PARIS— Satellite fleet operator SES on Feb. 26 said the aeronautical satcom market was growing so quickly and in so many directions that even a merger of the three biggest companies – Gogo, Panasonic Avionics and Global Eagle Entertainment – would not pose a threat to SES, which does substantial business with all three.
The company also brushed aside the challenge from proposed low-orbiting constellations of Internet delivery satellites, and the new generation of high-bandwidth Ka-band satellites being proposed most notably by ViaSat Inc. of Carlsbad, California.
The low-orbit constellations, in addition to wasting coverage and capital in traversing the oceans and deserts, also lack the wide-beam advantage of satellites in geostationary orbit and this will limit their appeal, SES said.
The terabit-per-second-throughput satellites that ViaSat has been the first to disclose also lack a wide-beam capability and are thus frozen inside a business model that may or may not meet the market’s needs in 10 years, according to SES’s reasoning.
SES Chief Executive Karim Michel Sabbagh said Luxembourg-SES’s internal estimates are that commercial airline connectivity, which on many airlines averages no more than 20 megabits per second per plane, will increase to 175-200 megabits per plane by the end of the decade. He said his estimate was based on bid requests from airlines that SES has seen.
But with the major providers now buying capacity on the same SES satellites, and some industry observers predicting that the sector may consolidate, the question for SES is whether selling to one survivor will be as good as selling to three current competitors.
In a conference call with investors, Sabbagh said that unlike the satellite television market, where consolidation means less total capacity leased post-merger, a consolidation among aeronautical broadband providers will not slow things down. In such a scenario, he said, the surviving company will need about as much aggregate bandwidth as the three companies now demand – and may even accelerate deployment.
Sabbagh revered to outside analysts’ reports that maritime and aeronautical connectivity markets are growing at a combined annual rate of 30 percent per year. Even if SES does no better than the overall market in attracting business, he said, the revenue flowing to SES, which now accounts for 3 percent of the company’s business, would grow to 10 percent.
“We have a slightly more optimistic view of how that market is going to grow,” Sabbagh said, declining to provide a specific forecast.
SES has increased its ownership stake in O3b Networks, which now operates a fleet of medium-Earth-orbit Ka-band broadband satellites, to 49 percent from 45 percent a year ago. O3b has focused in remote geographies – the Pacific Ocean region in particular – but has also made headway in the energy production and maritime markets.
The question has been whether SES – working with satellites in geostationary orbit – and O3b would bump into each other as they sought new business.
Sabbagh said that has not happened and that, even in the maritime and aeronautical connectivity markets in which both operate, there has been no cannibalization of business.
O3b, he said, will focus on maritime markets and businesses that require low-latency transmissions that satellites at 8,000 kilometers in altitude can provide, whereas a geostationary satellite at 36,000 kilometers cannot.
Sabbagh said O3b will reach the break-even point by mid-year, paving the way for SES to take majority ownership. Whether the ownership stake means 50.1 percent or 100 percent, he said, remains a subject of discussion within SES and between SES and O3b’s other shareholders, which include Google.
Operators of low-orbiting satellites, including O3b, often stress the virtues of low latency. But many in the industry question whether video streaming, where latency is not a major concern, will not relegate latency issues to the sidelines.
As a company whose main business is video distribution from geostationary satellites, SES might be expected to soft-pedal the importance of low latency. But Sabbagh chose to stress its importance.
“Twenty percent of data-centric applications are latency-sensitive and can only be served by O3b,” Sabbagh said. “Of course you could put that application on an FSS [fixe satellite service, geostationary-orbit] satellite, but the experience is going to be sub-optimal – either in the actual experience or what the cost of the experience would be.”
ERP and other business management software and e-banking all demand low-latency connectivity, and as cyber-security measures are added to the connections the connectivity issue will become more important, he said.
While aeronautical and maritime mobility markets offer the highest growth potential near term, SES said its television business – 67 percent of the company’s total revenue — continued to grow in 2015, by 7.5 percent.
The total television channel count carried on SES satellites grew by 11 percent, to 7,268, which SES said compares to 2.3 percent growth for the satellite television industry overall. High-definition channels grew by 18 percent, to 2,230 channels. SES said 60 percent of all its television broadcasts are now using the MPEG-4 compression standard, whose deployment the company said is good for the market even if it reduces the amount of satellite capacity needed per TV channel.
SES’s total revenue for 2015 grew 5 percent, mainly because of foreign-exchange effects as the strengthened U.S. dollar produced more euros for SES. At constant exchange rates, revenue would have declined by 3.2 percent as SES suffered from several contract changes in its enterprise business, and from the arrival of Argentina’s Arsat-1 satellite at 71.8 degrees west.
Arsat is now using its own capacity instead of leasing 16 transponders on the SES AMC-6 satellite at 72 degrees west. What is more, Arsat has rights to the Ku-band spectrum over Latin America from that orbital position, meaning SES will not be able to resell the newly available capacity.
