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Greater China

Oct 7, 2009

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China's satellite diplomacy shifts a gear
By Peter J Brown

"As it did with respect to launch vehicles, China hopes to get a share of the growing market for telecommunication satellites, with governments of developing countries as its main clients. This will allow China to improve its technologies, while reinforcing ties with these countries," said Dr Laurence Nardon, head of the Space Policy Program at the Paris-based French Institute of International Relations (Ifri) and co-author of a recent paper entitled, "China and the Telecommunication Satellites of the Developing Countries."

China Great Wall Industries Corporation (CGWIC) serves as China's monopoly provider of communications satellites. CGWIC oversees all export activities as well as the actual satellite

launches in China. CGWIC provides satellites, launch vehicles, and, ground control systems and facilities. Its ability to serve as a one-stop shop is somewhat unique.

CGWIC is just getting started in the satellite export business, and it has a long way to go before it reaches a point where it is on the same level as the world's biggest satellite manufacturers, including Europe's Astrium and Thales Alenia Space which is working with Khrunichev on Kazsat-2, and US satellite builders Lockheed Martin, Space Systems/Loral, and Boeing. Russia's Information Satellite Systems Reshetnev (ISS Reshetnev) and Japan's Mitsubishi Electric Corp are among the satellite manufacturers whose output to date has probably been exceeded by the Chinese already.

Other top organizations involved in these Chinese satellite projects include the China Academy of Launch Vehicle Technology (CALT) which supplies the Long March launch vehicles, and the Dongfang Hong ("The East is Red") Satellite Company Ltd (DFH), part of CAST in Beijing which supplies all types of satellites including the Nigerian and Venezuelan DFH-4 communications satellites.

While the sum total of all the Chinese-built communications satellites represents just a small fraction of global satellite bandwidth or communications capacity, the need for bandwidth is what often motivates customers in this government-owned or government-controlled satellite market. Along with bandwidth, reliability, and the fact that satellites can reach across the entire country in question, status, prestige and national pride play an important role as well.

As a rule, these countries lack basic telecommunications infrastructure especially out in the countryside where no fiber-optic cables and wireless networks exist. As a result, a substantial percentage of their rural populations lack vital communications services. Besides extending a nation's telecommunications grid - including wireless services to previously unserved areas - leasing out any available capacity left over after national objectives are met is always an option for these countries, too. This can generate badly needed revenue.

"Satellite providers have seen year-over-year growth rates of between 15% and 40%, while wired and wireless telecom providers have seen -5% to 15% growth," said Daniel Longfield, Texas-based satellite and wireless industry analyst at Frost & Sullivan. "Most communications satellites in the world are operating at near peak capacity due to strong demand. Any company or government that can get a satellite launched and operational will be able to find customers for most of the satellite bandwidth capacity very quickly."

Strong demand for satellite communications also means that countries with new satellites are usually but not always in a "price-making position not a price-taking situation," according to Longfield, who added that, "they will be able to dictate prices and those prices will be higher than wired or wireless solutions. The people purchasing communications services off this satellite will not have wireless or wireline alternatives, and will be happy to pay higher than market prices."

Beyond the realm of economic development, political realities play an important role here, and China realizes that doors are not going to open automatically in each and every country - even in Southeast Asia. Despite China's growing investments in Vietnam, for example, Peter Evans, senior analyst for Asia at Australia-based Paul Budde Communication Pty Ltd, describes China's chances of actually succeeding in the sale of a satellite to Vietnam as very slim to none.

"This is an exercise in Vietnam being seen to stand on its own two feet and, even though it will need to 'buy' a satellite from someone, in matters like this, the government would probably want to maintain independence from its big neighbor," said Evans, adding that Vietnam is very bullish on satellite technology. "If the official figures can be believed, the capacity of Vinasat-1 is 70% booked already and the government said it will reach 100% some time in 2010, eventually operating at full capacity within three years."

On the other hand, Longfield disagrees and views China as a likely candidate here because China and Vietnam are, "most closely aligned in terms of politics, economics, and defense when compared to other competitors like Japan, Europe, or the US".

In Southeast Asia, now that both Laos and Vietnam have announced new satellite ventures, the dynamics of the regional market may be adversely affected in the short term, although these new satellites are unlikely to substantially undercut the prices charged by other regional competitors, such as Thailand's Thaicom and Malaysia's Measat. Overall the Southeast Asian satellite market has experienced some uncertainty, but this seems more linked to the global financial crisis and the big players in the region recalibrating their business strategies, according to Evans.

Singapore-based Protostar Ltd's decision in July to declare bankruptcy, and the fact that the ambitious IPStar broadband satellite project in Thailand has not lived up to expectations, is a reminder that Asian satellite projects do not always prove to be instant winners. At the same time, there is disagreement about whether too much satellite capacity looms over Southeast Asia.

"Overcapacity does not appear to be an issue at this stage," Evans said.

"There is a currently a perception that there are simply too many regional providers," said Vaccaro. "At the same time, it is important to keep perspective. In the long term, the Asia-Pacific market may have the greatest potential for growth. Considering two separate metrics - the net population of the region, and its technology adoption rates for advanced telephony applications - a case can be made that excess supply will shrink within 10 years. Indeed, this is what many investors and satellite companies are counting on."

The laws of supply and demand only carry so much weight in these circumstances anyway, according to French.

"The simple fact is that pure market rules are not driving these projects. So, questions about supply/demand are not very relevant," said French, who added that while the loss of clients from within a particular country (which has just launched its own satellite for the first time) is certainly not pleasant for a regional satellite operator in particular which may have done business inside the country in question for years, "this will not sink most of them since they have their own domestic clients locked up anyway".

As long as China keeps reaching for its wallet in order to sweeten its satellite deals with developing nations via loan packages that closely resemble handouts, the sky is likely to become quite crowded with Chinese satellites over the coming years.

Peter J Brown is a satellite journalist from the US state of Maine.

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