The satellite services market in East Asia in 2007 showed some improvement after several years of oversupply that led some satellite-fleet operators to price capacity at below replacement cost, according to industry officials active in the region.

“Demand had been flat until 2007 because new suppliers brought prices down, which gave our customers the impression that prices would continue to come down,” AsiaSat Chief Executive Peter Jackson said here Feb. 25 during the Satellite 2008 conference. “ISPs [Internet service providers] thought they could get the same prices from us as they could from fiber. But now we’re starting to see prices come up again.”

Economic growth in the region has helped spur growth in direct-broadcast television platforms, which have multiplied in Asia as in most areas of the world in the past three years.

Jackson nonetheless said AsiaSat, in order to grow,
probably will have to make an acquisition in the region. “Growth is our objective, but organic growth is difficult,” Jackson said. “So we’re looking at buying something.”

Jackson said a satellite that is fully booked from its first day in orbit — not often the case — could be sold for $1 million per transponder per year and still provide a profit to the owner. But for most satellites — the ones that
start their life in orbit with less than half their capacity booked — “you need $2 million per transponder to make a reasonable return.”

Consolidation among satellite operators in Asia remains difficult because even the poorest-performing companies are often viewed as strategic national assets by their governments. But Jackson said some governments will hesitate to reinvest in these companies when the time comes to replace aging satellites. It’s at these moments that an acquisition opportunity might appear, he said.

While AsiaSat, whose majority shareholders are GE Capital and China’s Citic investment company, would like to purchase 100 percent of its chosen targets, the politics of Asian satellite operations may force it to compromise and purchase 49 percent of the companies in question. A local partner would retain the remaining equity to ease government concerns about what might be viewed domestically as
a foreign takeover.

Other Asian operators agreed that prices appear to be firming, but they cautioned that new capacity coming into the market — from ProtoStar Ltd. of the United States, and from YahSat in the United Arab Emirates, among others — could put a ceiling on prices in the near term.

Another company adding capacity in Asia is Asia
 Broadcast Satellite (ABS) of Hong Kong, whose ABS-1 spacecraft at 75 degrees east is nearly full. ABS President Gregg Daffner said the company is evaluating bids for an ABS-2 satellite, which will be contracted this year. In addition to C- and Ku-band capacity, ABS-2 may have a small Ka-band payload, Daffner said.

Daffner agreed that a consolidation of Asian operators is long overdue, but he said the U.S. government’s recent decisions on foreign investment in U.S. companies have made free-market arguments tougher to sell in Asia.

Referring to a recent U.S. government refusal to permit technology company 3Com Corp. from being sold to private-equity company Bain Capital Partners, with a minority share to be owned by Huawei Technologies of China, will make it more difficult to make pro-consolidation arguments in Asia.

In a similar move in 2007, the U.S. State Department refused to let GE Capital and Citic
take 50-50 control of AsiaSat, for reasons that were never clearly explained. Referring to that event, Jackson said: “We actually get on quite well with the U.S. State Department. Tell them I said that.”

Daffner said: “It is very difficult to argue that [Asian nations] should open their markets when the United States acts like that. When we try to do transactions with a national operator, we get blocked on the same grounds.”

Bermuda-based ProtoStar Ltd., whose first direct-broadcast television satellite is scheduled for launch this year into the 98.5 degrees east orbital position. A ProtoStar 2 satellite is under construction by Boeing Satellite Systems International and scheduled for launch in 2009. ProtoStar President Phil Father said the company is keeping its options open for ProtoStar-2’s orbital slot. “We’ll make a decision in the next 90 days,” he said Feb. 27.

Steven D. Dorfman, non-executive chairman of ProtoStar, said Feb. 25 that the company has not completed the financing of ProtoStar-2, which is a refurbished satellite that Boeing initially had built for another customer. “We’ll get there,” Dorfman said. “We have substantial anchor customers for both ProtoStar-1 and ProtoStar-2.”

Dorfman said demand for television services eventually would force open the markets in India and other nations in Asia that erect barriers to foreign satellites.

“Landing rights i
n that part of the world will be a challenge,” Dorfman said. “But the underlying demand will force the hands of the bureaucrats who are now protecting their turf.”