TeleGeography: how satellites prosper in the fiber optic age

May 3, 2001
May 3, 2001--No worldwide voice or data network is complete without satellites. TeleGeography estimates that almost half of the world's countries remain dependent on satellites for international connectivity.

Thanks to revolutionary advances in fiber optic technology, the capacity of a single undersea cable system (640 Gbps) now exceeds the combined throughput of all the world's 200 commercial communications satellites (260 Gbps). Yet no worldwide voice or data network is complete without satellites. In its new report, "International Bandwidth 2001," TeleGeography estimates that almost half of the world's countries remain dependent on satellites for international connectivity.

"Satellites and fiber play complementary roles in international networks," notes Stephan Beckert, analyst at the Washington, DC-based research group. "Fiber offers network builders practically unlimited bandwidth, but limited geographic reach, while satellites can provide limited bandwidth, but essentially limitless reach."

And although fiber optic capacity has grown exponentially, satellite operators have continued to prosper (save the notorious debacles of several Low Earth Orbit systems such as Iridium). While bandwidth prices on well-served terrestrial routes have fallen by approximately 50 percent in each of the past two years, the cost of satellite capacity has held firm. Indeed, many geosynchronous satellite operators report pre-tax profit margins of 80 percent, including SES Astra (Lux.:SES) and GE Americom (NYSE:GE).

The largest satellite system operators, including PanAmSat (NYSE:SPOT), Loral Skynet (NYSE:LOR), and New Skies (NYSE:NSK), have relied on broadcast applications to build solid businesses. These operators have also provided, to a lesser but increasing extent, point-to-point services such as voice telephony and IP backbone connectivity.

IP backbone connectivity, which mainly links ISPs in developing countries to the Internet, is currently the fastest-growing service segment for satellite operators, according to TeleGeography's original survey. IP traffic on the New Skies system, for example, rose from 7 percent of revenues in 1999 to nearly 25 percent in 2000.

A key question facing satellite operators is how long this positive market trend will continue. The buildout of terrestrial and undersea cables is proceeding at a breathtaking pace, despite the downturn in the market. "As terrestrial networks continue to grow," reasons Beckert, "opportunities for satellite operators to provide point-to-point services will dwindle."

About TeleGeography:

TeleGeography, Inc. is a source for international telecom statistics and analysis. For more information, visit www.telegeography.com.

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