Russia’s biggest satellite fleet operator, Russian Satellite Communications Co. (RSCC), has big ambitions and a big domestic market to match. Less helpful to Moscow-based RSCC has been its recent experience with Russia’s Proton rocket. Proton’s latest failure, in May, destroyed RSCC’s Express-AM4R satellite, which was built to replace the original AM4 — itself lost in a mid-2013 Proton failure.
RSCC Director-General Yuri Prokhorov prefers to focus on those things the company can control. His professional background, which includes a stint at Proton builder Khrunichev State Research and Production Space Center, makes it difficult for him to pass judgment on Proton manufacturing.
What Prokhorov can focus on is the company’s plans to deploy Ka-band services in Russia, and more immediately its recovery from a series of satellite losses, at launch and in orbit, that weighed on RSCC’s 2013 financial results.
Accompanied by RSCC Chief Financial Officer Dennis Pivnyuk, Prokhorov spoke to SpaceNews staff writer Peter B. de Selding at the recent CommunicAsia conference and exhibition in Singapore.
You have had extraordinarily bad luck with the Russian Proton rocket. Is it time for a change?
Launch vehicle failures are part of the business of satellite telecommunications. We have a clear development path for our company to 2023, with a strategic program that has been announced by us and supported by our government. The goal is to become one of the top five fixed satellite services operators by then. This task remains the same for us, regardless of whether a given launch goes well.
Would it help you if you had more choice in rockets — for example, alternating between Sea Launch and Proton vehicles?
We don’t rule out the possible use of Sea Launch. We are in contact with them, and we have met with them to discuss this. First we need to see how a launch vehicle matches our satellites’ characteristics. Logistics and money are important. The reason we use Proton is that this vehicle is included in the government federal launch program.
Some have suggested Sea Launch, which is purely commercial and operated from international waters, could be moved to Russian territorial waters to become a Russian federal program.
These discussions, while important, are very far away from our current preoccupations. Sea Launch has a terrestrial infrastructure, and personnel to be considered. Such a move is not so simple; it requires a lot of planning. There are U.S. citizens involved. You cannot just pick up and move a launch system, even Sea Launch.
How do you compensate for the loss of Express-AM4R at 80 degrees east longitude?
We have another satellite there that will enable us to protect the spectrum we have reserved at this orbital slot for at least two years. We have determined we can then move another satellite into the position for another one or two years.
Then of course we plan to order a new satellite for this orbital slot, which is a very important one for us and our plans to cover Russian territory.
Have you already ordered a replacement?
After the Express-AM4 failure, we ordered an identical satellite, AM4R. But now that AM4R has been lost, some of the specifications for the replacement will change. For example, Ka-band is not a priority for us now at this orbital slot.
You currently have four satellites on order including AMU1, correct?
Yes, and AMU1 is on schedule for 2015. AM6 is already at the Baikonur Cosmodrome and we plan to launch it in October. AM7 comes next, in mid-November, according to the latest indications we have received from the Russian space agency, Roscosmos. In any event, the satellite will be ready for shipment in August. The next one, AM8, should be launched by late December this year.
All three of these will launch before the end of this year?
Proton has already demonstrated its ability to launch at a high rate.
Who is next up on Proton for the return to flight?
My understanding is that it is a satellite built by JSC Reshetnev, which is scheduled for late September and will be the first flight after the failure. This is tentative until they have determined the course of action after the Proton failure. But our intentions are to have three of our satellites launched by the end of the year.
How big will Ka-band be in Russia?
We started to work with Ka-band two years ago, leasing three beams on theKa-Sat satellite, and we began studying business models to provide services. Now we are looking at partnerships with four or five Russian service providers for Internet services to customers. We would provide the Ka-band capacity, and they would deliver the service.
Today we have Express-AM5 to provide Ka-band in the Russian Far East. On this satellite we have 10 beams delivering capacity to this area. Service provision should start in November. The satellite is ready, and we have been testing service quality. Our first tests were in early June, when we tested 4K (ultra-high-definition) TV in Ka-band, and we are also testing backhaul from this satellite.
With your own Ka-band capacity coming on line, will you end your Ka-Sat lease with Eutelsat?
No, this will continue. It remains very important for us to have a good partner in Europe. Dennis has a seat on Eutelsat’s board of directors and we are a Eutelsat shareholder. So this partnership with Eutelsat will continue and is in our 10-year plan. We will continue our joint venture in developing the orbital slot at 36 degrees east. Eutelsat has plans to purchase capacity on Express-AMU1.
For 20 years now we have had a telemetry and control facility for Eutelsat at our facility near Moscow, in Dubna. We control 12 Eutelsat satellites from there.
Is there a Russian government program to deploy Ka-band for areas with poor Internet connectivity, or are your Ka-band plans strictly commercial?
It is strictly a commercial project. Our government is not involved.
No regional governments are offering incentives or subsidies?
No, this is our commercial project. Our partners are mainly experienced VSAT providers that are familiar with dealing with the mass market — B2C [business to consumer]. We are a state-run company and it is hard for us to provide B2C services. For now, working with service providers is easier for us. We have only around 800 people in our company, covering multiple time zones. Being a wholesale infrastructure provider is our core expertise.
Following the example of certain Western providers of buying up companies to provide end-to-end service would reduce our overall effectiveness.
What is the difference between managing a state-owned company like yours and running a private-sector operator such as Eutelsat?
None. A private company has restrictions imposed by a board of directors, while a state-owned company answers to government ministries. And a private company owns its assets, while our assets are owned by the government and given to us to manage.
In terms of governance, it may or may not be easier to convince a government authority to make a given investment than to convince the board of a privately owned company. A Russian private company might focus on the short term rather than on a long-term strategy. Governments can take a longer-term view.
Who sets the specifications for your satellites?
Do you have an obligation to cover the whole of Russian territory?
No, it doesn’t work like that. We don’t have to cover the whole territory. But of course we coordinate strategy with our government ministries and on our use of cash flow. We have a strategy; we have a development plan, and a financial plan that covers eight years.
When we lost AM4 we obviously had to change our program and update our view of the market and financing strategy and how we would use the insurance proceeds. We provided updated proposals to the government ministry, and a special commission approved all aspects of this program — legal, financial, strategic and so forth. We had to address a lot of questions from them, but this was done.
International Telecommunication Union member governments will meet in early 2015 at the World Radiocommunication Conference. Terrestrial wireless broadband providers will push for more C-band now reserved for satellite transmissions. Does the Russian government have an opinion about this?
Many satellite operators got together last year in Paris to discuss this. It appeared to me that only the Russian Federation was firm in its determination to protect C-band. Many other administrations have kept silent, or said they are still studying the situation. I fear that if these administrations provide concessions, the result will be bad. There are no halfway measures here that will work.
RSCC is not a member of the Space Data Association, which coordinates satellite positions to avoid interference between satellites through pooling of information with a guarantee of confidentiality. Eutelsat,and are all in this. Why not RSCC?
The illegal use of frequencies is of great concern. We know many examples of this happening, for example aboard our AM5 satellite. When we learn of illegal use of our frequencies, we use our own resources to deal with it. There is a special control agency in Russia that is responsible for acting when this occurs.
These were people pirating the AM5 signals for their own use, or interfering with your broadcasts?
It was a little of both, but mainly piracy of the signals. The spacecraft was brand new and it was not yet used 100 percent. The pirates wanted to make use of this capacity.
Did you identify them?
We know who it is but it took us a month to determine their identity. In the Russian Far East there are not so many places to operate without detection.
What was your 2013 revenue?
About 5.8 billion rubles. The exchange rate changed dramatically during the year. At constant FX [when the effects of exchange rate fluctuations are removed] it would be slightly less than $200 million. If we apply the latest rate, it would be much less. This would be less from 2012, given that we had the loss of AM1 and MD1. Excluding these two losses, revenue would be about stable.
We lost AM1, AM2, MD1, MD2, AM4 and now AM4R, all within the last few years. Six satellites — three during launch, and three in orbit.
Proton’s failures of late have been on Russian federal missions, even though commercial launches are more frequent. How can this be?
You are asking a former deputy director of Khrunichev, and Dennis is as well, so we are perhaps not the best ones to ask. Commercial systems might be more closely monitored. Rocket hardware migrates all the time between federal and commercial missions. You can’t say that one rocket is assembled from the start for a federal or commercial mission.
It is like Russian roulette. We are being provided with a service for free, and we don’t have direct contract with Khrunichev.
But Russian roulette over time would distribute risk to players from both sides. In recent years, it’s exclusively Russian federal missions that have failed.
If you play Russian roulette with a machine gun there is 100 percent assurance of the outcome.
You insure all your satellites?
Do you have the liberty to pursue mergers and acquisitions or other expansion outside Russia?
Our main focus is to provide services for the Russian Federation. But we have a presence in about 35 nations. We are not planning any consolidation; we’ll grow organically until 2020 at least, including partnerships — with Eutelsat, for example.
Are you being encouraged now to use more Russian manufacturers in your supply chain? Many of your payloads are built by non-Russian companies — European and Canadian in particular.
The payloads will be manufactured outside of Russia in most cases. There is a federal law about purchasing Russian hardware for Russian state-owned companies, setting out specific procedures for all purchases.
The algorithm for purchases is as follows: We design the spacecraft. Then we circulate a request for proposals. It is an open, international procedure.
We review responses from all the main satellite manufacturers that respond — it could be Boeing, MDA, Loral, Reshetnev, Airbus, Thales, and China more recently — to see which provide the best pricing. We then determine a benchmark price, and begin a formal evaluation. I send a letter to our Ministry of Communications to receive approval of the initial price. After this, we provide information about the tender on our website. Each company then provides an official proposal, confidentially.
We open the final bids in a room with video recording so that all are aware of what’s happening. For example, we have received recent proposals from MDA and the Chinese and Thales and Airbus proposals. The gap between the highest and lowest bids was about 20 percent. In a recent case the Chinese were among the more expensive. It was one of their first experiences in an international satellite bid.
An independent commission — I am not a member of it — reviews the proposals. So there is no official requirement to use local companies. Someone might express a view that it would be preferable to use a local manufacturer. But this would be only an opinion. Our job is to follow the rules.
Recently only Canadian and European payload providers have been selected.
Since MDA purchased Loral, we discussed with Loral about possible provision of satellites. They are interested in bidding for the Russian market. Let’s remember that Russian-American cooperation in space has been diverse — not just the international space station. There is [Proton commercial sales agent], satellite launches, a Boeing satellite built for Russia.
Now we have the threat of licensing issues — for example, with AM7 and AMU1, which have U.S. components — because of the political situation. It is not certain that a license will be delivered. Let’s say it is not an issue now, but it could become one. We could all wish for calmer times.
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