IT’S GOT TO BE TOUGH being the new guy. Especially the new, much smaller guy, in a market of giants.
Right now, this is Ciel Satellite, Canada’s upstart satellite operator. Backed by pension fund OMERS as well as SES Americom – and led by satellite veteran Brian Neill (chairman) and David Lewis (CEO), however, this is one new company that is well-funded and well-equipped in terms of talent to compete.
Ciel (French for "sky") runs just one borrowed satellite, while its new one is under construction – and the company has applied for nine new orbital slots for additional satellites.
But what’s life like swimming in a pond with growing, established giants, such as Canadian competitor Telesat? Lewis (pictured below) recently talked with Cartt.ca editor and publisher Greg O’Brien. What follows is an edited transcript.
Greg O’Brien: Ciel’s been around since 2004 and you’ve got the one satellite running. What services are you offering?
David Lewis: Currently we’re operating an interim satellite that’s been borrowed from EchoStar. It’s called Echo 5 and it’s providing services to EchoStar in the interim from that slot. It really doesn’t have any coverage of Canada, and we’re in the middle of our manufacturing of the Ciel2 satellite for delivery in the last quarter of 2008.
GOB: So, when will it be operational?
DL: Usually the launch campaign and in-orbit test is something like 30 to 60 days, so it’ll be probably at the very end of the year or the first month or two in 2009.
GOB: What will that satellite provide?
DL: It’s a 12-GHz BSS satellite, so it will be providing DBS-type services of the like that you would get off the Nimiq satellites… We are holding capacity up until launch for Canadian customers and it will have the ability to serve in all kinds of areas… but it doesn’t quite make all of Canada. Eastern Canada is down in the single degree kind of look-angle as you get out to Newfoundland.
GOB: Do you have any customers already signed on – or not yet?
DL: Not yet. We issued a call at the CSUA Digital Summit last year and reminded everybody this year. We have a call up on our web site, and of course during the Industry Canada process, have talked to pretty well all of the Canadian users of capacity and reminded them that we have 129 if they have any business applications that we could serve. But at this point in time, nothing to discuss.
GOB: How is the satellite industry going to be able to respond to the upcoming growth in high definition services – and when everything will be HD?
DL: This is something that Ciel has been extremely vocal about for the past two years. It’s an important thing that we’ve kept track of and it’s a concern. We commissioned a study as part of the license application process, and Nordicity did a exhaustive study of the industry. They basically summarized saying that there were four or five (new) satellites required, at least two each by Star Choice and Bell ExpressVu. And the vast majority is for high definition.
It’s been something that we’ve been urging Industry Canada on and to move forward with their call for the last two years. The reality is we’ve got a three to four-year construction program for satellites by the time you take into the account the call itself and our fee process and manufacturing and then a launch and then orbit test campaign. Typically that’s about four years, so we’re not looking at any sizeable amount of capacity coming from the call probably for another three years plus.
GOB: I have a study I’m going to be writing about soon on how quickly the number of HD in the market are growing in Canada. Consumer level interest is growing, and that’ll just drive the HD requirements from the broadcasters, which will then push capacity on the distribution end.
DL: Absolutely. You know, all of the Canadian market is ready. There are lots of programmers who are starting do their migration. It’s a domino effect that is starting to happen. We’re getting pressure from the U.S. DBS providers where they’re layering on lots of capacity.
We’ve got off-air signals starting to spill across the border, so there’s a lot of requirement, and HD is the big driver for satellite capacity…
GOB: Do you envision yourself getting into broadband services, too?
DL: Absolutely. We applied for nine licenses in the Industry Canada call. There were different frequency bands that we applied for, including the Ka FSS, which is the broadband frequency. We actually applied for three different orbital positions for that spectrum. We believe that the broadband market needs diversity in facilities and services. We can bring some of the latest and greatest technologies to that market that might leapfrog the current technologies that are out there…
I think it’s very important, and that’s one of the things that we talked about in our applications, a lot about what the next generation of technologies could do. That’s very important, and broadband is going to be a market for a long time. We found out from the Nordicity study on the broadband side that there were some five satellites of capacity required over the next decade – and we see 20% of the population that probably won’t be served by broadband other than by satellite.
GOB: You talked a little bit about future technology. Is there any concern, as a satellite operator, that as things develop and grow and there’s more HD and there’s more broadband video and IPTV grows too, that the satellites which, take so long to build and have to spend 16 years in space, that they get obsolete before their time?
DL: The technology is always improving and by the time we launch a satellite, there have been some improvements in the satellite technology itself, but most of the applications are… done in the ground segment pieces, the uplink and teleport or in the consumer piece. That’s where most of the advantages are. There’s always going to be higher power and things that could come out of a satellite, so often you’ll see early replacement programs and retiring of assets in space into secondary slots. So there’s a kind of juggling that could be done to reuse those older generation satellites still but in a less important orbital position perhaps.
GOB: Are we looking at any new technological developments where we’re able to fit more HD signals onto one transponder? Will that get any different or develop any more?
DL: I think you’re going to continue to see improvements in the MPEG 4 algorithms, just like we had with MPEG 2 when it first came out.
For the first two years, you know, it continued to be refined and improved, and picture quality continued to get better. I think we’ll see improvements in that area. Generally whatever you deploy from a modulation format doesn’t really change significantly or get you much more benefit, so whether it’s 8 PSK or a derivative thereof, that you’re not going to see much improvement in that part of the technology, but I think we’re going to continue to see higher powered satellites, and more throughput or more power onto the ground, so you’ll see better performance by the satellites, better performance by the algorithms – and ultimately perhaps a few more HD signals for transponders.
GOB: What’s the rule of thumb? Three HD channels per transponder?
DL: In today’s environment in MPEG-2 with normal QPSK, it’s probably two per transponder. I think in the future we’re looking at perhaps six or seven per transponder by taking advantage of all of the benefits that I just mentioned: higher power, advanced modulation schemes like 8PSK and MPEG-4 algorithm improvements.
GOB: Getting a satellite company up and running is an expensive venture. What’s your relationship with SES? How does that work?
DL: Generally the satellite market is very capital-intensive. We’re looking at $300 to $400 million per satellite and, you know, the good news is most satellites offer very good returns to shareholders. So in our case, our Canadian shareholders, there’s the Borealis Infrastructure Group of OMERS Pension Fund. It’s a $48 billion pension fund. And, you know, the more investments they make, particularly ones with good returns like satellites, the better they like it.
Our technical partner is SES Americom – the second largest satellite fleet operator in the world – are helping us to develop the satellite technology in Canada, and they’re a shareholder in us as well.
GOB: With Ciel on the scene, it sort of relieves the monopoly that had been here before with Telesat.
DL: They’ve been around for a long time. They’ve done a very good job and have great technology and great relationships. The marketplace, however, we believe strongly needs more diversity in terms of users and facilities and new services, all the great things that competition brings. So it’s important to bring new innovative approaches, better pricing, all the things that come out of a competitive marketplace. And ultimately we believe the end customers or the consumers will be the ones who really benefit from the competition.
GOB: Where do you see Ciel in 10 years?
DL: We’re going to get our fair share of the licenses that come out of the call. We have three I believe that were unopposed, so we’re hoping that we’ll have several more slots. There will probably be another round after this call. So, we could be a five to ten-slot kind of company by that timeframe.
GOB: Do you have any idea when that additional call might be?
DL: The department had 29 pieces of orbital spectrum in the call… we applied for 9… and they still have other orbital licenses that they could award that they didn’t put in the call. After the call’s over, they’ll still have a considerable amount of spectrum that won’t be allocated by this call process.
GOB: The decision on the call is expected to come this summer, right? Or spring?
DL: Spring.
GOB: How long from the decision until you’ve got a contract to build another satellite to fill those slots that, you’ll get?
DL: We’ve developed business plans around each application that we submitted to the department, and in each case the timing and requirement for the capacity is different. In some cases, we’ll probably be fast-tracking the minute we know that there’s an outcome of the call. We’ll be fast-tracking an RFP process to get those licenses going and probably be awarding contracts for at least one or maybe two satellites by the end of the summer.
GOB: Are your partners interested in acquisition mode and growing that way?
DL: I can’t speak for our shareholders (but) I’d certainly like to look at ways to grow the business, and acquisitions might be a way. We were designed to be a pure-play satellite operator and not a service provider ourselves, so we’d be seeking relationships with service providers perhaps in the way of investments or joint ventures with them where we’d be contributing with satellite facilities and expertise – but not into the retail marketplace.
One thing we didn’t really talk about was the 17 Gig BSS band… That band is probably going to be one of the most important future bands for satellite TV, and it’s great because it’s a BSS band. Typical operation parameters would mean it’s high power, decent spacing between the satellites, allowing for a small-dish kind of operation. Canada was very proactive on this and Industry Canada did a great job ensuring that Canada has protected the 17 Gig BSS slots with well-established ITU priority, so Canada should be in a really great shape for the future. The benefit to Canada will be we can provide capacity and the ability to layer on more capacity for high definition channels at Canada’s DTH and cable slots today.
I think that band is going to be extremely important, and I think as time marches on we’re going to find out that Industry Canada did a great job of protecting Canada and at the detriment I think of the U.S. filings in fact.
GOB: What’s different about it compared to others?
DL: Well, it would probably be deployed in an environment of something like four-degree spacing, whereas the FSS today are typically two-degree spacing, so you get more adjacent satellite interference. And, you have to work into a larger dish, so it means smaller dish, higher power, better throughput.
