RSCC enters the glogal sector. SatelliteFinance, Issue 91 May 12 2006

15.05 : 2006

SatelliteFinance
Issue 91 May 12 2006

RSCC is rapidly growing its international business. The global interest could be a driver for RSCC's aggressive launch plan, which includes lofting 15 satellites into orbit by 2015. RSCC plans to hang onto its Eutelsat shares as it believes selling them would only achieve a short-term result. RSCC duputy director general Igor Zabolotny said: "We take part in the Board of Directors and can discuss the issues of business development and cooperation. The dividend policy of Eutelsat suits us and we have no plan to sell shares in the near future."

RSCC's chips are up

With an aggresive schedule to launch 15 satellites by the end of 2015, SatelliteFinance's Nikki Preston asks Igor Zabolotny, RSCC's deputy director general and business development director, about the company's ambitious plans, and finds out how it has gone from being a national operator to a global player.

NP:How did RSCC perform during 2005?

IZ: The last year was rich in developments for the company. First of all, the most important event was that all five Express-AM series satellites successfully delivered into orbit in the period from 2003 till 2005 featured very good operational performances and, as a result, they were very quickly loaded. Our strategy,  that provides for a forming a backlog of orders for every spacecraft with taking into account a fundamental market analysis minimum two years before the launch, has fully justified.  This policy has ensured a minimum 40- percent fill rate for each satellite when taking it into service.  For example, in 2001 RSCC had 45 operable transponders on 10 satellites. In December 2005 RSCC offered in the market 255.6 transponders in C-, Ku- and L-bands equivalent to 36 MHz with the fill rate of 50 percent.  During 2005 we sold additionally 46 equivalent transponders. The financial result of this activity was an increase of the service sale proceeds by 56 percent, compared to 2004.

NP: What areas of RSCC's business have shown  the most rapid growth over 2005?

IZ: RSCC is traditionally an operator that renders satellite capacities to partner companies for developing business applications. The main business of our company in 2005 was focused on establishing satellite communications channels. It is worth noting that according to our predictions in 2005 the demand for satellite capacities for Russian state and regional TV channels increased significantly. Some 24 % of RSCC satellite capacity was allocated to this type of service.
In addition, several new TV companies providing DTH services were founded last year. NTV+ expanded its business at the end of 2005 into the eastern part of Russia via the Bonum-1 satellite. Taking into account the information on the advertising market development in the country, the volume of which is estimated to be of about US$12 bn, we have every reason to consider the commercial TV development as a basis for the satellite operator business growth.

NP: How do you plan to expand the organisation and will you be targeting any new markets?

IZ: The trends in developing the satellite business in Russia differ to some extent from trends in  the Americas or European Union, which are markets  saturated with services. In terms of money, the Russian market structure consists of 35 % of services for TV & Radio broadcasting, 30 % of revenues from corporate customers and communications network operators, 20 % internet access, and about 15 % are revenues from other types of services.

The level of supplying the population with communications services in Russia is sufficiently low compared to other developed countries. Over the next five years, together with development of traditional communications services, including those in remote and out-of-the-way places, the demand for satellite capacities for the development of DTH television and radio services will essentially increase and a basis for developing HDTV will be created. In addition the usage of  satellite broadband will increase by 35 % to 40 %.

NP: What are RSCC’s biggest markets at present?

IZ: Until 2005, RSCC acted as Russia's national  operator. However, by operating the Express-AM series satellites and planning development of the constellation untill 2015, we have  become a global satellite communications operator. Today, our satellites located at 14 West to 145 East practically cover the globe. Variations in the RSCC customer base confirm this trend - in 2001 only 2.1 % of our satellites were leased by foreign users, compared to 34.8 % at the end of 2005.

NP: Does RSCC have plans for a joint venture or closer cooperation with Russian or non-Russian organisations over the next year?

IZ: As to the development strategy of the company, it is worth noting that, first of all, we are going to continue achieving our ambitious plans to create an advanced spacecraft fleet. In the context of the Federal Space Program of Russia, 15 more spacecraft are to be manufactured and launched between 2006 and 2015. RSCC is also involved in a number of so called “partnership programmes” with a number of satellite communications operators.

Unfortunately the status of a federal state unitary enterprise does not allow us to set up joint ventures on our own, but we are prepared as you mentioned to actively develop cooperation with both Russian and foreign companies. The first steps in this direction have already been made through our cooperation with companies including Intersputnik, Gaskom, Eutelsat, Chinasat and Telkom. 

NP: What is the nature of your relationship with Eutelsat?

IZ: The cooperation between RSCC and Eutelsat has a long history and started in 1997 when we won the tender for construction of the Eutelsat satellite control station on the territory of our teleport  - the Dubna space communications center - as well as for the provision of Eutelsat satellite telemetry, tracking and control services. Since 2001 our cooperation has expanded.  At present, we cooperate with Eutelsat in leasing capacity on Express-AM22 satellite – the first spacecraft of the new Express-AM series. In addition, as I already mentioned, we are working out possible versions of cooperation aimed at joining our marketing efforts when entering new markets. There is no doubt we are planning to continue our co-operation with Eutelsat.

NP: Out of the Eutelsat’s medium-sized legacy shareholders, only RSCC and Belgacom are yet to sell up, do you expect to do this soon?

IZ: The asset sale, in this case Eutelsat’s assets, is aimed at achieving a sole and short-term result –  renunciation of shareholder structure with a maximum profit. We trust that such a result cannot be an end in itself. We currently take part in the Board of Directors activity and, as a medium-size legal shareholder, can discuss the issues of business development and cooperation between the companies at the highest level. For the time being the dividend policy of Eutelsat suits us and we have no plans to sell shares in the near future.

NP: What as happened as a result of the Express AM-11 failure?

IZ: The satellite failure was a serious ordeal to us, but nevertheless we operatively activated the backup schemes of our communications establishment. First of all we restored the federal TV and Radio broadcasting over the territory of the Far East and Siberia. After this, we provided upon agreement with the customers transferring the channels onto other satellites – Express-A No2 (103 East) and Express-AM3 (140 East). RSCC's contingency plan of backing data flows enabled us to effectively reduce negative consequences. 

NP:  Do you have any plans to launch new satellites and issue any RfP?

IZ: We are completing specifications and defining the financing schemes for the Express-AM33 and Express-AM44 satellites, scheduled to be launched before the end of 2007.

NP: How is your partnership with RSCC and PT Telekomunikasi progressing?

IZ: This is our first experience of cooperation in developing a telecommunications satellite for the South-East Asia. At present, we are working with  PT Telecommunikasi to define the main parameters of the satellite to render the most up-to-date multimedia services on the territory of Russia, Indonesia and the Pacific. We consider this region, especially the market of Indonesia, a very advanced one and in cooperation with our Indonesian partners will continue our activity in the region as a whole.

NP: Russia has been singled out as an important market for video. How will RSCC make the most of this market and how important is it at the moment?

IZ: In many respects owing to RSCC’ activity in promoting new services, the market of video services and interactive applications in Russia is entering the growth stage. As the state operator we will do our best to support this trend.

However, the main core of our business remains rendering satellite communications services. In doing so, the main additional line of development is providing the client with complex services using the most advanced software and hardware for signal transmission and service creation. For example, we actively promote establishing DVB-S IPTV standard networks with a TV programme package and internet access in order to implement the so called 'box solution' on the retail market, or the satellite DTH broadcasting to stationary or mobile objects. We also think that in the near future the problems of establishing digital TV broadcasting on national basis will be solved at the administrative level. It is clear that we will take part in solving these problems and we expect demand for our services to grow as we implement this large project.