RSCC Feels Effects of Transponder Rates, Insurance Costs

STRESA, Italy – The Russian Satellite Communications Co. (RSCC) is facing pressure on its profit margins as transponder-lease prices in its vast Euro-Asian coverage area have dropped by nearly 12 percent in the past three years, the company’s deputy director-general said.

Vladimir L. Glebsky said RSCC’s profits have been further undermined by huge increases in premiums for in-orbit coverage of its satellite fleet. RSCC figures show that premiums for its satellites — the company’s fleet now totals 15 spacecraft — have increased by 68 percent since 2002.

“We have lost about 10 percent of our profit just because of insurance costs,” Glebsky said here April 14 during the 13th International Space Insurance Conference organized by Pagnanelli Risk Solutions Ltd. of London. “Insurance coverage for our launches has increased by 50 percent, and in-orbit insurance has increased by 70 percent.”

Glebsky said RSCC cannot understand why its rates have increased so much . Between January 1999 and March 2005, he said, the insurance premiums paid by RSCC have exceeded claims for launch and in-orbit satellite failures by more than $90 million. “Did we do something wrong?” Glebsky asked. “We had the Express A1 launch failure, but since then there have been successes and premiums have been paid.”

A Proton-K rocket failed at launch in October 1999, destroying the Express A1 satellite and causing RSCC to file an insurance claim for about $25 million.

Echoing the comments of other satellite operators at the conference, Glebsky said insurance underwriters have become overly strict in excluding from coverage any satellite component if a similar component has failed on another satellite.

To rein in insurance costs, RSCC has decided not to insure its two aging Express-A satellites, which in any event are nearing the end of their scheduled service lives and are being replaced by the Express-AM series. Express-A models have limited on-board power, at 1.45 kilowatts, and an operational life of just seven years. Glebsky said underwriters have insisted on excluding so many Express-A components from coverage that continuing to purchase high-cost insurance is not worthwhile.

“The insurance market does not see the client,” Glebsky said. “The increase in the inclusions is due to insurers’ inability to evaluate risk. Diligent customers pay for insurers’ losses elsewhere.”

Insurance underwriters said they cannot tailor risk from company to company, or from satellite builder to satellite builder, because the space insurance market is too small.

Ernst Steilen, head of space risk underwriting at reinsurance giant Munich Re, said fixing premiums based on a company’s recent record would cause the space-insurance market to collapse. “In a perfect world, some would pay 10 percent premiums and others, 50 percent,” Steilen said. “But the fact is you would not get that 50 percent premium, so for the time being we cannot differentiate more than we do.”

RSCC intends to continue to insure the in-orbit performance of its Express-AM satellites, Glebsky said.

The Express-AM spacecraft, built by Russia’s main satellite builder, NPO-PM of Krasnoyarsk, feature payloads built by Alcatel Space of Paris and NEC Toshiba Space Systems of Tokyo. Express AM satellites deliver 4.2 kilowatts of power to their payloads and are designed to operate for 12 years.

RSCC is in the final stages of an $800 million satellite fleet modernization that has been funded 20 percent by the Russian government and 80 percent by RSCC through bank loans. The company’s 15 operational satellites have a combined 196 working transponders.

Four of the five Express-AM satellites planned in 2001 as part of the fleet upgrade are now in orbit. The fifth, Express-AM3, is scheduled for launch by this summer. Two additional Express-AM satellites, the AM33 and AM44 — to be equipped with Alcatel Space-built Ku-, C- and L-band transponders — are on order from NPO-PM and are scheduled for launch starting in 2007.

The market served by RSCC has witnessed alliances between satellite operators who have decided to cooperate rather than compete, at least for now.

RSCC shares part of its market with the Moscow-based Intersputnik satellite organization, which purchases capacity from RSCC and resells it in Africa and the Middle East. In addition, RSCC uses the W4 satellite owned by Eutelsat S.A. of Paris, and Eutelsat has leased capacity on RSCC satellites.

RSCC and ChinaSat Communications Group of Beijing recently announced a satellite-sharing partnership, mainly for television distribution.

RSCC competitor Gascom of Moscow, which operates two Yamal telecommunications satellites, recently entered into a strategic partnership with SES Global of Luxembourg for mutual sharing of capacity, according to an April 8 SES Global presentation to investors. The presentation said the Gascom partnership would permit SES to address the market for two-way Internet services in the Middle East.