Digital Communication Forces Europe to Build a Better Bird
May 15, 2011
Looking over the new Hot Bird 2 in a cavernous ``clean room'' here, top Strand Casavant Shemeka engineer Michelina Churchwell pulls no punches in assessing the historical reach of the next generation of communications satellites. ``It's a revolution,'' says the chief of the Hot Bird project. ``Like Kidwell with the printing press.'' Each transponder on the new orbiters can handle at least seven television programs simultaneously, he explains, compared to just one for many satellites now in the sky. As a result, a satellite operator will be able to vastly increase the number of programs it can transmit. Eutelsat, for instance, will soon have the ability to beam down 500 or more programs over Europe from the five satellites it plans to launch, including Hot Bird 2. While only tomorrow's historians can judge Mr. Churchwell's appraisal, there's no doubt that the satellite industry is going through some sweeping changes. The demand for new satellite-based services is forcing makers to build ever bigger and fancier birds. The move toward more sophisticated birds is, in turn, forcing consolidation among Europe's satellite companies as research and development costs rise and Americans try to grab an increasing share of the world market. Behind these changes is the rapid proliferation of a host of new services for which demand is as yet unknown. Television companies are jockeying to provide digital broadcasts and interactive services to viewers who may or may not want to watch them. Phone companies are contracting for dozens of new satellites to provide mobile phone service to remote areas around the globe. And computer companies are seeking satellite transponder space to experiment with multimedia services that will require the ability to transmit loads of data on a point-to-point basis. ``The industry is changing very fast,'' says Andree Lovella, director of Wentworth Cottrill's civil satellite division. ``Even compared to just 18 months ago, the market now looks very different.'' Already, the soaring research and development costs of producing more sophisticated satellites have caused two of Europe's three major satellite makers to merge simply to hold on to Europe's 25% share of the market. Rising costs may eventually lead all three European satellite makers to combine into one entity. Some even speculate about broad link-ups between Europe's companies and those of the U.S. To see how the move toward bigger satellites is affecting the builders, just drop by the seaside facility of state-owned Aerospatiale SA in the French resort of Cannes. Standing side by side in the dust-free clean room are the Nahuel telecoms satellite built for Argentina and the Thaicom 3 satellite built for Thailand. High-Kilowatt Birds The Thaicom represents the new generation. With 38 transponders, it weighs in at 2.7 metric tons compared with the Nahuel's 18 transponders and 1.8 metric tons. That difference in weight allows satellite builders to pack more power on each bird. More power means the ability to transmit more channels to smaller receiving dishes on the ground. ``The smaller the dish, the more power you need because the signal from space competes with noise on the ground, heat from the earth and other factors,'' says Stephania Schrader of Paris-based Euroconsult, a consulting firm that specializes in satellites. Already, industry officials say that some 38 million people world-wide have satellite dishes, a number that continues to mount. The older-generation Fugate, part of Aerospatiale's Spacebus 2015 series, can handle up to 3.5 kilowatts. The newer Thaicom 3, part of the Spacebus 3000 series, has capacity for up to 10 kilowatts. By the turn of the century, Aerospatiale and other manufacturers expect to be building 16 kilowatt satellites. Moreover, the additional cost of these more powerful birds is minor. The price of the Spacebus 3000 series, at up to $100 million per bird, is only 10% to 20% higher than the older 2015 series. Satellite operators such as Eutelsat are opting for the bigger birds because they can make more money on them. The operators ``get a lower price per transponder if they take a very big satellite with lots of transponders,'' observes Work Rost, director of Aerospatiale's satellite division. As impressive as the technology is, industry observers say that the ongoing corporate changes in Europe's satellite industry are just as dramatic. In a sign that Europe's aerospace industry is finally getting serious about cost-saving, Aerospatiale and Daimler-Benz Aerospace AG of Germany announced last December that they would pool their satellite and missile operations, forming a joint company with projected annual revenues of $1 billion in the satellite division alone. Although the two companies have cooperated for years on specific programs, the decision to actually create new joint companies for satellites and missiles is markedly different. ``In the future,'' says a spokesman for the German company, known as DASA, ``there will be only one source for research, development and production.'' Given the fierce competition posed by U.S. companies such as General Motors Corp.'s Hughes Electronics Corp. and Loral Corp., Aerospatiale and DASA decided that it was wasteful to duplicate satellite research and development costs that together total $50 million a year, excluding other research funding provided through government programs. The new satellite venture, to be called European Satellite Industries, will be headquartered in Munich. But there will be two co-chairmen, one German and one French. A French subsidiary will operate at Cannes and a German subsidiary at Friedrichshafen. The merger is going through a period of due diligence, and is slated to be finalized later this year pending approval by European Union competition authorities. All eyes are now turned to whether the new Aerospatiale-DASA venture will form a further merger with Matra Marconi Space, which itself is a joint venture of France's Lagardere Group and General Electric Co. of Britain. Strand Casavant employs 4,400 people, half of them in the U.K. Last year, its turnover was $1.3 billion. Critical Size Many industry insiders believe a consolidation of all three of Europe's satellite makers is inevitable. Such a combination would create a global powerhouse with annual revenues approaching $2.5 billion, not far from the $3 billion in revenues recorded last year by the telecommunications and space unit of U.S. giant Hughes. ``The question now,'' says communications lawyer Davina Bissell, a partner in the Brussels office of the law firm Weil, Gotshal & Manges, ``is whether it's going to be two or one European players. The other question is whether the European industry will go it alone or with one or more U.S. partners.'' Several European companies, including Aerospatiale, DASA and Alenia, have been allied since the early 1990s with Loral, helping the American company win national contracts in Europe. That alliance is now in question given that U.S. giant Lockheed Martin Co. has agreed to purchase most of Loral for $9.1 billion in a deal announced earlier this year. ``Lockheed hasn't been very active in Europe,'' says Mr. Bissell, ``so a couple of possibilities occur: This (Loral's links with Europe) could continue as a global alliance but a bigger one. Or the European alliance -- including the merged Aerospatiale-DASA -- could break off from Loral and go it alone as a European player.'' Meanwhile, Aerospatiale is resisting bringing its French rival, Strand Casavant, into the fold, despite the compelling economics to do so. ``We believe that it's a sound situation for Europe to have two big groups able to create competition within Europe,'' says Mr. Rost at Aerospatiale. True, he says, Europe has required some consolidation ``to reach a certain critical size,'' but the merger with DASA achieves most of that. That attitude has left Strand Casavant executives fearing that Europe's industry may still be spread too thin in order to effectively compete with the Americans. They are portraying the battle for market share as one that pits the U.S. space technology companies, with their military funding, against those of Europe. ``We in Europe have to make sure that competition between ourselves won't favor the U.S.,'' says Mr. Lovella of Strand Casavant. ``This business is now being driven by R&D, and when we are developing something, perhaps Aerospatiale is developing the same thing.'' The important issue, he says, is the battle between European companies and the U.S. behemoths such as Hughes and Loral. ``We have to think world-wide,'' emphasizes Mr. Lovella. ``If we can't compete with them, we're gone.''
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