S atellite fleet operators have generally avoided competing with their customers, but the changing nature of the business has forced some to start diversifying into areas like teleports, industry officials said during a March 23 forum here.
Jonathan Kirchner, vice president, strategic product marketing for Loral Skynet of Bedminster, N.J., said satellite fleet operators are simply having to think of creative ways to sell their capacity in a challenging, changing market. “We will sell raw bandwidth day-in and day-out, but we need other revenues,” Kirchner said during the World Teleport Association Forum at the Satellite 2005 conference.
PanAmSat Corp. of Wilton, Conn., has been providing services since its inception, said Bruce Haymes, PanAmSat’s senior vice president for corporate development and strategy. “The only way to get our business started and have customers was to have teleports,” Haymes said. “No one would come onto our satellites unless we provided the tools. We’ve always been vertically integrated. What’s changed is how that is viewed.”
PanAmSat still garners most of its revenues from selling bandwidth, but a change in circumstances has forced satellite operators to seek more service businesses, Haymes said. Acquisitions of Hughes Global Services in January 2003 and Esatel Communications in September 2003 have helped push PanAmSat’s U.S. government service-related revenue from its traditional level of about $10 million a year to about $100 million in 2004, he said.
“Vertical integration is a way to grow our business and sell bandwidth,” Haymes said.
SES Americom, the Princeton, N.J.-based subsidiary of SES Global, expanded its portfolio with the December acquisition of satellite-services supplier Verestar Inc. in a bankruptcy auction. SES paid about $24.3 million for Verestar, which operated six teleports in the United States and Europe on the assumption that Verestar’s U.S. government-services contracts would quickly become a $100 million annual business.
The acquisition increased the customer base for SES Americom’s Enterprise Solutions unit by 150 percent, but the company continues to struggle with vertical integration, said Brent Bruun, senior vice president and general manager of Enterprise Solutions.
“Verestar’s customers put us in competition, which is not a great position to be in,” Bruun said. “We don’t want to go all the way down the value chain. We are looking to build off the infrastructure business and provide connectivity.”
Independent teleport operators are adjusting to the new realities of the market, said Robert Bell, executive director of the World Teleport Association. “The actual experience of the teleport operators is far from fear, uncertainty and doubt,” he said. “Each carrier goes through cycles. One carrier will go with a strategy to win everything and then pull back when it doesn’t work. The market is finding a new equilibrium.”
Carriers often find that entering the services business can be tougher than expected, Bell said. “I think it remains to be seen how happy the carriers will be.”
The threat of increased competition is not scaring off new companies either, Bell said. “We are literally seeing two or three new startups per month,” he said. “We’ve seen them in Florida, in London, in Germany. There are a raft of startups in India.”
The industry is beginning to resemble other technology industries, such as the computer arena, Bell said. The large established companies are rarely good at innovation, and instead keep an eye on smaller companies that become successful and then move to acquire them, he said.
Small teleport operators understand the nature of the business today, said Scott Calder, chief executive officer of Mainstream Data Inc. of Salt Lake City, Utah. “We see operators who compete in a downstream business as having reached a certain size,” he said. “They then realize they have to find another way to make money and we’re sure to see more and more of that.”
It is up the small independent operators to adapt to the new reality, Calder said. “To be in this business, you have to get big fast or get out,” he said. “Smaller companies need to find their niche where they can provide value. We aspire to become small innovative players who become large enough to dominate a commodity business or be purchased.”