Telenor Satellite eyes even split between broadcast, connectivity businesses

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WASHINGTON — Two years ago, Norway-based Telenor Satellite Broadcasting, in anticipation of beginning service on its first high-throughput satellite (HTS), dropped Broadcasting from its name.

Like most fixed satellite service providers whose primary customers are television broadcasters, the renamed Telenor Satellite joined the HTS crowd in the hopes of generating new revenue from internet and data services.

Thor-7, a growth satellite with a primary Ka-band payload optimized for maritime connectivity, entered service in May 2016 as the tip of the spear for Telenor’s newfound broadband ambitions. Last year was Telenor Satellite’s first full year operating Thor-7’s Ka-band HTS payload.

Morten Tengs, Telenor Satellite’s CEO, says direct-to-home (DTH) broadcasting is still the largest revenue generator for the operator, but Thor-7 now has “a substantial maritime datacom business,” as well as some land-based customers in the Middle East. Fleet operator Inmarsat and maritime connectivity provider Marlink are two of Thor-7’s customers.

As the name-change suggested, Telenor Satellite wants to be seen as more than a broadcast-only operator. “We made a strategic decision to build two equally strong legs,” Tengs said. 

Telenor Satellite Nittedal Teleport
Telenor’s largest teleport, the Nittedal Teleport, located just north of Oslo, Norway. Credit: Telenor Satellite

Telenor operates three satellites, Thor-5, Thor-6 and Thor-7 from the 1 degree west orbital slot, reaching broadcast customers are concentrated mainly in Central and Eastern Europe, and the Nordic countries, and maritime customers in Atlantic, Mediterranean and Middle Eastern waters.

Parent company Telenor’s latest quarterly results show a year over year drop in satellite broadcast revenues from 242 million Norwegian krone ($30.9 million) in 2016 to to 223 million krone in 2017, but Telenor Satellite said a change in accounting practice renders the numbers incomparable. Broadcast transponder use reached “a record-high volume” last year, Tengs said, distributing some 650 channels.

Tengs spoke to SpaceNews staff writer Caleb Henry about Telenor’s business.

What has Telenor Satellite learned from operating its first HTS satellite?

We have moved from delivering wholesale MHz to providing managed services on a [megabyte] basis. Thor-7 is designed to cover the main European waterways. The strategy is to address basically all maritime segments from oil and gas to fishing to cruise to merchant ferry and so on. We stick to this strategy and feel we have had quite some success.

What is the biggest near-term driver of growth in your coverage area?

The people we address these days are different from just a few years back. People now expect to be connected anytime anywhere, and not only connected, they expect to have access to all their applications as when they are on land or a mobile network. They also expect the same quality and speed. We therefore believe there is a large pent up demand for data services, especially in the passenger segments, in the air and in maritime.

As you know we have seen prices come down quite significantly over the past couple of years. I think that price decline will most likely continue. Not at the same pace, but it will continue, and lower prices will eventually also drive higher demand.

You aren’t concerned about these lower prices making profit margins too slim?

Lower prices put pressure on our margins, and we constantly need to improve efficiency and quality.

Is Telenor Satellite still interested in getting into the inflight connectivity and government verticals?

We have a wholesale model only. We sell to resellers, and do not address those verticals directly.

Is there a reason for that allegiance to the wholesale model?

The main reason is not to create channel conflicts. If we should start going directly to customers, we would immediately create channel conflicts and upset all our ecosystem customers. We have discussed that internally many times, and we always end up with the conclusion that we should stick to the model that we have.

A lot of the satellite operators I have discussed with unofficially have thought considerably from time to time to move down the value chain, but I think we need to realize that the complexity and the competence that sits, at least with the advanced resellers, is quite high. It’s easy for us to want to move down the value chain, but whether it is easy for us to be successful I’m not so sure.

There was consolidation in the maritime sector last year, particularly with Marlink buying Livewire Connections and taking a majority stake in OmniAccess. How has that affected Telenor, and do you think it will continue?

Yes, I think it will continue, and it’s not a big surprise. It could be a threat, but it also could be an opportunity to us. We need to make sure that we are relevant for these large or soon-to-become large global players. Our main product is a regional service on Thor-7. These large players are becoming truly global players, so the threat is that they would only source capacity from global satellite providers. But we think the service we have on Thor-7 is good in the region we happen to be in, and it will be relevant for the global players as well. We have been successful so far, and I can’t see why we shouldn’t.

We have a higher capacity on our network than the global, more thinner network. So as a supplement to the global providers we should play an important role in our region.

How is the broadcast market changing in Europe?

There are alot of pessimist models around broadcasting but I prefer to look at it another way. I think if there was a way to count the total number of content that is viewed globally or in Europe, that it’s record high. There is certainly an interest to watch content regardless of the platform. The challenge for the traditional TV operators — cable and satellite — is that there are newcomer sources of content putting pressure on both [subscriptions] and [average revenue per user]. In that sense, the number of subs for traditional DTH operators is going down, however it’s not going down as much as was predicted a couple of years ago.

If a DTH operator was able to get access to exclusive content — for example, live content — and if a DTH operator is able to develop a product that can be viewed on different platforms like iPads, TVs, smartphones, etc., [then] I’m not pessimistic. Satellite distribution is the most efficient way to distribute content, so if the operator can bundle together good content and make that content available on many platforms, they should be competitive. There may still be pressure on [average revenue per user], but that’s the same in all industries.

Companies like Netflix and Amazon have gained lots of subscribers with terrestrial over-the-top (OTT) video infrastructure.

No doubt the entrance of powerful providers of OTT content such as Netflix and Amazon has changed the market … that said, linear and live TV will continue to be important for most viewers, and the broadcasters will continue to produce brilliant content to a market they know and understand very well.

With the technology available in high-end and modern set-top boxes, the border between linear and live consumption and OTT will gradually disappear. This is where I am confident that the DTH operators and cable TV operators will develop and bring forward set-top boxes and interfaces preferred by their customers. This underlines my belief that standard viewing and OTT viewing will find a way to grow prosperous going forward.

Does Telenor have interest in more HTS satellites in the future?

Of course we have interest, but we have no short-term plans. However, we constantly monitor and make prognosis of the utilization per beam on Thor-7, and we need to make sure at any given time we have enough capacity to provide growth capacity to our customers. However, it’s still early days with Thor-7 and that’s where we have full focus going forward.  

Are there any plans for near-term satellites?

No. We have no need for replacement of current satellites until after 2025.

Are there any initiatives of the larger Telenor company that will benefit or otherwise impact Telenor Satellite in the near term?

Nothing that I can discuss with the media. Telenor is a large mobile player, and they are making plans for 5G. The industry has for quite some time been discussing what role should and/or can the satellite industry play in a 5G environment. That is something we are following quite close, but it’s not a Telenor-specific initiative. It is a general mobile initiative … other than that there are some things I cannot discuss.

What are your thoughts on low Earth orbit (LEO) constellations?

There are certainly technical and regulatory challenges that need to be solved, but that can be done, and some LEO systems will materialize. However, factoring in cost of ground infrastructure and network efficiency, I am not convinced that cost per Mb is lower that an efficient GEO satellite. Maybe it’s a little bit of a hype, but again I welcome the competition. It puts the traditional satellite industry more on our toes; it will fuel innovation and we will increase our competitiveness.