Via Satellite’s Global Satellite Survey Trends And Statistics

By Cynthia Boeke

The satellite industry has undergone a turbulent year. Consolidation, competition and continuing
retrenchment seem to describe the market forces at work in many sectors of the satellite profession in 2001.
DBS continues to present the largest revenue streams for the industry, and many experts believe direct
digital radio services hold great potential as well Satellite broadband ventures are largely out of vogue, at
least for the time being, while large FSS operators are now in style among many investment analysts.

The delayed reaction of the economic recession and the dot.com crash that marked the turn of the millennium
has finally caught up with the global satellite industry in 2001. Because of the minimum two-year cycle to
build and launch most commercial spacecraft, the industry’s momentum, in terms of buying and lofting new
birds into orbit, appeared to continue at a healthy pace through 2000. That scenario changed last year and is
continuing into 2002. When all the numbers were crunched, the tough economic climate undisputedly took
its toll on the satellite market.

The year 2001 saw one of the lowest numbers of satellites orbited in nearly a decade. As of late April 2002,
the satellite industry was getting back on track as far as its launch rate was concerned, with seven Western-
built, commercial, geostationary communications satellites orbited by the world’s major rocket providers in
the first four months of the year. However, the number of new launch contracts being signed reflects the
slowdown in the procurement cycle due to operator consolidation and the negative climate for satellite
financing. As we went to press, only eight commercial launch contracts had been announced in 2002.

The manufacturing sector continues to be hit by a variety of negative factors. In-orbit anomalies have
wreaked havoc in the insurance market, where operators face significant increases in their premiums.
Reacting to the outcry over the growing number of satellite malfunctions, quality control efforts are being
increased and schedules lengthened well beyond their expected date of completion. For their part, rocket
providers have demonstrated an unheard of level of ingenuity in reshuffling launch pad schedules to
accommodate late-arriving spacecraft.

The market for new satellites has dwindled, as new operators face a dearth of financing and large operators
enjoy a relative lull after replenishing many of their orbital slots. In terms of spacecraft announcements, the
first part of 2002 revealed dismal results. Only three satellites were announced, one of which was a
"refurbished" spacecraft previously damaged by fire, another was a replacement for a previously-cancelled
satellite, and the third was a bird previously announced in 2001 but technically contracted for in 2002.

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The industry is undergoing a painful period financially and many household names are becoming a thing of
the past. Looking ahead, the industry is setting the stage for its next growth cycle. Those companies with the
ability to prosper, or at least survive, will dominate the landscape of future satellite services. This is not the
first time the satellite market has witnessed such a cycle. One needs only to remember the names that
dominated the profession in years past. Westar, GTE Spacenet, Hughes, RCA Astro, General Dynamics, and
Ford were once as dominant as companies like SES, Panamsat, Alcatel, ILS, Arianespace, Boeing and Loral
are today. The question is not whether the industry will re-ignite its growth trajectory, but when.

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HISTORICAL OVERVIEW: Satellites In Orbit And Under Construction

Since we began tracking these numbers seven years ago, there has been a 50 percent increase in the number
of spacecraft in orbit. The number of satellites under construction averages out at 71. Currently, there are
232 Western-built, non-LEO, commercial satellites in orbit and 75 under construction, although 10 of these
projects are on hold for various reasons. The large increase in capacity reflects the relative abundance of
space segment available today, and underlies the extremely competitive market for satellite operators, as
well as launch providers and spacecraft manufacturers.

Figure 1

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LAUNCH RATE: Commercial Satellite Launch Rates By Decade*

The launch rate of commercial, non-LEO satellites has risen dramatically throughout the past four decades,
from an average one per year in the ’60s to 20 per year in the ’90s. The first two years of the new decade
reveal an average launch rate of 21 satellites. When examined more closely, however, 2000 saw an
extremely high rate, but was followed by one of the worst years in nearly a decade. Although many factors
contributed to this decline, one of the worst culprits was the delay in satellite manufacturing cycles, as
customers and satellite builders strove to detect errors and anomalies before the spacecraft were shipped to
launch pads.

Figure 2

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SATELLITE ANNOUNCEMENTS: Commercial Satellite Announcements: 1992-2001

The announcement of new spacecraft under construction tends to fluctuate, often quite dramatically, from
year to year. In 2000, the industry saw a record-breaking number of new satellites "under construction."
Only time will tell the truth, however, since nearly one-third are defunct, on hold or in questionable stages of
financial development. Most of the 23 satellites announced in 2001 appear to be moving ahead to
completion, although an order for at least three satellites was cancelled.

Figure 3

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DBS SUBSCRIBER GROWTH: DBS Subscriber Market

In its latest forecast, the Carmel Group estimates the DBS market will reach 19.6 million subscribers this
year, adding approximately 2.1 million new subscribers from 2001. Their calculations assume there will be
two DBS providers (Echostar and DirecTV), which means the numbers are not based on a merger scenario.
Venturing out to the end of the forecast period, The Carmel Group says the DBS industry will add an
average of 1.8 million new subscribers annually, reaching 30.1 million by 2008. While these numbers seem
high, the Carmel Group believes they are actually a bit conservative. For example, this scenario projects the
DBS sector to grow only 7 percent annually from 2002 to 2008. In comparison, the DBS industry recorded a
55 percent compounded annual growth rate from 1994 to 2002.

Figure 4

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OPERATOR CONSOLIDATION AND MARKETSHARE:

One sector enjoying renewed interest is FSS operations. Long ignored by financial analysts, large operators
are becoming popular due to their large, long-term revenue streams from blue-chip customers. The trend
here is consolidation. Since the mid-’90s, the number of operators has held steady at around 50. But, within
that mix, the top five have consolidated into large fleets that control nearly 40 percent of the satellites in
operation and under construction. As we went to press, rumors abounded regarding who would buy whom.
As a result, the number of operators is expected to decrease steadily throughout the next several years.

Figure 5

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U.S. MANUFACTURING MARKETSHARE: U.S. and European Marketshare 1999-2001

According to Futron, the mix of GEO commercial communications satellite orders placed in 1999, 2000 and
2001 has varied when it comes to the selection of a U.S. or European manufacturer. The year 2000 marked
the first time the number of satellite orders to European manufacturers exceeded the number of orders to
U.S. manufacturers. The likely reasons 2000 was such a successful year for the non-U.S. manufacturers were
the still-evolving export control regulations in the United States, the strength of the Euro, and growing
confidence in the ability of European manufacturers to deliver a flight-proven product.

Key sales in this year were from GE Americom, Intelsat and Inmarsat, each ordering multiple satellites from
European manufacturers. U.S. manufacturer dominance rebounded in 2001, and the tables turned, with
Eutelsat ordering their first U.S. satellite, e-Bird, from Boeing Satellite Systems.

Figure 6

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DARS PROJECTED GROWTH: Digital Satellite Radio

The variety of new digital audio programming and the coast-to-coast coverage are the biggest selling points
of this innovative satellite service, according to the Carmel Group. Take-up will remain slow for the after-
market side of the business; however, once satellite radio becomes a normal purchase option in most new
cars, the two services will begin their rapid growth phase, according to the Carmel Group. At the same time,
the satellite radio industry players are saddled with the challenge of getting three pieces of hardware (radio
receiver, antenna, and add-on controller) down to two (receiver and antenna), and ideally just one.

The product and the service appear to be excellent. For example, XM's overall marketing, with its brand and
its ads, has been strong. Focusing on a technically savvy music lover audience has been a great strategy.
Once consumer spending and the economy get back on track, so too will the future look brighter for the
satellite radio industry.

Figure 7

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