Communications Services, NEC

Industry Snapshot

Because of an increased interest in communications technologies and information transmission, satellite systems have been driving growth and commanding high visibility in the miscellaneous communications services industry. Difficult economic times and a weak telecommunications market had a negative impact on the industry during the early 2000s, although demand for satellite-related technology began to increase by the mid- to late 2000s. Continued expansion depends on increased demand for services to small mobile satellite terminals and telephones, the need for more television relay services, expansion of the Internet, and the growth of direct television broadcasting via high-powered satellites. By the mid- to late 2000s, many weather, communications, and remote-sensing satellites were in operation, along with a number of multiple-satellite systems. The global satellite manufacturing sector's revenues were in excess of $10 billion in 2008.

Organization and Structure

Commercial space launches, satellite communications goods and services, and satellite remote sensing are the major segments of this industry and provide the bulk of its revenue. Voice and data communications, mobile services, vehicle tracking and navigation, and broadband data transmission for the Internet are growing segments. Beginning with its inception in the 1960s, this industry has been the realm of government agencies, the military, and international consortia. In the 2000s, however, new technologies and increased privatization resulted in new applications for satellite services and earth stations.

Communications Satellites.
Communications satellites allow the exchange of live television programs and news and sports events, such as the Olympics, between nations and continents. Linking earth stations located in more than 50 countries carry international telephone services. Communications satellites transmit signals via microwaves, which are very short radio waves sent from or received by bowl-shaped reflectors or from antennas. Earth-based (terrestrial) systems send out extremely high frequency signals from transmitters to repeater stations and back to receivers. The waves form narrow beams, which travel in straight lines. For this reason, receivers must be located within line of sight of one another and usually are placed on towers. Transoceanic microwave systems became feasible with the advent of satellite technology.

Satellite systems work in much the same way as terrestrial systems, except that the signals are relayed from an earth station to an orbiting satellite. The equipment aboard the satellite receives these signals, amplifies them, and rebroadcasts them to another earth station. Satellites are better suited for long-haul, single-to-multipoint transmissions than are terrestrial systems, because they are not susceptible to being blocked by geographical obstructions. Satellites also are preferable for reaching regions where the cost of laying cable would be prohibitive. Their large bandwidth accommodates a variety of video and data transmissions. Compared to terrestrial systems, satellite systems have the disadvantages of echo, less signal security, and a slight transmission delay, which varies according to the altitude of the satellite.

As a transmission technology, communications satellites also compete with fiber-optic cables because both systems transmit data. Over time, the cost of transmitting information via satellite has become almost as low as the cost of transmitting via land. It is unlikely that one technology will win out over the other, because each has its advantages. In fact, a study done by COMSAT Corp. showed that cable and satellite technologies complement one another in many respects.

The satellites considered to be the most competitive alternatives to cable were Ku-band, beam-hopping, multi-beam satellites. These conserved energy by allowing simultaneous switching among beams. Other cable competitors were C-band, fixed multi-beam satellites that used a series of beams but do not permit rapid switching between them. The beam-hopping, multi-beam system cost an estimated 27 percent less than cable, whereas the fixed multi-beam was estimated to cost nearly half as much as cable.

The part of a communications satellite that is "for sale" is the transponder, which broadcasts signals. Transponders are transmitter/receiver devices. Early satellites had single transponders, but by the 1990s some satellites had as many as a dozen or more (leased full-time or occasionally). The cost of leasing varies, depending on variables such as the time of day, frequency, power, duration of lease contract, orbital position, and type of satellite. In the early 2000s, the rate for domestic analog C-band channels ranged from $200 to $600 an hour, or $55,000 to $230,000 a month. Leasing a higher frequency, Ku-band transponder ranged between $250 to $800 per hour, or $150,000 to $210,000 per month.

Fixed and Mobile Services.
Fixed satellite services (FSS), which included fixed broadcasting, data transmission, and telephone service, accounted for about 85 percent of all U.S. satellite service revenues. An estimated 65 percent of these revenues were generated by video transmissions for news feed services, cable TV networks, and national broadcast networks. The advantages of communications satellites made their services attractive for "narrowcasting" applications for educational or corporate programming. Private business television (BTV) was a rapidly growing area of information transmitted via private networks with very small aperture terminals (VSATs). Users grew to rely on these systems for intracorporate data, video, and telephone communications. Retail companies used VSATs for credit card authorization and remote inventory control, and the travel industry relied on VSAT services for its reservation systems.

Mobile satellite services (MSS) were a more recently developed services market. Whether mobile satellite services will continue to expand will depend on the allocation of enough of the radio frequency spectrum to accommodate multiple communications systems. Market growth will depend in part on the success of newer technologies based on clusters of microsatellites in low orbits, as opposed to traditional technologies based on very large, high-cost satellites in geostationary orbits. Satellites in lower orbits are less expensive to build and launch, but more of them are required to cover the same areas as a larger satellite in geosynchronous orbit. Satellites in low earth orbit are referred to as LEO systems.

Land mobile satellite services (LMSS), which include applications such as navigational services, cellular telephone services, and digital radio, were expected to be the fastest-growing MSS application in the United States and abroad. About 80 percent of mobile satellite service revenue comes from LMSS applications, such as location and messaging services for trucks, while aviation and shipping make up the balance of the mobile market.

Remote Sensing.
Remote sensing is the gathering and storage of information around the earth's surface, such as weather patterns, via optical and infrared cameras, radar, or other sensing equipment in an orbiting spacecraft. Uses for remote sensing satellite data included agricultural forecasts, shipping, fishing, oil and mineral prospecting, cartography, forestry, and pollution surveys.

Background and Development

Between 1958 and 1963, the United States launched several experimental communications satellites, including Score, Echo, Telstar, Relay, and Syncom. Built by American Telephone and Telegraph Co. (AT&T), Telstar was launched on July 10, 1962. Telstar was powered by solar cells and chargeable batteries, and it demonstrated international satellite communications capabilities by transmitting American speech and television transmissions to Europe. In December 1962, NASA launched its communications satellite, Relay, for communication experiments. On July 26, 1963, Hughes Aircraft Co.'s Syncom II, the first synchronous communication satellite, was launched by NASA. Hughes' Syncom III, launched the following August, relayed the first sustained trans-Pacific television broadcast during the 1964 Olympics.

Many satellites have been launched for military use. The largest satellite ever built (1,600 pounds, as opposed to less than 200 for most satellites) was launched in 1969 and was designed for use by the U.S. Army, Navy, and Air Force in communicating with mobile field units, aircraft, and ships. The first commercial satellite, Early Bird, was launched in April of 1965. Commercial activity in this sector heated up in the 1980s following new federal policies to privatize space activities. The technology used in commercial satellites, such as satellite launch vehicles and guidance systems, was originally developed for military purposes.

In 1962, the U.S. Communications Satellite Act provided that the sole right of U.S. ownership of satellites for international communications would rest with a single private corporation, the Communications Satellite Corp. (Comsat), which was incorporated in 1963. This move prompted European common carriers to band together into a consortium. In 1964, the International Telecommunications Satellite Consortium (Intelsat), an international corporation for the construction, launching, ownership, and operation of communication satellites, was established. Intelsat is an international not-for-profit consortium of 143 countries whose members contribute capital in proportion to their use of the system and receive a return on their investment. All users pay Intelsat utilization charges, which vary depending on the type, amount, and duration of the service used. The Intelsat system provides four major services to users in more than 180 nations: public switched telephone services, private line network (business) services, broadcasting (video and audio) services, and domestic and regional services. The Intelsat system is accessed by thousands of earth stations, ranging in size from 50 centimeters to 30 meters. COMSAT was the U.S. government's representative to Intelsat and the sole source of access for U.S. companies.

A new generation of satellites was launched in the early 1990s to replace aging satellites with higher powered, higher capacity models, many with combinations of both C-band and Ku-band capacity. The life of a satellite is determined by its altitude and how much fuel it has to power the onboard rockets that keep it in its orbital pattern. This fuel usually runs out after about a decade of operation. The new satellites contain twice as many transponders as their predecessors and have the digital compression technology to expand their capacity by squeezing several channels of video per transponder. One example of the new breed of high-capacity satellites is AT&T's Telstar 401, which began operation in January 1994. Telstar 401 has 24 C-band transponders and 24 Ku-band transponders.

Demand was expected to remain high for small, low-cost satellites, called lightsats and microsats. Lightsats weigh less than 1,000 pounds and microsats less than 250 pounds. These smaller models are increasingly the models of choice for new communications systems. In 1994, Hughes Communications Inc. began its direct-to-home satellite service, DirecTV, which incorporated the United States' first high-powered direct broadcast satellite. DirecTV delivered more than 150 channels of programming to homes using 18-inch dishes and receivers. Similar services were launched by RCA Corp. and other companies.

An offshoot of direct-to-home satellite communications was the use of DSS technology to facilitate computer communications. Competing directly with the telephone companies and the new cable modems announced by the cable industry, the satellite industry, which was led by DirecTV, began offering high-speed satellite links to the Internet. According to DirecTV, its direct broadcast satellite (DBS) system, when combined with a personal computer, would allow consumers to receive digital video programming and a variety of new entertainment, multimedia, and interactive data services on their PCs. The key advantage of the system was its speed. At up to 30 megabytes per second (mbps), the new DirectPC system allowed users to download information and files more than a thousand times faster than standard modem connections.

At the end of the 1990s, satellite-based communication was poised for great expansion. In 1996, there were 54 commercial satellites in orbit around the earth, but by 1999, the number had more than tripled to 175, and more than 500 were scheduled to be launched in the next three to five years. Most of these were elements of systems or constellations of multiple satellites, ranging from a few GEO satellites to hundreds in low earth orbit (LEO). Although the number of such systems changed as the sponsoring companies consolidated their efforts and new proposals were put on the table, there were about 29 constellations launched or planned in 1999. These systems targeted four different applications: voice, broadband data transmission, messaging, and geodesy and navigation.

The first of these new systems to actually get into service was Iridium, a network of 66 satellites for mobile telephone service. It began voice and pager service in 1998 but filed for bankruptcy protection in August 1999. It had problems supplying its handsets, which also were very expensive compared to a regular mobile phone, and its per-minute charges were high. These factors, combined with other marketing and support failures, resulted in much slower growth in the number of subscribers than was expected, and the company was unable to meet some of its debt payments.

ICO Global Communications, another voice-oriented satellite venture, also filed for bankruptcy protection in August 1999, in part because the problems with Iridium made it difficult to attract the investors it needed to proceed. ICO stands for Intermediate Circular Orbit, another name for medium earth orbit (MEO). ICO began as a spin-off from Inmarsat, which previously offered an expensive mobile voice service and used technology already proven in service. Globalstar, the second voice-oriented system to begin service, suffered a major setback when it lost 12 satellites in a failed launch in September 1998. Nevertheless, it began limited "friendly user" service in October 1999. The full system was designed to use 48 satellites and cover the world between 68 degrees north and south latitudes, but its initial service coverage was much smaller. The company launched a GEO satellite in 2008.

Satellites were expected to provide 10 to 15 percent of the global broadband Internet and data transmission service early in the twenty-first century. This market was projected to grow from $200 million in 1999 to $37 billion by 2008, according to Pioneer Consulting. The most ambitious and well publicized broadband scheme was Teledesic, which dubbed itself "the Internet in the Sky." Its initial backers were Bill Gates, CEO of Microsoft, and Craig McCaw, highly successful pioneer of cellular telephone service. It was planned to use 288 LEO satellites to provide Internet access anywhere in the world, beginning service in 2004, although Teledesic ended up scrapping the project in 2002, and McCaw and other investors set their financial sights on ICO Global Communications. Systems that had planned to compete in this market included SkyBridge, which was to be an 80-satellite LEO constellation backed by Alcatel, the Paris-based telecommunications equipment manufacturer, and Spaceway, a constellation of GEO satellites backed by Hughes Electronics, the leading U.S. satellite builder and operator. Hughes also filed for a MEO constellation of twenty satellites and another GEO system of 14 satellites with the Federal Communications Commission (FCC).

A number of satellite ventures designed to forward messages in the form of short non-voice transmissions were planned or underway. Although much less glamorous than global mobile telephone or broadband Internet access, these systems have immediate real-world applications. Orbcomm had 35 of its satellites in orbit by 1999, out of a proposed 48, and by 2007, it operated 29 of these satellites in six orbital planes, providing worldwide coverage. The Orbcomm system was designed to enable businesses to track remote assets such as trailers, heavy equipment, gas storage tanks, and wells and pipelines and maintain communications with remote workers anywhere on the globe.

Satellite-based navigation systems were well established by the end of the 1990s, but additional constellations were planned. The Global Positioning System (GPS), funded and operated by the U.S Department of Defense, was a system of 24 active satellites that enabled users to determine their position using satellite radio signals. Civilian users could use the Standard Positioning Service (SPS) without charge or restriction. Glonass was a similar Russian system in use. GNSS-2 was planned by the European Community to create a navigation system independent of foreign military control.

In September 1999, the first commercial remote imaging satellite was launched. It was designed to take black-and-white and full-color photographs of any place on earth. Journalists were looking forward to using its images, which were to be of much higher resolution than what was previously available. New remote sensing satellite systems were planned, including Skymed-Cosmos, focused on the Mediterranean basin, and Tsinghua, designed for disaster monitoring. Remote sensing using single satellites already was well developed by the end of the 1990s.

Challenging times existed within the communications services industry into the mid-2000s. Partially to blame was a downturn in the telecommunications sector. Ambitious telecommunications infrastructure build-outs during the prosperous 1990s were not met with anticipated demand. This led to overcapacity, high levels of debt, and ultimately, drastic cutbacks in capital spending for service providers. By 2007, a number of providers had declared bankruptcy or were in poor financial shape.

One major roadblock for satellite companies during the early 2000s was the unexpected growth of terrestrial wireless networks. Once used solely for voice communications, providers began using these networks for data transmission at ever-increasing speeds. Because of cutthroat competition among equipment companies, it became more affordable to roll out scalable wireless networks for data communications, as opposed to launching more expensive satellite networks that had to be rolled out in their entirety, requiring a more substantial investment up front.

The industry faced other challenges as well. In the August 2002 issue of Communications Today, SES Americom CEO Dean Olmstead explained that in-orbit spacecraft defects and high levels of capital investment in complicated systems for which there was not sufficient demand were but two factors contributing to the industry's woes. Olmstead also criticized the industry for "pursuing a business model that no service provider will make a financial commitment to back."

Current Conditions

Despite bleak conditions in the early 2000s, the Satellite Industry Association (SIA) reported that on a worldwide basis, the industry was doing relatively well. Industry revenues climbed 10.5 percent from 2001 to 2006, reaching $106.1 billion, and increased further in 2008 to more than $144 billion, an increase of 19 percent over the previous year. Satellite services continued to represent the lion's share, generating $67.3 billion in revenue, due largely to consumer demand for satellite television.

In 2006, the U.S. share of the worldwide launch industry revenue continued to decline while the number of U.S. launches actually increased. In 2006, launch providers in the United States had 37 percent of the global launch revenue compared to 66 percent in 2003. Fueling this decrease was the retirement in 2005 of the more expensive Titan 4B satellite. However, in 2008, satellite launches by U.S. providers earned $1.1 billion in revenue, an increase of 20 percent over 2007.

While 2006 worldwide satellite manufacturing revenues (including U.S. revenue) rose dramatically from $7.8 billion in 2005 to from $12 billion, U.S. gains were more modest, from $3.2 billion in 2005 to $5 billion. Despite predictions of continued growth, global manufacturing revenues decreased, albeit slightly, in the following years. Revenue slipped to $10.5 billion in 2008.

Industry Leaders

The leading satellite company, as opposed to generic space company, is Hughes Network Systems, formerly known as Hughes Electronics and once a subsidiary of The DirectTV Group. In the late 2000s, it was almost entirely a builder and operator of satellites, with 2008 revenue of just over $1 billion. Products offered include HughesNet (satellite broadband Internet service) and services such as network design, consulting, and implementation.

In April 2005, Hughes introduced the DW7000 family of next-generation broadband satellite routers. The high performance product line was designed to unlock the value and performance of satellite broadband via higher speeds on both up and downstream connections. At its launch, the DW7000 family consisted of the DW7700 for high-end enterprise and government applications plus the DW7000 for lower-end business applications. Hughes launched the SPACEWAY 3 satellite on August 14, 2007, to support its HughesNet services, with commercial service from the new satellite expected to begin in 2008.

Loral Space and Communications continued to be an industry leader into the late 2000s with its subsidiaries Space Systems/Loral (SS/L) and Loral Skynet. At the end of April 2005, Loral Skynet and Global Crossing Team announced that they had united to provide a communications network to the British Council, a not-for-profit organization sponsored by the British Government's Foreign and Commonwealth Office. Skynet technology will complement Global Crossing's terrestrial MPLS systems to reach more than 260 sites worldwide. In 2007, SS/L announced it had been awarded a contract to build SIRIUS FM-6, a high-power satellite expected to nearly double the power of those already in the SIRIUS fleet. No launch date was announced, but the satellite was expected to be completed in 2010. As of the late 2000s, SS/L provided satellites to several well-known service providers including DIRECTV, DISH Network, SIRIUS Satellite Radio, XM Satellite Radio, and others. The New York City-based company posted revenue of $869 million in 2008.

Formerly known as Orbital Communications Corp. (OCC), ORBCOMM LLC operated a network of low earth orbit (LEO) satellites and "terrestrial gateways" used for messaging between remote workers and to monitor everything from pipelines and storage facilities to construction equipment, trucks, trailers, rail cars, shipping containers, and aircraft. The company filed for bankruptcy in 2000 and came under new ownership in 2001. The ORBCOMM system also provided messaging services via the Internet. In 2008, the company, based in Fort Lee, NJ, posted revenue of $30 million.