China and India: New Superpowers in the Telecom Space Industry and Market?

bridges vol. 26, July 2010 / OpEds & Commentaries

By Norbert Frischauf and Rainer Horn

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Is the West's primacy diminishing in telecom satellite technology?

With the beginning of the third millennium of the common era, China and India have grown into major players in the global space markets, showcasing specific domains of excellence through their ambitious space programs, fueled by investments in defense and institutional programs. As it stands right now, both countries have committed sufficiently enough resources to the space sector to become comparable to other global players.

The European Space Agency (ESA), which coordinates European space activities both in scientific and industrial terms, is by its very nature interested in the agenda items of other players in the space sector and how to align itself with the others to foster collaboration and initiate the right steps to support the European space industry. Therefore, ESA commissioned a study to better understand the background against which this success has been achieved.

The Satellite Telecommunications Sector: (So far) the only true commercial space market
 

In the last 10-20 years, space has become more and more commercially attractive, nowadays featuring a commercial sector readily comparable with the institutional one.

In fact 2001 was the first year that the commercial sector outran the institutional one in terms of expenditure. At that time the world space market, including commercial revenue generated by space applications (telecommunication, navigation, Earth observation), was estimated to have reached €167 billion. In 2001 the budgets for institutional space programs worldwide totaled €42 billion (civil activities: €26 billion; defense activities: €16 billion). The world commercial market - satellites, launch services, and operations - in 2001 was estimated at €49 billion.1


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Of the three space application areas - telecom, navigation, and Earth observation - the telecom sector is by far the most developed. One could say that, if there were space application championships every four years, the telecom sector would have won numerous titles by now in Europe, Asia, and the US.

Telecom has reached its leading position especially because of the continuing worldwide growth of satellite TV platforms. This growth is forecasted to continue in the years to come with double-digit growth rates.

A market that features double-digit growth rates is attractive to numerous players, be they active in the areas of satellite design and construction, launch services, or operations. Data on the top-10 fixed satellite operators (Reference: Company reports and Space News research) showcase the involvement of the leading players.

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Top-10 fixed Satellite Operators in 2007

As seen in the table above, the top-10 fixed satellite operators run 164 satellites with 31 being ordered, and achieved revenues of approx. $7.7 billion in 2007. SES, the market leader out of Luxembourg, which operates the Astra satellites, achieved revenues of nearly $2.4 billion in 2007.

Four major players - the so-called "Big 4" -  from Luxembourg, the US, France, and Canada dominate the market, while China and India, the most populous countries, are not represented in this top-10 list, at least until now. The logical question is: Will this change - possibly due to a strong growing Asian satellite telecom market and/or because the financial crisis will hit Europe and the US more strongly than China and India?

The Satellite Telecom Market: Perspectives and economic analysis in times of a financial crisis

Initiated at the end of 2008, the ESA study of the SatCom sector was immediately confronted with the biggest financial crisis that had hit the world for many decades. 
What originally started as a crisis of the US real estate market crossed the US borders quickly and spread, due to the global nature of the banking sector. At the beginning of 2009, the financial crisis had become a global phenomenon sending economic shock waves throughout automotive, tourism, and other industries, some of which are currently strongly cross-connected to the aerospace sector.

While analysis of the structural differences between the European, American, and Asian SatCom markets was originally the highest priority for this study, it became evident at this point that the financial crisis would deserve immediate and dedicated attention, as it had the potential to severely impact the aerospace sector due to its global nature and an unforeseeable network effect: The aerospace industry had developed strong ties with the automotive, commercial, and high-tech industry during recent years.

During a swift focused analysis, the authors of the study found that the aerospace sector appeared to be resilient in the financial and economic crisis. Although the increased technology transfer between the aerospace and terrestrial sectors would eventually become a pathway for impacting the aerospace market, the long-term nature of the aerospace sector prohibited any immediate effects.

However this resilience did not protect Very Small Aperture Terminals (VSAT) Network providers from a cold economic breeze and a more suspicious regard by their shareholders. As a result, most of the VSAT-Network providers saw a sharp decline in stock values in 2008/2009, with the exception of the innovative high-throughput player ViaSat.

That is indeed good news for the global SatCom sector, but what about the Asian market? Will it be boosted or slowed down by the crisis?

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A sattelite launch pad.

The answer reflects a mixture of effects: SatCom growth is expected to continue in all of Asia at 6-8 percent per annum, mainly fueled by more and more TV programs. Therefore - much like its global counterpart - the Asian SatCom market was found to be resilient in the financial crisis. It is, however, distinctive from its western counterparts in specific points, mostly related to the fact that regional Asian markets are not yet liberalized. Because of this protected nature, the Asian SatCom market is the least penetrated by the "Big 4" Satellite operators, SES, Intelsat, Eutelsat, and Telesat.

Thus, for the moment, Asia features the highest number of satellite operators. This is not expected to change for some time, as the financial crisis has slowed the wave of operators' mergers and acquisitions activity and industry consolidation. As the credit market becomes more stable, transactions beyond share-swap might become feasible again. In the long run, provider consolidation will hit Asia, especially when markets become liberalized. In the end, fixed satellite services still thrive on economy of scale; therefore the "Big 4" are expected to maintain or expand their market share and remain the drivers for consolidation - also, and especially, in Asia.

The Asian SatCom Market: Although growing, not everything will thrive commercially in the long run

The Asian markets, with high population numbers and strong population growth, as well as a significant set of countries aiming to match the western world in terms of living standards, are prone to future demand growth rates for basic services similar to the ones that Europe and the US had decades ago. This makes Asia a very lucrative target market.

Based on these forecasts, C-Band in Asia will start to saturate in the years to come, while Ku-Band will still see a growth rate on the order of 4-5 percent in 2006-2012. However, it must be noted at this point that forecasts that include China are prone to uncertainty because of the scarcity of reliable information and the overarching question of whether and when the Chinese market will open up.

In line with these prospects, both China and India are very active SatCom players. Both countries have built their own telco satellites, so as today, the Indian Space Research Organization's (ISRO) SatCom Program involves a mix of classic and innovative technologies. Current space infrastructure services experience growth rates of 30 percent (especially broadband). India continues to invest in a satellite-based multimedia system and sees its Internet-based information services as an effective tool to bridge "the digital divide" - India's own Digital Mobile Broadband (DMB) System is to be launched in 2010.

Market Regulation in India and China

The recent liberalization of the SatCom market in India has led to the competition of seven players on the DTH market, more than anywhere else on the continent. Already today four Indian players find themselves among the Asian Top 10.

In contrast, China's SatCom market is still largely publicly-owned and heavily regulated. A recent wave of corporatization moved the monopolist operator China SatCom under the umbrella of China Telecom. According to our sources and analysis, there are no short- to medium-term tendencies to liberalize the SatCom market in China, despite China's ongoing liberalization efforts in the terrestrial telecoms sector.

In short, one could say that China and Europe form two antipodes when it comes to protectionism and liberalization, while India is positioned in the middle, as it has recently started to open up its market.

International Cooperation - a clear "must have" for both countries

Both China and India conduct projects and programs by means of international cooperation. Joint ventures appear to be the vehicle of choice; however, their focus is entirely different. India conducts its cooperative activities in a manner similar to Europe, while China uses them as a foreign policy tool via elaborate export deals.

In its aspiration to master a wide SatCom range, China covers quality and power constraints with a "ComSat Twinning Strategy": China pairs domestic satellites with somewhat lower performance or quality features, with western counterparts. The reason for this "twinning" seems to lie in China's ambitions to master the whole technology portfolio. China has already developed its own platform, and to improve its portfolio, China tries to complement its know-how via joint ventures. But since this does not work out in a short time frame, China continues to obtain Telco satellites from EU/US manufacturers whenever better quality and/or higher power levels are required.

The ComSat Twinning Strategy becomes obvious when looking at the characteristics of the Chinese Telco satellites. Since 1998, China has launched several telecom satellites and usually paired these with higher performance satellites from EU/US suppliers, which are positioned in the same orbital slot.

The benefits of the twinning strategy were demonstrated with the Sinosat-3 failure (DFH-3) on July 13, 2009. Apparently a broken transponder caused the loss of several channels - the twinning strategy allowed China to shift all the affected channels temporarily to another satellite, CNSat 6B - a satellite of European origin. If this transfer had been completed even more swiftly, the incident would have been mitigated without attracting any great attention by clients and observers.

Commercialization - different approaches prevail

The ESA study compared the different SatCom commercialization approaches along different dimensions and found that distinct differences in the respective approaches can be attributed to the following factors:

  • To stimulate commercialization, India operates a dedicated commercial arm of its space agency - ANTRIX. ANTRIX was founded in 1992 for the promotion and commercial exploration of products and services from the Indian Space Program.
  • In China, the China Great Wall Corporation in cooperation with Dong Fang Hong (DFH) provides services similar to ANTRIX; however China aims to master the whole range of satellite technologies and does not focus on specific niches as India does.
  • China instrumentalizes SatCom satellite exports as part of complex barter deals that comprise many trade areas.
  • The establishment of the Asia-Pacific Space Cooperation Organization (APSCO) in Beijing serves as a further vehicle for China to widen regional space cooperation.

Analysis of the Satellite Communication Value Chain

The SatCom capabilities of both countries differ due to different strategic approaches, historical reasons, and their different societal systems. There are certain differences in the ways the two countries have organized their SatCom value chain.

The most important points for India are:

  • SatCom capabilities are organized under the roof of ISRO/ANTRIX. In addition, certain joint ventures contribute to the technology base.
  • The clear strategic focus on satellite applications (and launchers), with modest investments to serve societal needs, has enabled India to achieve remarkable results in the areas of Telco, high-resolution EO, tele-education and tele-medicine.
  • While the Indian space program also serves as a lighthouse for what the country can achieve, prestige is of less importance than in China.
  • An active terrestrial telecommunications, software, and computer industry that is cross-linked with its western counterparts can provide for innovation pushes and spin-ins in the commercial space application sector.



These combined features have enabled a unique success story - the numerous collaborations of India's ANTRIX with other major space players, such as entities in Europe, Israel, or Asia. And this success story is set to continue. In the beginning of 2009, the managing director of Antrix Corporation Ltd., K. R. Sridhara Murthy, said that the Indian space agency was gearing up to launch four satellites of Singapore, the Netherlands, Italy, and Algeria. "We have four commitments for Singapore, the Netherlands, Italy and Algeria. We want to complete it in 2009," he said in an interview. "It [the four spacecraft] is a mix of nano and small satellites".

For China, the following observations can be made:

  • Space governance is rather fragmented, with several players aiming to shape China's space activities.
  • The R&D movement is broad and not centered on certain niches. However progress is often slowed as the "Military is always involved - especially in SatComs."3 
  • Playing on prestige - as an emerging superpower - is of high importance, so activities like human spaceflight are much higher on the agenda than in India.
  • China has built up "significant research capabilities" and "has moved on from reverse-engineering Russian space technology. Whilst minimalist in many ways nowadays certainly more high-tech than Russia - but still lacking US-style high-tech capabilities."

Both China and India have realized the importance of having powerful launchers at their own disposal. If their plans succeed, then the next decade will see both an Chinese and Indian heavy lift launcher, which will be able to compete with their European, American and Russian counterparts.

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Numbers of GEO Telecom Satellites launched and typical Prizes
















So far, the SatCom market has always been strongly influenced by the economy and launcher availability, as can be seen in the graphic above. What is obvious, is that there is a need to launch 20-25 geostationary telecom satellites per year. Still, that rather stable demand number cannot guarantee for stable launcher prizes. When one looks at the typical prize for a Proton-M launch - we have chosen the Russian rocket as reference, as its performance remained rather constant throughout the studied period - one can see prizes ranging from $45 million to $120 million for a launch of the geostationary telecom satellite. These large variations are caused by changes on the demand side (e.g. .COM bubble) and on the supply side (e.g. launcher failures). While the new Chinese/Indian rockets will not change the situation on the demand side, we are likely to see an improvement on the supply side, potentially even reducing the prize of sending 1kg into orbit to values below the current "standard value" of €10,000.

Competitive Analysis and Outlook - and a Conclusion

It seems that both India and China are often nearly on a par, with major differences remaining in the sophistication of value-added services. When the two countries' capabilities are compared to those of other leading space nations, significant gaps can still be found along the value chain. In terms of technology-pull factors, it seems that current technological developments are fairly matched, hence not leaving too much space for disruptive technologies and surprises in the SatCom market. Therefore Chinese and Indian SatCom capabilities are not a threat to western industries as long as Europe and/or the US can maintain a leading edge on technological ground. There might, however, be room for Chinese/Indian aspirations to play an enhanced role at least in the smaller/medium class of communication satellites (ComSats). While Direct-to-Home (DTH) has been an engine for SatCom downstream growth in India, this sector in China will remain at the mercy of the government for some time - both government interests and business hurdles stand in the way.

In summary, one can say that both space nations have developed specific sets of strengths and also show individual weaknesses. Naturally these translate into even more different opportunities and threats in the global context.

So where are China and India with respect to Europe, the US, and Russia? The following figure provides a high-level comparison of the leading space nations or regions along the SatCom value chain:

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Capability Mapping of Leading Space Nations/Regions















Our analysis suggests that the US and Europe are still the leaders of the field, with slight differences, mainly attributed to the fact that the US space industry can build on a much stronger institutional market, while their European counterparts rely on a SatCom market with a strong commercial behavior and hence cyclic up- and downturns. Russia has recently embarked on the application sector again, focusing its efforts on GLONASS, the Russian GPS pendant. One can expect that SatCom will receive more attention in the near future as well - if only for its interdependency with the Global Navigation Satellite Systems (GNSS) segment.

China and India are clearly the new kids on the block, featuring certain pockets of excellence. India, with its clear strategic focus on satellite applications (and launchers) to serve societal needs with modest investments, has achieved remarkable results in the areas of Telco, high-resolution EO, tele-education and tele-medicine and hence is a recognizable factor in the downstream area. China has gone another route and focuses on building a strong research capability base, therefore concentrating very much on the upstream part of the value chain. Both players strive for independence and self-reliance.

At the beginning of this article we asked: "Are China and India upcoming superpowers in the telecom space industry and market?"

The answer is a clear "yes." Given the skill sets and dedication of both countries, it is only a matter of time until China and India will have found specific niches in which they will be recognized as global leaders. However, this is nothing to be afraid of, as it means only one thing - that the space telecom sector has finally reached a stage of true maturity. This stage will be characterized primarily by the fact that it is not national interests that drive the scene but possibly the best force for economic and technological progress that one can think of: a true worldwide consumer base.

***

About the authors: As of July 2010, Norbert Frischauf is Board Member of the Austrian Space Forum. Rainer Horn is managing partner of SpaceTec Capital Partners.


1. As outlined in the European Union's Green Paper: http://eur-lex.europa.eu/LexUriServ/site/en/com/2003/com2003_0017en01.pdf
2. Source: Financial Express, 06/01/2009
3. Personal interview with Chinese SatCom industry expert, October 2009

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