The satellite and telecommunications industries

have a long history of criss-crossing paths and intertwined relationships, as shareholders and as customers. While telcos, the original government-owned and operated telecommunications operators, were involved from the beginning in

the creation of many fixed satellite services

and mobile satellite services

operators, most now have

divested from the sector with the exception of some in Latin America and Asia. The exit of incumbent telcos from satellite ownership started with the privatization of the three intergovernmental satellite organizations in 2000 and 2001 (Intelsat, Inmarsat, and Eutelsat) and continued in the years

following the occasion of leveraged buyouts and initial public offerings of the satellite operators.

While telcos are less likely to be shareholders in a satellite operator

today, the association between the two is far from over. These relationships are taking on a number of different forms now – as telcos and satellite operators become competitors, customers/suppliers

and distributors.

This development is being driven both by

market dynamics

and the infrastructure

capabilities of each.

Over the last 40 years, satellite technology has demonstrated its efficiency by enabling rapid deployment of communication networks in large geographic areas not served by terrestrial communications infrastructure. In addition to this gapfiller role for communications services, satellite has become the primary distribution network for digital television around the world, with almost 100 million satellite pay-TV subscribers worldwide, in addition to providing feed for all major cable TV networks.

These advantages have led to an evolution in the relationship between telcos and satellite operators. Telcos are still satellite operators’ primary customers for voice

and data communications and increasingly for multimedia distribution. Indeed, as incumbent and alternative telcos created by deregulation evolve into multi

platform content distributors and fixed and

mobile communications service providers, they require more transmission and broadcasting capacity to reach potential subscribers spread over vast territories with varying population densities.

The broadband triple play (telephone/TV/Internet) strategy is driving a transformation of the telco-satellite operator relationship. The triple play

strategy, deployed in numerous domestic markets where telcos have

strong retail brands, suffers from shortages in coverage and


over the last mile to

Digital Subscriber Line, or DSL, and cellular

. Satellite distribution enables the telcos to overcome these shortages and maintain market share in a highly competitive market. Cases in point: AT&T, Telmex, Telefonica and Portugal Telecom all have proprietary or third-party satellite TV offerings to complement their IPTV services. This phenomena also explains why Orange is considering launching its own satellite TV service in France, where two satellite pay-TV broadcasters

already are active (CanalSat and ABSat), and in three other European countries.

Infrastructure convergence is not new to the satellite industry, and continues to drive the relationship transformation as well as consolidation

. Responding to enterprise customer requirements business-to-business

satellite service providers are evolving into managed network solution providers – combining two-way satellite terminals,


and Wimax as appropriate. The hybridizing of communications networks (wired and wireless, including satellite) is pushing satellite service providers and ground equipment manufacturers (fixed and mobile) to improve

economies of scale and

market access.

Candidates in the United States for

ATC (ancillary terrestrial components) networks

– the ground equipment

used to boost and supplement satellite signals – are looking for alliances with broadband wireless network operators to build seamless hybrid infrastructures to provide governments and businesses with ubiquitous fixed, portable and on-the-move communications.

The same is true for those trying to build similar networks in Europe using what

is called CGC, or complementary ground component, to supplement the satellite signals.

The U.S. Federal Communications Commission’s

700 MHz auction is now in progress and S-band selection in Europe

will start

this year. So 2008 will be particularly instructive as telcos, cable companies and new broadband wireless access providers

make their intentions known (with respect to satellite assets).

Synergies between terrestrial and satellite infrastructures

also are apparent in the consumer market: satellite radio broadcasters have installed terrestrial repeaters to bring satellite signals closer to subscribers when in cities and while on

the move. Mobile TV broadcast networks including satellites, will provide better access to content than permitted by cellular networks in point-to-point mode. The standardization of digital broadcasting technologies (DVH-SH, S-DMB) and terminals will allow mobile TV services to launch with 10 to 20 channels as soon as the satellites are in orbit (CMBSat and ICO first in 2008).

Pure-play satellite service providers – both

one-way companies for satellite TV and radio (i.e. DirecTV, Dish, Sirius,

XM) and

two-way companies for broadband access (i.e. WildBlue, Spaceway) –

compete for market share with large telecommunications companies with greater financial resources. Yet as these telcos realize that the deployment of wired and wireless terrestrial broadband networks (FTTH, Wimax

and 4G) will cost more and take more time than anticipated, they will likely once again consider

satellite technology for what remains its unique advantage – an accelerator for market penetration.

Rachel Villain, director for Space & Communications at Euroconsult, has analysed the satellite market and advised leading companies in the sector for

20 years.