FUNDAMENTALS AND DYNAMICS OF THE SATELLITE COMMUNICATIONS ... · PDF fileinmarsat capital markets 2016 fundamentals and dynamics of the satellite communications business. euroconsult

INMARSAT CAPITAL MARKETS 2016

FUNDAMENTALS AND DYNAMICS OF THE SATELLITE COMMUNICATIONS BUSINESS

EUROCONSULT FOR INMARSAT CAPITAL MARKETS DAY 2016

Prepared byPacome Revillon CEO


EUROCONSULT www.euroconsult-ec.com

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OVERVIEW OF THE BUSINESS MODEL OF SATELLITE OPERATORS

SNAPSHOT OF ORBITS AND FREQUENCIES

FROM SATELLITE TO THE GROUND

DYNAMICS OF SATCOM SERVICES AND VALUE CHAIN – FOCUS ON MOBILITY SEGMENTS

SOME UPCOMING TECHNOLOGIES


Four pillars of the business of satellite operators

Satellite operator

Spectrum Space infrastructure

Ground segment

Solutions and

services


Satellite business lifecycle

Multiple steps to generate business through a satellite system: 1. Obtain spectrum rights for an orbital position, 2. Raise financing to build and launch the system,3. Design and order the satellite,4. Procure the launch service and have the satellite delivered into orbit,5. Obtain landing rights in countries in which it will offer services,6. Rollout of commercial/marketing efforts to lease/sell capacity

~3Y ~13 YEARS ~2Y

TIMEFRAME FOR A GEO SATELLITE

Arianespace, ILS, Sea Launch, SpaceX, SSL, Airbus D&S,

Boeing, TAS, OSC, etc.

Operate and lease satellite capacity

End of life

Build & launch

Inmarsat, Intelsat, SES, Eutelsat, Telesat, etc.


Economic model of a satellite operator

PRODUCTION CAPABILITY OF THE ASSET(S)• Lifetime of the satellite• Capacity supply available

REVENUES/COMMERCIAL PERFORMANCELeasing of satellite capacity or airtime (usually >80% of revenues):

• Volume of capacity leased, potentially expressed in:

• Transmission capability = MHzAlso possibly referred to as TPEs – Transponders Equivalent of 36MHz for traditional FSS systems

• Data volume (Mbyte – can also be a cap associated with the capability)

• For FSS systems in particular, this leads to a fill rate expressed in %

• Capacity pricing: for FSS usually in $/MHz/month or %/Mbps/month

Other potential revenue sources:• Supply of managed capacity (i.e. volume in Mbps and pricing in $/Mbps/month)

• Supply of ground equipment (mostly for MSS operators)

• Supply of satellite communication services/value added services


Economic model of a satellite operator (continued)

CAPITAL EXPENDITURE AS PRIMARY COST ITEM

• Space infrastructure capex primarily includes

• Satellite manufacturing,

• Launch and

• Launch insurance

• Trend towards higher ground segment costs for new generation systems(still no more than 10-15% of total capital expenditure)

OPERATING COSTS /EBITDA MARGIN DEPENDS ON THE PROFILE OF THE COMPANY

• EBITDA margin on wholesale/capacity leasing usually in the 60-80% range

• EBITDA margin on satcom services/value added services usually in the 10-25% range

NOTES: • Take up rate in usage in the first 3-5 years of operation of a system usually critical for the ROI• Significant disparities in capacity pricing based on segments, geographical regions and competitive pressure

$US million m$/produced GHz

Capex range and efficiency


HIGH LEVEL VIEW OF THE BUSINESS MODEL OF SATELLITE OPERATORS






Overview of satellite orbits and properties

In motion (90 min) by orbit

In motion 2-12h /

orbit

36 000 km

2,000-20,000 km

100-2,000 km

GEO

MEO

LEOIn motion

1.5h / orbit

Static

NOTES: • Lower latency is a plus, but mostly for certain real time applications• It is otherwise one criteria among others


Myths and realities of risks to in-orbit infrastructure

Launch failures

Attacks (cyber, weapons, capture,

destruction)

Onboard technical failures

Satellites launched / in orbit in the last

10 years

Debris / collisions

GEO SATELLITES LEO SATELLITES

Observed risks of total failure due to:

~330 SATELLITES ~1,000 SATELLITES

~5% ~9%

<1% - Thanks to redundancy of onboard equipment - Even

lower for established Western manufacturers

Depends on satellite type. Also risks of technical issues impacting a series

of satellites as constellations are manufactured in batches.

0 to date ~1 every 3 years

0 to date 0 to date


Why a very low risk of collision for GEO satellites?

• Any two GEO satellites are spaced at an average of ~75 km (45 miles) from one another

• On Earth, these two GEO satellites (slightly smaller than red buses) would be separated by more than the diameter of Great London


Overview of frequency bands for satellite communications

Ka-band

S-band

Ku-band

C-band

SPECTRUM AVAILABLE BY GEO ORBITAL

POSITION

3,500 MHz

~1.5 GHz

DOWNLINK FREQUENCIES

SENSITIVITY TO RAIN FADE

Q/V-bands

~4 GHz

~12 GHz

~20 GHz

~40-50 GHz

500 MHz

500 MHz

15 MHzL-band

~3 GHz 70 MHz

>5GHz

ANTENNA TYPE AND DIAMETER

(mobility focus)

Pointed0.6-1.2m

Pointed0.9-1.2m

Pointed>1.8m

Omnidirectional0.2-0.6m

Omnidirectional<0.2-0.6m

Pointed


Spectrum rights – overview of the acquisition process

In geostationary orbit:• Rights for different frequency bands are attached to orbital positions,• Access rights to a position first need to be granted by a national administration (NAD).

• The operator will :1. Make an application to the NAD (position x spectrum),2. Possibly commit to a type of compensation (payment, free capacity etc.)3. Make an application to the ITU

(International Telecommunication Union)

4. Manage a coordination procedure with other systems,5. Need to have a satellite in service within 7 years or lose its rights

NOTES: • Available spectrum is limited at each orbital position• Multiple applications are possible for a given position, with different levels

of priority• More spectrum available in Ka-band than in C-/Ku-band


Rationale for the move towards higher frequencies in FSS

Larger spectrum can enable higher data rates

Smaller beams enable higher power and facilitates

frequency reuse

Saturation of spectrum in certain bands and highly demanded geographical areas/orbital slots

(ex: C-band, increasingly Ku-band)

Smaller and cheaper receiving antennas

in particular for mobility segments


Challenges come with new/higher frequencies in FSS

Higher sensitivity to rain fade can enable

higher data rates

Potentially more complex/costly satellites

especially in case of multi-mission satellites or with

complex HTS design

Need for new ground segment, including for the end-users

Often boosted by new usage, due to the inertia

of legacy satcom segments








Coverage, and notions of “Regular” and “HTS” payloads

OVERVIEW OF REGULAR FSS AND HTS CONCEPTSREGULAR

SATELLITESHTS

SYSTEMS

Frequency

Throughput capability

Advantages

Typical cost

C-band, Ku-band, Ka-band Ku-band, Ka-band

~1–10 Gbps ~5-300+ Gbps, with frequency reuse in multiple spot beams

~$200–300m (including launch) ~$300-500m (including launch)

Wide coverage; preferred solution for point-to-multipoint communication

Higher bandwidth / lower cost per bit; to become preferred option for point-to-point services

NOTE: All satellites/supply are not equal. Various technical, regulatory and commercial parameters come into play.

HTS: High-Throughput Satellite


Selected advantages & challenges of Regular and HTS systems

ADVANTAGES WITH LARGE COVERAGE

• Preferred solution for point-to-multipoint communication

• Increases chances of having customers within range of coverage

Target fill rate of up to 100%

WEAKNESSES

• Limited supply available. Also limits the ability to decrease capacity prices to serve data rich applications.

• Lower spectrum efficiency (for an equivalent frequency)

REGULAR SYSTEMS HTS SYSTEMS

ADVANTAGES• Higher bandwidth resulting in lower

cost per bit

• Should become preferred option for point-to-point services

WEAKNESSES• Higher upfront costs, possible new

user ground segment

• Difficult to find enough customers to fill each of the beams

Possible lower usage ramp-up for a first generation. Target fill rate more in the 50-70% range


Terminology and topology for satellite networks

Typical “star” network

Central Anchor station(Hub/gateway) Fixed user

Mobile user 1

Mobile user 2

Typical “mesh” network(All communications need to pass through a

central anchor station)(Possibility of direct communications between

user terminals)

Central Anchor station(Hub/gateway) Fixed user

Mobile user 1

Mobile user 2

NetworkNetwork

NOTE: • Central stations can be referred to as gateways or hubs• User terminals include VSATs (Very Small Aperture Terminals). These include at least one antenna and modem

and other RF/IT components


Supply of raw vs. managed satellite capacity

Raw satellite capacity, i.e. MHz

“Managed” satellite capacity in Mbps

Spectrum efficiency (Mbps/MHz) Dependent on

Frequency band, Modulation, Transmission power, Antenna size,Mobility, Weather conditions etc.

For FSS services, typical range is

1-2.5 Mbps/MHz

NOTE: Operators disclosing supply information in Gbps include assumptions on supported traffic and related spectrum efficiency. These are consequently estimates and not “absolute” values. This limits the ability to directly compare systems.


Focus on user terminals in the mobility satcom market

MSS terminal (L-Band)

Data rate Weight Cost

M2M <10 kbps 0.1-1.9 kg $100-2,000

Handheld 2-60 kbps 0.2-0.3 kg $300-1,300

Broadband 128-800 kpbs 10-30 kg $1,300-7,000$50-200k (Aero)

VSATs(C, Ku & Ka-band)

Data rate Antenna size* Cost(maritime)

Low data rate 0.056-1Mbps 0.9-1.2m $800-2,500

High data rate 1-5 Mbps >1.2m $5,000-40,000

Very high data rate >5Mbps 1.8-3.8m $40,000-80,000*New generation antennas going to under 1m for Ku or Ka-band. It still depends on the satellite system in use.

NOTE: Installation costs are higher for VSATs at typically $5-15k. Size and weight reduction in antenna/equipment sizes contribute to cost reduction.


Satcom services: Much more than a communication link

IT/network/solution design

Equipment integration, installation and maintenance. Increasing trend towards leasing equipment to end users.

Connectivity management, with a service level agreement (SLA) and potentially different types of users and links (~telecom operator) with related billing platforms.

Value added services, from VPN and communication support to tailor-made management/monitoring solutions, content services etc.

NOTE: • End-users mostly care about the service, not about the in-orbit segment• Higher satcom complexity leads to progressive consolidation of service providers








Satcom services value chain: Operation & service layers

Operation of satellite system / “raw”

capacity leasing

Operation of large ground segment

(teleports/gateways)

Connectivity service design / platform

Connectivity service distribution, integration &

value added services

Local resellers and installers

“MSS” based services “FSS” based services

Legacy Trend with HTS systemsOperators

Service companies


Historical and future growth of mobile satcom

> MSS is the historical mobile solution

> First large scale VSAT installations: Maritime market: 2005Aero market: 2011

> MSS/VSAT migration for large users, VSAT taking a larger share of the high-end markets

> Onboard systems multiply: MSS needed for backup and regulation

> VSAT growth drivers: Improved coverage and capacity supply and decreasing capacity/hardware prices

> ATG gaining traction in certain locations in the aero market

Terminals by type*

Wholesale revenues*

No. of terminals

$ in millions

MSS M2M

VSAT

MSS

VSAT

*excluding land mobile VSAT

MSS HHMSS BB&NB


> Land market:> Dominated by M2M terminals> Huge M2M addressable market,

strong growth potential

> Maritime market:> Merchant shipping is the largest

vertical> MSS growth opportunities in the small

boats market> Offshore rigs, cruise ships and

superyachts are high end users

> Aero market:> MSS mainly used for cockpit comm.> Passenger in-flight connectivity and

the smart plane are driving growth

Terminals by vertical*

Revenues evolution*

No. of terminals

$ in millions

Land

AeroMaritime

Maritime

Land

Aero

CAGR 15-25:~8%

Historical and future growth of mobile satcom (continued)

*excluding land mobile VSAT


Share of the mobility segments in MSS and FSS revenuesMobility = on-the-move and transportable communication units

“MSS” based solutions “FSS” based solutions2016 - 2025

2006 - 2015

<5%

~10-15%

>95%

>95%

NOTE: % of relative total revenues of MSS and FSS. MSS and FSS services correspond to two separate revenue references and should not be added.








Selection of ongoing & future innovations for satellite assetsSatellite platforms and access to space

Electric vs. chemical

propulsion

CURRENT/POTENTIAL ADOPTION*TYPE OF IMPACTWHAT IS IT?

Reusable parts of launchers

Space tugs

Increasing use:• ~30% of GEO comsats

launched in 2016

• Lower satellite mass

• Lower launch cost

• Longer orbit injection (up to 6 months)

Propulsion using electric power from the solar panels

• In testing by SpaceX (60% success rate to date)

• First launch contract with reused parts signed

Potential launch cost reduction ifeconomies of scale and reliability are achieved

Recovery of the launcher 1st stage, refurbishment, refly

• R&D / testing phase

• First contract for Intelsat for servicing in 2018

• Additional revenues from aging satellites

• Lower capex need for fleet replenishment

Spacecraft used for:• Payload transfer to

final orbit• Maintenance• Refueling

*Within the commercial satellite communications market


Selection of ongoing & future innovations for satellite assetsCommunication payloads and links

Onboard digital

processing

Inter-satellite links

Q/V frequency bands

Optical links

• Relatively small• Should progressively

increase

• Flexibility (mesh networks)

• Reduced onboard hardware

Onboard routing of uplink channels

Considered only for LEO constellations to date• Iridium uses ISL• Leosat is considering it

• Lower latency

• Reduced ground segment

Communication among satellites

• Higher throughput• Lower cost per bit• Smaller antennas

Extremely high frequency bands

R&D phase. Limited deployment for data relay/government

Higher throughput“Laser” communications

Potential first commercial uses in the course of the next decade

CURRENT/POTENTIAL ADOPTION*TYPE OF IMPACTWHAT IS IT?


SOURCES

Euroconsult research reports

• High Throughput Satellites: Vertical Market Analysis & Forecasts

• Mobile Satellite Communications Market Survey

• Prospects for In-Flight Entertainment and Connectivity

• Maritime Telecom Solutions by Satellite: Global Market Analysis & Forecasts

• Satellite Communications & Broadcasting Markets Survey: Forecasts to 2025

• Satellites to be Built & Launched by 2025

• Satellite Value Chain: The Snapshot 2015


CONTACTS

Pacome Revillon, [email protected]

www.euroconsult-ec.com

Paris Office86 Boulevard de Sebastopol75003 Paris, FranceT: +33 1 49 23 75 30

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FUNDAMENTALS AND DYNAMICS OF THE SATELLITE COMMUNICATIONS ... · PDF fileinmarsat capital markets 2016 fundamentals and dynamics of the satellite communications business. euroconsult