being bailed out by Liberty Media as an example of PIPE financing. PIPE finacinng, unlike traditional financing, can be done very quickly and terms can be much more favorable, said Watts. Watts expects to see more PIPE financing in small and mid-size companies in 2009.
A number of the speakers in the sessions also pointed out the US $ 7.2 Billion stimulus package earmarked by the Obama Administration for the development of rural broadband as a unique opportunity for satellite companies. Satellite technology will play an important role in promoting broadband access to rural areas where it would be too expensive to lay out fiber or cable, so satellite companies should be able to avail of some of the stimulus funds.
An even more important indicator of the health of the industry is the continued demand for bandwidth fueled by High Definition Television, Mobile Satellite Services and even 3D broadcasting. Demand for these services is expected to continue to rise even as the recession, for as often pointed out in the sessions, people tend to watch more TV during economic downturns.
A casual glance of the activity in the show floor of Satellite 2009 belie any signs of the recession. Traffic was heavy at times and booths do not have the "scaled-down" look. The boldest initiative is the soft-launch of AT&T CruiseCast--an in-vehicle video and audio satellite system aimed at the auto and recreational vehicles market--sectors hard hit by the recession. The initiative is a result of partnership of some of the leading companies in the industry, including Intelsat, which is providing the space segment. AT&T CruiseCast’s CEO Yoel Gat, a 30-year veteran of the industry who co-founded Gilat, was very positive about their chances in the market--a very good sign for the industry (see article on pages 6-7).
The one area which concerns satellite operators is the increasing backlog of launch service providers which has resulted in launch delays and even cost overruns. Intelsat CEO David McGlade, cited cases where launch service providers seemingly are taking advantage of the shortage by adding on charges that were not in the original contract. The backlog in launch services has given rise to many new players in the launch services sector providing lower-cost alternatives to the major launch service providers. Hawthorne, Calif.-based SpaceX, for example, was cited as an increasing viable option.
Overall, the outlook for the industry from many different indicators, looks very positive. The only caveat is if this global recession is prolonged by an extended period of time. But for this year and the following year, at least, the satellite industry should be able to withstand the crisis.
This view is echoed by David Herschberg, CEO of Globecomm Systems, who is celebrating this year his 50th year in the industry and has attended every Satellite show since its inception over two decades ago. Having seen his fair share of ups and downs of the industry, Herschberg said that the industry should come out of this recession stronger than it was before. He said that "there are many opportunities to be had during this downturn and the satellite companies should be able to take advantage of these." His company, Globcomm, can be a case in point. He cited how they struggled during the last recession of 2001-02 during the dot.com bust but emerged from it a stronger company. Revenues at Globecomm from satellite services increased by 20 percent last year and Herschberg expects that growth should continue this year.
Without a doubt, there are satellite companies who will struggle and perhaps not survive this recession, especially those who are heavily in debt or are in very competitive markets. But on the whole, the industry is in good shape. The question is not so much will it survive, but how well it will do. To take full advantage of the opportunities that this downturn presents, however, requires going beyond traditional indicators. Patrick Brant, an industry consultant summed it best in a recent op-ed piece:
"The industry’s greatest challenge will be to dig below the high level indicators and exercise strategies that can change some of the underlying dynamics in the industry and provide a foundation that will grow regardless of the global economic climate. Improving the underpinnings of the business rather than simply sustaining the improved operating efficiencies created over the past decade means 2009 can be the year when the industry drives its performance and energizes the global economy."
I couldn’t agree more.
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Virgil Labrador is the Editor-in-Chief of Satellite Markets and Research based in Los Angeles, California. He is the author of two books on the satellite industry and has been covering the industry for various publications since 1998. Before that he worked in various capacities in the industry, including a stint as marketing director for the Asia Broadcast Center, a full-service teleport based in Singapore. He can be reached at virgil@satellitemarkets.com
