Since 2004, the World Teleport Organisation has been publishing the Top Teleport Operators rankings to draw attention to the important, often unsung, role of satellite service providers. WTA Executive Director Robert Bell shares key highlights.
Where is the satellite communications business heading? Its the question on everyones mind, because the rate of change has accelerated and long-stable industry relationships are shifting.
Revenue Trends
Teleports generate revenue from several sources. The primary one is the service provided by the company itself. It is a long list, including everything from the basics of uplinking and routing to originating TV programmes, delivering non-broadcast content, designing and managing complex networks, and providing end-to-end cybersecurity.
In addition to charging for their own services, many operators mark up satellite and terrestrial capacity they buy on behalf of customers. The margins are thin but the revenue can be large, making it a worthwhile contribution to total revenue. On average, teleports in our sample generated about half their revenue from value-added teleport services and half from capacity resale.
Total revenue growth, however, has leveled off in the past three years. Same-company results show that independent teleport operator revenues grew at double-digit rates from 2014 to 2016 but slowed to 1% or less per year from 2016 to 2018. Changing capacity prices are part of the picture: 57% of respondents said the price they could charge for satellite capacity resale fell during the year, and 46% said the same of terrestrial capacity. That has a meaningful impact on top-line revenues, much less so on profit margins.
The good news for service providers is that the value of their own services is rising. In 2014, no teleport operators reported being able to raise prices for the core value-added teleport services they provide, though 61% reported level pricing. In 2018, 56% reported no change in pricing but 13% reported being able to increase prices.
Hottest Markets
The top operators saw their volume of business increase most in the enterprise markets of retail, maritime and other an average of 39%, equivalent to the previous years results. In 2017, 37% of respondents reported doing an increased volume of business with both terrestrial and satellite carriers. In 2018, those categories sharply diverged. Only 10% of respondents did an increasing amount of business with satellite operators, while 40% increased their business with terrestrial carriers.
The other major change from year to year was for the media sector. In 2017, 50% of respondents reported an increase in the business they did with the media & entertainment sector; in 2018, that fell by more than half to just 21%.
The Value of Managed Services
These trends are broadly in line with the global changes running through the satellite business, as an enormous increase in bandwidth on orbit is depressing prices but also increasing volumes as customers take advantage of more affordable service. For most satellite operators, these are challenging times, as they try to build more lower-price data network revenue while video revenue declines in most markets.
Service providers on the ground have much less exposure to capacity price swings, because the margins they can charge on capacity are slim. The winds of change, however, still blow cold. Driven by changes in their markets, satellite operators are moving into the complex managed services business that they have long left to teleport operators.
In another recent study, Satellite Operator Benchmarks 2019, WTA asked teleport executives to rate the commercial practices and operational performance of the satellite operators they buy from. Our sample of 80 executives, responsible for 34GHz of capacity purchases, reveals that they are seeing increasing direct competition for managed services business from their satellite vendors. Five of nine satellite operators covered by the study were cited as competing directly more often in 2019 than in 2015. That competition was seen as increasingly unfair, as satellite operators bundle their capacity with the services on which teleport operators depend for most of their profits. Ratings in this area were the most negative in the nine years of the study.
As the report summarises: Satellite operators have seen the future, and it is in managed services, particularly ones delivered across a global or at least large regional footprint.
This makes commercial sense, because the value of networks lies not in connectivity but in the ability of that connectivity to solve problems or create opportunities for customers. Most teleport operators made this transition long ago, as the margins available from basic uplinking shrank to the vanishing point. With their satellite vendors now making the same move and ratcheting up the competitive pressure, teleports are in search of new efficiencies and new roles in the market.
The strategies for adaptation are detailed in the research reports that WTA publishes: on automation technology, 5G, cloud services, big data and LEO. They are pursuing new opportunities to serve as gateways for LEO smallsats, as superPOPs for aggregation and distribution of media, and as field service organisations for the demanding fields of maritime, energy and land mobile. They are buying satellite capacity in smaller increments and for shorter terms to preserve their flexibility. They are also relentlessly pursuing partnership with other companies including their satellite operators that transform them from stand-alone entities to links in global value chains.
The challenge is high and the competitive pressure fierce. But the opportunities are also on a larger scale than ever before.
Robert Bell is Executive Director of the World Teleport Association, the only trade association that focuses on the business of satellite communications from the ground up. Inside the Top Operators and Satellite Operator Benchmarks 2019 are available free to members and for sale to non-members at www.worldteleport.org.
