Amiram Levinberg, Chief executive, Gilat Satellite Networks
Satellite terminal and services provider Gilat Satellite Networks, coming off a difficult 2009, entered 2010 with its investment appetite still strong. After establishing its Spacenet Integrated Government Solutions (SIGS) subsidiary in 2009 to appeal to the U.S. Defense Department, the company this year has purchased RaySat Antenna Systems, which also is centering its offer on military users. More recently, Petah Tikva, Israel-based Gilat purchased a 90-employee antenna research and development center in Bulgaria.
The company remains flush with cash — $155 million as of June 30 — and recently reached a settlement with a group of investors that had terminated a merger agreement. The settlement will pay $20 million to Gilat.
Company Chief Executive Amiram Levinberg declined to forecast what the rest of 2010 will look like for Gilat, but he is optimistic that satellite bandwidth shortages in certain regions of Africa will soon be eliminated, allowing current and prospective Gilat customers to expand their businesses.
Levinberg spoke with Space News staff writer Peter B. de Selding.
How is the business split now?
We provide equipment to service providers such as Telefonica, Optus and Bharti Airtel. We have a second business that provides services. In the United States, this is mostly to enterprises through our Spacenet subsidiary. In Peru and Colombia, our services are more for rural telecommunications. These are universal service obligations that are usually subsidized by governments.
We want to focus on growing our Latin America business as well as other developing regions, such as Africa. In addition, we are looking to develop business in the defense markets.
Your business in Africa is smaller than in Latin America. How are prospects there?
The growth there is quite promising and there are interesting opportunities. There were significant satellite capacity shortages in parts of that region the past few years, which inhibited growth. We hope the situation will be eased in the coming year or two. As in Latin America, a lot of the growth is government-funded.
GESAC [a program to extend Internet access to rural areas] in Brazil is a major project for us, and is a good example for such government-funded projects. We currently have more than 10,000 VSATs [very small aperture terminals] in this network to provide Internet access to schools and to rural communities.
Does 2010 look better than 2009 for your business?
Generally speaking, the trend is positive. For us, 2010 is an investment year in two areas. First, we are strengthening our core business and increasing our investment in research and development. Second, we are investing in technologies and solutions for the defense market in the United States, and also defense markets outside the United States. This has required the establishment of a separate subsidiary, Spacenet Integrated Government Solutions, for reaching the U.S. defense market.
What are your goals for SIGS, especially now that you have purchased RaySat Antenna Systems?
The U.S. Department of Defense is a very interesting market for satcom in general and for VSATs specifically. SIGS is focused on the U.S. defense market, and will be leveraging the acquisition of RaySat Antenna Systems for this objective. Satcom for defense outside the U.S historically has been relatively small, but there is an opportunity for it to grow rapidly in the coming few years. Other countries are adopting network-centric warfare and need satellite communications.
RaySat Antenna Systems already sells low-profile antennas for satcom on the move, and its U.S. operations will be operated as part of SIGS in the United States. It is a small but fast-growing business. Outside the U.S., this market is in its infancy, but we are already seeing projects in Asia and in Latin America.
Does the SIGS division, including RaySat, operate outside the U.S.?
We have some projects in Asia and in other regions. Some of these are connected to the U.S., however. Latin American projects, for example — some things have U.S. funding for homeland security applications.
Are VSAT networks, usually in Ku-band, expanding into the mobile maritime market that up to now has been mainly L-band?
There is a trend towards more use of VSATs in maritime applications mostly because users seek more bandwidth at a lower service cost. We will see more people taking up Ku-band service, in my view. But even if this is a trend, I don’t think it’s a big phenomenon. Maritime is not a big market at this time. And L-band is not expected to go away completely. Look at the U.S. Blue Force Tracking program, for example. That is still L-band.
Mobile satellite services providerhas announced a $1.2 billion investment in Ka-band satellites for near-global mobile maritime and other markets. Do you see the logic there?
Yes, this looks like a natural growth strategy for Inmarsat to move beyond L-band to new frequencies. But again, if you look at the number of VSATs now in the maritime market, it’s not a big number from the modem side. It is, of course, a much bigger market in terms of service.
Is Ka-band a growth market, both for fixed and mobile broadband?
Ka-band is an opportunity. If you look at the history of C- and Ku-band satellites, they were built as general-purpose spacecraft covering large areas for broadcasting or international links. VSATs do limited multicasting and broadcasting, but most of the business is for unicast traffic, such as Internet or enterprise applications. Ka-band is in its early stages, but there are a few Ka-band satellites being built now for VSAT-type applications, and these perform very well for unicast applications — specifically for Internet.
Hughes and ViaSat have been courageous in pioneering the use of Ka-band for consumer Internet access. Most conventional satellite operators were not willing to finance their own Ka-band satellites, and so these two companies have taken the risk of being vertically integrated — owning the satellites and marketing the service to end users. The potential difficulty is that then you have a system that is locked into a certain technology on the ground. The satellite operator, who owns the service and technology provider as well, may not adopt the best technology available for users as they are tightly integrated.
is launching its own Ka-band satellite for consumer broadband. Will other major satellite fleet operators follow?
Eutelsat is the first conventional satellite operator that is trying launching a Ka-band spot-beam satellite. As the Ka-band market becomes more mature, other satellite operators likely will make their own investments, leaving technology providers like us to do the job of providing the service to customers.
Does the consumer broadband market appeal to you?
We are focused on the higher-end business for corporate and government users. Up to now, consumer broadband has been essentially a U.S. phenomenon. There you have about 1 million customers between Hughes and ViaSat. In Europe, the early efforts of Eutelsat andAstra have a combined subscriber base of less than 100,000, as I understand it.
In East Asia, Thaicom’s IPStar has had some success in consumer broadband, but it is not a big market so far in terms of subscribers. From a technical standpoint, this is no big barrier to entry. NBN in Australia is considering making such an investment. If they develop the satellite services they are now talking about, we would be glad to step in and provide technology for it.
So for you the business model has not yet proved itself?
It still does sound a bit risky. Time will tell if the risks are justified from an economical point of view. It is not yet clear from the history of the Spaceway 1, 2 and 3 satellites, and WildBlue-1, how this will turn out. There are two types of consumer experiences with broadband. The first is being able to download faster than before, including video streaming. The second is more for kids and includes gaming applications. Satellites are great for video streaming, but they are not optimal for gaming. So we will have to see if consumers are more interested in the first or the latter.
But you are bidding for work on the Australian NBN project?
We have tens of thousands of VSATs in Australia with Optus, and yes, we are interested in making an offer for the Australian project. No one really knows yet what the plan will be, but we will definitely offer our technology and solutions.
Gilat was a consumer broadband pioneer with its StarBand service in the United States starting in 2000. It went through Chapter 11 bankruptcy reorganization and was scaled back. What lessons do you take from that experience?
Timing is everything, and we probably came onto the market too early. Then we ran into the Internet bubble crisis. Perhaps we made a few mistakes as well. In those days, we had lots of debt, whereas today we have a lot of cash. We also financed the consumer-premises equipment more than needed. We had 60,000 to 70,000 subscribers using regular Ku-band, and we had a plan to serve as many as 1 million subscribers. For the reasons mentioned above, this did not materialize.