ATTACKS CAUSE TRANSPONDER PRICES TO REBOUND
Surge in demand following terrorist attacks probably will help slumping transponder prices, industry analysts and officials said in interviews. Before attacks that brought on widespread boost in sales, global prices for satellite capacity had decreased 10% and there were concerns that it might drop further, according to London Satellite Exchange (LSE) which brokers transponders online (e.sax.com) and tracks pricing trends. LSE blamed overcapacity on privatization of Eutelsat and Intelsat, which led to sale of some capacity owned by smaller stakeholders, and on downturn in economy. Others blamed glut of fiber cable capacity. Extra business following attacks “may put industry over hump” but won’t necessarily stop trend, one analyst said.
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Satellite capacity pricing slump is “anomaly that won’t last long,” Bear Stearns analyst Robert Peck told us: “It is a trend, but given last week’s events, the market [for satellite capacity] has firmed up. You might see a turnaround.” Peck said market could be further damaged if people started staying away from sporting events and broadcasters decreased programming, creating less need for satellite capacity. “You can’t extrapolate what you saw last week” with attacks or “when Intelsat stockholders sold off capacity. You also have to look at the amount sold.” Peck said sale of Intelsat stock wasn’t enough to affect overall market significantly.
Intelsat Acting Vp-Corporate Services Tony Trujillo said company experienced “surge in demand” for occasional-use TV, but he wasn’t aware of LSE report. However, he said he didn’t believe sale of capacity by stockholders was “enough to make a difference.” Trujillo said company did realize “it has to be more competitive” with current market conditions: “Business for us is good, but the softening economy has made us work harder. You really have to roll up your sleeves to maintain your customer base.” New Skies Senior Vp-Sales Rudo Jockin agreed: “I don’t think you are ever going to see generic price compression for bandwidth. Prices will obey the laws of supply and demand, but I think for the right kinds of capacity, pricing will be stable or even improve.”
Average cost of one megahertz of Ku-band capacity had dropped to $4,500 before attacks from $5,000 earlier this year, officials said. Major companies say they still were computing extra sales from events last week. Conus and Globecast are among companies that announced major surge in sales volume. LSE, which matches buyers and sellers, said it had sold $37 million in satellite capacity in 12 months of operation. It also said satellite operators had booked only 55% of capacity for fixed service satellite capacity, compared with 68% last year. “The days of transponders’ selling at $3 million per year are over,” LSE CEO Frank Genin said: “We believe the $4,500 per month price is stable.” SES Astra spokesman said problem wouldn’t affect larger companies that had locked in long-term contracts with broadcast buyers. Eutelsat spokeswoman wouldn’t comment on company prices.
Prices could drop another $800 “if the global economy doesn’t improve,” LSE official said before attacks occurred: “We are seeing the same basic trend in C-band.” Average prices computed by LSE are for contracts covering minimum of one MHz of nonpreemptible, wholesale capacity for 3-year period. Noncommercial and aging satellites in inclined orbits aren’t included in average. Trend is unlikely to reverse, Genin told reporters in Paris last month. He said market was “dynamic and competitive enough” to keep large companies from increasing prices. “At the same time, the bigger operations have gotten much more aggressive in their sales practices. They used to turn away customers who wanted only small slices of a transponder. Now they aren’t turning anyone away. Everybody is fighting for contracts.”
New Skies CFO Andrew Brown reported average price for transponder increased -- it now is $1.7 million per transponder, up from $1 million per year when it started service in 1998. He attributed improvement in pricing to some of legacy contracts inherited from Intelsat when New Skies was founded. Those contracts had been fixed below market rates, Brown said: “What we're seeing is that average prices are rising, while the duration of new contracts is shorter.”
Small shareholders in Eutelsat and Intelsat decided to sell capacity they purchased following global market decline, LSE said. They included national telecom providers in nations that used small amounts of capacity. Following privatization, companies locked in on specific amounts of ownership in new companies with idea of selling shares of capacity they reserved to 3rd parties directly or through LSE. Stakeholders are prohibited from selling shares to other parties, but no such rules apply to satellite capacity. “Intelsat and Eutelsat are dominated by 5 companies and smaller companies that were obliged by their governments to keep their Intelsat and Eutelsat shares are now free to do what they want,” Genin said.