by Michael Scaturro | September 22, 2016 12:01 AM EDT

Satellite operators are launching more high-powered communications rigs into space, with two more set to join about
two-dozen already in orbit by the end of the year, crowding the skies and threatening the industrys fat profit
margins.
The new orbiters being launched at a cost of as much as $500 million each are forcing established operators to
embark on costly upgrades of their fleets at a time when their business outlook has darkened.
Four companies -- Intelsat SA, SES SA, Eutelsat Communications SA and Telesat -- that have dominated the business
for decades earn margins of more than 70 percent by beaming television across the globe. Now the added supply is
boosting services like satellite phone calls, in-flight Wi-Fi and internet access in remote areas, but driving down prices.
Theres certainly a lot of supply coming online, said Blaine Curcio, senior analyst at Northern Sky Research.
Operators are launching huge satellites with overcapacity.

Investors got a taste of the Big Fours vulnerability in May, when Eutelsat lowered its profit estimates for this year and
next, sending the shares down 28 percent in a day. Intelsat, weighed down by more than $14 billion in long-term
debt, has seen its stock slide by more than 80 percent since the start of 2014. SES is down 12 percent this year.
There is excess supply for sure in certain markets and there has been for at least a year now, Telesat Chief Executive
Officer Daniel S. Goldberg said on a conference call in July. While demand is still growing, the industry is going to
have to digest the excess capacity that folks have collectively launched over the last couple of years.
The explosion this month of a rocket carrying a satellite for Facebook Inc. has barely dented surging global capacity,
which has more than quadrupled over the last decade to 1.5 terabytes per second, according to Northern Sky. Thats
http://www.bloomberg.com/news/articles/2016-09-22/too-many-satellites-means-sky-high-margins-under-pressure

enough to transmit 3.6 million digital photos. The consultancy expects growth to accelerate, with a jump to nearly 8
terabytes in 2020.
The increase has been driven by companies like London-based Avanti Communications Group Plc, Carlsbad,
California-based Viasat Inc. and Thaicom, a Nonthaburi, Thailand-based provider partially owned by Singapore
sovereign wealth fund Temasek.

Airborne Wi-Fi
Lower costs could help companies like Panasonic Corp. and Global Eagle Entertainment Inc., which buy excess
capacity on some of the 450 geostationary satellites orbiting Earth and sell it as services like airline Wi-Fi.
Others, such as Facebook and Alphabet Inc.s Google, want to use satellites to expand internet connectivity in places
like Africa, where theyre also used to ease burdens on phone networks. Facebook planned to work with Eutelsat to
get more people online in sub-Saharan Africa.
We know that broadband deployment increases economic development, said Camille Mendler, lead analyst at
research firm Ovum. The young Steve Jobs of Cote dIvoire might well benefit if we had this kind of glut.
So far, new services havent caught up with increases in the number and power of satellites. Jeremy Rose, senior
consultant at research firm Comsys, said the situation reminded him of the 2001 crash in rates that fiber-optic carriers
experienced after a building boom in the 1990s.

While satellite use varies by region and type, some of those orbiting over regions like Africa and the Middle East have
as much as 80 percent spare capacity, Curcio said. Services like residential broadband are less consistent than
television, creating peaks and valleys in demand.
Prices of some services have fallen by as much as 20 percent over the last few years, Eutelsat spokeswoman Vanessa
OConnor said. The company expects prices of satellite data transmissions to fall 50 percent over the next five years.
Many of the new services, which involve transmitting digital data rather than video signals, are less profitable,
analysts say. More reliance on communications services means current profit margins are not sustainable for a
company selling mostly data services, Northern Sky said in a report this month.
The Big Four, which still generate the bulk of their revenue from television, including pay-TV offerings that bounce
signals back to homes, have different plans to counter the threat.

http://www.bloomberg.com/news/articles/2016-09-22/too-many-satellites-means-sky-high-margins-under-pressure

Ultra-HD TV
SES, which gets 70 percent of its revenue from video, is moving to accelerate adoption of ultra-high-definition
television, spokesman Markus Bayer said. Ultra-HD uses more satellite space than traditional TV.
Eutelset, with 64 percent of sales coming from video, expects a rise in Internet video to offset lower prices, OConnor
said. Video provides 52 percent of revenue at Telesat and 38 percent at Intelsat, spokesmen said.
Intelsats data business is under a lot of price pressure, CEO Stephen Spengler said in an earnings call in February,
though he added that the launch of a new satellite would help the company counter falling prices with differentiated
capacity and differentiated services.
The Big Four are underestimating the threat, which will be compounded by advances in technology, said Tim Farrar, a
consultant in Menlo Park, California. The push to upgrade to faster satellites gives operators less time to recoup
investments.
If prices crash, satellite operators wont have 15 years to earn their money back, Farrar said. They will have 3-5
years. Thats the fundamental issue."

http://www.bloomberg.com/news/articles/2016-09-22/too-many-satellites-means-sky-high-margins-under-pressure