FUTURE DRIVERS AND THE NEXT TEN YEARS

Introduction

The past ten years have witnessed a "sea-change" in the perception of the utility of communication satellites. One of the ironies of the 1962 Communications Satellite Act, was that it caused AT&T Bell Laboratories to cease work on satellite technology. This occurred at the very point Bell Labs was at the forefront of the technology (such as it was at the time) having successfully launched the first-ever active repeater satellite (Telstar) in 1962.

Instead, Corning, Bell Labs, and others developed fiber optic technology, which has revolutionized terrestrial telecommunications. The first undersea fiber optic cable (TAT-8) laid between the United States, the U.K., and France was placed in service in 1988 and was quickly followed by TAT-9 and 10 (1992), TAT-11 (in 1993) and TAT-12 (in 1995). There has been a similar rapid growth of the number of fiber cables in the Pacific Ocean region both from east to west (e.g., HAW4/TPC3 linking California/Hawaii, Guam and Japan) and north to south e.g., Pac Rim East (Hawaii/New Zealand) and Pac Rim West (Guam/Australia). The FLAG project will be a cable from the UK through the Mediterranean, across the Indian Ocean to Hong Kong with add and drop points along the route. A cable has even been proposed to circumnavigate Africa.

Using wave division multiplexing (i.e., different colors of laser light) together with optical amplifiers, fiber cables can now provide almost unlimited bandwidth. As a result of this development, the fraction of the telephone traffic between countries carried by INTELSAT has declined from a peak of about 70% some years ago to perhaps 30% or less at present, and is likely to decrease still further.

A decade ago the telephone companies were envisaging the replacement of all of their copper by fiber to the home (with perhaps "fiber to the curb" as an interim step) allowing them to deliver all of a family's services—entertainment, telephone, fax, data, alarms—via one medium.

Given this setting, the role of satellites in the future seemed to be limited perhaps to serving mobile users and distributing television to cable head ends, and it seemed as if they would come to resemble the "steam cars" of the automobile era—of passing historical interest only.

Three events have transformed this picture. These are:

  1. the end of the Cold War
  2. the introduction (by Hughes) of high-power DBS into the U.S. marketplace
  3. Motorola's bold plan to develop the Iridium hand-held satellite PCS system

As noted earlier, the end of the Cold War has caused a huge consolidation in the U.S. aerospace industry and a quest for civilian projects. Thus, Lockheed Martin and Loral have both announced plans to build global satellite systems and appear to be following the Hughes model of vertically integrating (i.e., exploiting their capability of manufacturing satellites to enter the services business). The end of the Cold War has also seen the U.S. government's increasing unwillingness to fund military satellite systems (e.g., future buys of DCSC satellites) and instead to insist that the DOD make greater use of commercial systems.

Direct-to-the-home broadcasting of TV is now expected to be a very large market, especially in places (e.g., Asia) where cable systems have made little penetration, and where there is a demand (and ability to pay for) entertainment with the rise in living standards. The ability to digitally compress TV images so that a single satellite can deliver as many pictures as a modern cable system radically shifts the balance in favor of satellite systems, which provide in effect "instant infrastructure." Central to this new capability is the enormous amount of digital processing that can now be accomplished on a small piece of silicon at incredibly low cost, making the receive-only terminals needed for this service affordable to a broad range of consumers.

Motorola's decision to build a constellation of satellites to provide PCS service was a seminal event. This proposal simultaneously introduced three new technical advances to the field viz.:

  1. the use of a large constellation of phased satellites
  2. the placement onboard of a significant processing capability
  3. the use of intersatellite links

Motorola's proposal was followed by ambitious (but less technically risky) plans from Loral for the Globalstar system, TRW for the Odyssey system, and Inmarsat for the ICO system, and a race is now on to provide PCS services via satellite around the globe.

As discussed in previously, the major players (Hughes, Lockheed Martin, Motorola, Loral, GE-Americom) have all announced plans for new global FSS satellite systems operating at Ka-band to provide services (in particular Internet access) in underserved or rural parts of the world. The total cost of these systems, if all were to be built, is upwards of $40 billion. Clearly satellites are not about to become "steam cars,"and the telephone companies' dream to soon have a fiber connection to every home is now seen to be unrealistic.

It may well be that the pendulum has swung too far, and the next decade will witness a retreat from satellite technology. All one can say with confidence is that, to a large extent, the same drivers will continue to operate during the next decade that came into play during the last one. These are:

Some of these drivers are discussed below.

The Role of U.S. Satellite Manufacturers

The United States remains the dominant manufacturer of communications satellites in the world -today, with France in, perhaps, second position and Japan waiting in the wings. However, this picture oversimplifies the true condition of the industry. Satellite manufacturing is increasingly coming to resemble car manufacturing in which the "manufacturer" puts together sub-assemblies obtained from a variety of sources. At one extreme is Hughes, which outsources as little as possible, and at the other is Motorola, which manufactured only the onboard processors for its Iridium satellites. Nevertheless, the trend for purchasing components from the best source, be it domestic or overseas, and the dissemination of the technology to emerging countries (e.g., Korea as part of an investment agreement) is likely to continue, greatly diversifying the industry. What is unique about the U.S. satellite manufacturers is that they appear to have decided to enter the service business and are now prepared to undertake large projects of their own conception rather than merely vie for orders from existing service companies.

A further change on the U.S. scene has been the consolidation of the players, with RCA being absorbed into GE's Satellite Division, which in turn was bought by Lockheed Martin. Ford Aerospace was acquired by Loral, while Hughes continues its role as industry leader. Motorola has made one foray into the market and may make a second.

In the past, the U.S. satellite manufacturers were loath to enter the services business for fear of competing with their own customers. Hughes was the first to take this plunge, when it decided to enter the DBS business in Latin America, and in the process lostts Pan Am Sat's order for satellites for the same market. Hughes has since acquired Pan Am Sat, placing itself in the position of having a fleet of satellites second only in number only to INTELSAT. Lockheed Martin and Loral appear poised to follow the Hughes model. Motorola's intentions are not yet clear. It may wish to remain primarily a manufacturer leaving services to others. This would be an especially attractive role if a very large consumer market were to develop for Ka-band terminals, which it could dominate.

This fundamental shift in the role of the U.S. satellite manufacturers clearly contains risks for them and may drive some potential customers to seek foreign-made satellites. It does, however, change the landscape, because heretofore there were no major proponents of satellites other than the intergovernmental agencies INTELSAT and Inmarsat, whose owners were for the most part telcos with far larger interests and investments in terrestrial facilities.

The Role of the Financial Markets

A recent Space News article chronicles the growing involvement of big banking firms' in raising public funds for satellite projects. In the last two years a total of about $12 billion has been raised worldwide for satellite projects—the bulk of this for communications satellites. Table 2.8 lists some of these transactions and the underwriters involved. It is evident that Wall Street has a growing understanding of the satellite communications business and an increasing willingness to find capital for projects. However, the amount of risk capital in the world is not unlimited and the failure of a major project could sour the market for everyone else. It seems safe to say that, absent any major disaster, capital can be found to construct perhaps two or three of the new global FSS systems described previously, and a larger number of regional ones. Equally clear, however, is that none of the players hasve the resources to complete their plans for new systems unaided. Thus advantage will go to those that (like Motorola in its Iridium project) are prepared to commence work, using their own funding, in anticipation that capital will be raised in the course of the project.

Table 2.8
Communications Satellite Financial Transactions During the Past Two Years

Date

Company Financed

Amount

($ mil.)

Managing Underwriters

(lead underwriter listed first)

1997

     

July 25

Digital Television Services

155

Donaldson, Lufkin, (DIJ), Canadian Imperial Bank of Commerce Wood Gundy (CIBC), JP Morgan

July 11

Iridium

800

Chase Manhattan Bank, Merrill Lynch

July 9

P.T. Datakom Asia

260

Merrill, DLJ, Morgan Stanley, Schroder

June 20

EchoStar Communications Corp.

375

DLJ, Lehman Brothers

June 11

Globalstar L.P.

325

Bear Sterns, Inc. DLJ, Lehman

June 9

Iridium

240

Merrill, DLJ, Goldman Sachs

May 30

Globalstar

141

Lehman (adviser only)

May 14

Gilat Satellite Network

75

Lehman, Oppenheimer, Smith Barney

April 9

CD Radio Inc.

135

Libra

March 26

Innova S. de R.L.

375

Morgan Stanley, Merrill

March 14

Earth Watch Inc.

50

Morgan Stanley

Feb. 14

TCI Satellite Entertainment, Inc

475

DLJ, Merrill, NationsBank, Scotia McLeod

Feb. 13

Globalstar, L.P.

500

Lehman, Bear Stearns, DLJ, Untenberg Harris

Jan 23

Pegasus Communications

100

CIBC, Lehman, Bankers Trust

Jan. 15

Orion Network Systems

929

Morgan Stanley, Merrill

1996

     

Dec. 13

APT Satellite

184

DLJ, Credit Lyonnaise Securities Asia, Merrill, Morgan Stanley, China Development Finance Co., HSBC Investment Bank Asia, Wheelock-NatWest, JP Morgan

Dec. 12

Via Sat

20

Oppenheimer, Need Unterberg Harris

Dec. 11

Group AB

235

DLJ, Morgan Stanley

Nov. 19

TCI Satellite Entertainment

1,150

DLJ

Nov. 10

British Sky Broadcasting

300

Goldman Sachs, Merrill Lynch

Nov. 1

Loral Space & Communications

500

Lehman, Bear Stearns, DLJ, Oppenheimer, Unterberg Harris

Nov. 21

Tevecap S.A.

250

Chase, DLJ, Bear Stearns, Bozano Simonsen Securities

Oct. 3

Pegasus Communications

42

Lehman, Bankers Trust, CIBC, Paine Webber Group

Aug. 2

Orbcomm Global L.P.

170

Bear Stearns, JP Morgan, Royal Bank Canada Dominion

July 26

Net Sat Servicos Ltd.

200

Merrill, Citicorp

July 25

Impsat S.A.

125

Morgan Stanley, Bear Stearns

June 15

AsiaSat

272

Goldman, DLJ, Bear Stearns, Smith Barney

June 12

P.T. Pasifik Satelit Nusantara

73

DLJ, Morgan Stanley

April 30

Tee-Comm Electronics, Inc.

100

First Manhattan Bank, Nesbitt Burns

April 23

EarthWatch

70

Morgan Stanley

April 15

Loral

2750

Lehman

April 2

KVH Industries

14

Robertson & Stevens, Cowen & Co.

March 19

Echostar Satellite Broadcasting

580

DLJ, Smith Barney

March 3

Globalstar Telecommunications

275

Lehman, Bear Stearns, DLJ, Unterberg Harris

Jan. 31

U.S. Satellite Broadcasting

224

Credit Suisse First Boston, Goldman, Inverned, Schroder

Source: Space News" August 18-31, 1997

Open Markets

In the past, telecommunications services were available in most countries from a single monopoly provider, that was frequently an arm of the government and contributed to the national treasury. With the advent of new services, governments are caught in a dilemma. There are large capital expenditures necessary to construct new facilities (e.g., cellular systems, digital networks, etc.) which may not pay for themselves for several years, yet failure to provide these services opens the possibility of hindering local industry and harming the national economy. It is for these reasons that we are witnessing a gradual willingness for of countries to open up their telecommunications markets to outside providers.

It is also clear that the U.S. government sees it to be to the advantage of U.S. companies to be able to offer telecommunications services abroad. The belief is that competition has been in place (at least in the long-distance market) longer in the U.S.United States than elsewhere, and that U.S. companies are therefore better able to compete in foreign markets, where the incumbents have not had to face competition. Opening up foreign markets also paves the way for entry of the United States into global satellite projects. the entry for U.S. satellite projects. We can expect, therefore, that the United States will continue to press for opening for of overseas markets (all the while proclaiming that this is in the best interests of "consumers"). Indeed, as manufacturing declines as a major component of the U.S. economy and services businesses assume the dominant role, the U.S.United States must find ways to offer these services abroad if it is to earn the foreign exchange needed to pay for imports. Banking, airline transportation and telecommunications are all important in this regard.

Technology

Rapid advances in communications satellite technology were made during the period from roughly 1963 (the launch of Syncom III) to the early 1980s. During this period all of the technology currently employed on present day geostationary satellites was developed. This was driven in large part by the growing traffic that the INTELSAT system was required to support, necessitating the use of frequency reuse (i.e., multiple antenna beams occupying the same frequency bands), multiple transponders isolated one from another in frequency, and, reliable housekeeping systems (attitude control, power generation and storage, temperature control, etc.).

There followed a period of relative conservatism on the part of the operators driven in part by increasing competition. This forced operators to try to purchase the cheapest possible satellite and avoid any unnecessary technical risks.

As satellites surrender (to fiber optic cables) their role of connecting the terrestrial telephone networks of different countries, and increasingly are employed to service individual customers (e.g., mobile users, VSAT-Sats, or DTH subscribers), the effective radiated powers (EIRP) of the satellite must be raised.

Thus, DTH satellites presently operate with transponder power exceeding 100 watts and this continues to favor the use of traveling-wave-tubes over solid-state amplifiers, as they are more efficient. This trend seems unlikely to change. New services will also drive satellite designers into using multiple (tens of) pencil spot beams. Interconnecting traffic between beams now becomes inordinately difficult with analog technology (e.g., SAW filters or TDMA switches) and forces the use of on-board digital processors that demodulate the signals, route the bits to the appropriate transmitter, where they are then remodulated onto the carrier.

Higher transmitter power, multiple spot beams, and onboard processing all require larger satellites capable of generating 10-15 kw of electrical power. During the next ten years this range could be expected to double, making it increasingly attractive to use GaAs or other advanced solar cells.

Motorola's use of a constellation of spacecraft and intersatellite links in the Iridium system are other technical advances that would appear to be here to stay. Many of the new Ka-band systems discussed earlier in this chapter employ intersatellite links, and one of the systems (Teledesic) employs constellations of satellites in low earthearth orbit. Assuming that all of these new technologies get deployed without significant misstep, it would appear that the industry has achieved a new level of competence, which augers well for its future and the role of satellites in telecommunications in general.


Published: December 1998; WTEC Hyper-Librarian