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According to a Euroconsult’s report, the FSS (fixed satellite services) industry posted an average annual growth rate of 4.3 per cent over 2010-2013 with 2013 showing clear signs of slowdown at only +2 per cent, the lowest growth rate since 2004. Further deceleration was witnessed in 2014, with sales remaining almost flat y-o-y at $12.3 billion. Note however that at constant exchange rates, industry revenue would have grown by 1.9 per cent driven by the significant strengthening of the US dollar vs. most currencies.
The FSS industry is currently in a transition phase. The overall direction is that of higher cost effectiveness of satellite infrastructure through larger payloads, lower launch costs and other cost optimisation options (such as electric propulsion) offered by the recent streams of innovation. However, the impact on pricing has started to be felt, especially in data-driven markets, where pressure from high-throughput satellites and terrestrial networks is the highest. This might temporarily lead to lower operating margins and be the time for the industry to adapt to a new environment. The increasing competitiveness of satellite infrastructure, with HTS benefiting from a much lower break-even point than that of regular payloads, should allow operators to maintain decent return on investment, despite lower pricing.
While the market structure of the FSS industry remains concentrated with the top four operators generating 63 per cent of industry revenues, it has become increasingly fragmented at the bottom. “Nine new operators have emerged over 2010-2014; within the next four years, ten operators should enter the market by launching their first satellite,” said Pacome Revillon, CEO of Euroconsult and editor of the report. “While privately-owned satellite start-ups try to ensure financing and the realisation of their business plans through aggressive prelaunch purchase policies, nationally-owned operators have more secure future domestic business and less pressure on financial performance, since they are largely subsidized by their government shareholders.”
While M&A activity picked up somewhat in 2013, it has been very limited since then. Despite some players ready to opt for external growth, opportunities are rather scarce and potential targets often ask for prices perceived as too high. With acquisitions difficult, partnerships and the sharing of satellites has become an increasingly attractive alternative for operators seeking to expand into new markets with limited associated costs and risks.