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Space Intel Report: Russia in the middle: Satellite operator RSCC likes GEO, wants HEO and talks to both Viasat & Eutelsat

AMSTERDAM — Russian Satellite Communications Co. (RSCC) is Russia’s principal satellite operator, but it has been a quiet bystander as the satcom world argues over LEO and MEO constellations, the size of the in-flight-connectivity business and whether GEO networks are on a glide path to irrelevance.

At least, that’s the view from a distance. On closer look, RSCC is looking for Russian government and foreign support for a government/commercial HEO system to serve both Russia and the Arctic region, and talking with Eutelsat and Viasat about Ka-band potential in Russia. RSCC says it provided “a shoulder to cry on” for both Eutelsat and Viasat after their recent Ka-band divorce.

The company says its revenue appears stable and that it is prepared to compete in Russia with LEO broadband constellations just as it has with GEO operators with landing rights in Russia.

RSCC’s Ksenia Drozdova, deputy director general for business development; and Evgeny V. Buydinov, deputy director general for development and operation of communication systems, outlined RSCC’s position at the recent IBC conference here.

What’s your view of the LEO vs GEO debate in the industry?

Drozdova: We are certainly looking at the strategies our competitors are picking up as they try to adjust in the face of technological change.

No satellite operator can ignore the obvious: The IoT market and IT technology market is about to explode and to witness millions of end users. The profit potential of this market is going to be obvious in the near future.

Every operator is trying to find its place under the sun to earn its share of the money associated with this market.

These kind of crazy things going on at the moment — it’s like a diamond dust thrown in the eyes of satellite operators. It’s attractive, shiny and new.

Operators are trying to use these new applications in cases where there is no other alternative. RSCC acts as the national satellite operator. We provide services where there is no other alternative — for example, when there is no fiber.

If there is no way to connect with fiber or with mobile devices, here it is exactly where RSCC could apply its satellite capacity to provide services to the end customers. So our focus is the mobile market, including in-flight connectivity. It is also maritime, and it may be sensors for big data transfers and IoT as well.

We are already providing services to 250 ships using our geostationary-orbit satellite capacity, plus eight ships used in the arctic region as icebreakers.

These are VSAT terminals using Ku-band?

Yes, we’ve always had these needs in many channels in order to provide an effective data transfer. Due to the huge Russian territory, in order to organize the federal communications network, we use Ku-band from two or three satellites.

Aside from services provided by GEO satellites, there are services that can be best provided using satellites in highly elliptical orbits. If we take the basic services provided with GEO plus value-added services on the highly elliptical orbit, we will be able to provide an integral system over Russian territory. Our first priority is Russian customers.

Buydinov: RSCC cannot allow itself to go into risky businesses. We apply a very careful strategy of providing the same services that we are already providing plus adding value-added services. We are staying on the safe side.

 

It is our firm belief that GEO satellites are the most efficient that one can imagine. Satellites in geostationary orbit are capable of operating 24/7 with no interruptions. We don’t have any constraints. Russian territory is huge, encompassing 11 time zones. We can’t provide just one unique solution. My department is  developing services to provide telecommunications to regions lacking communications due to the high latitudes that cannot be covered from geostationary orbit. For us, the priority is to bring the mobile communication to those regions which are lacking it. About 53% of all people living inside the Arctic Circle are Russians.

Drozdova: It’s approximately 4 million people. We cannot abandon them in the connected world. These 4 million people are there for the oil and gas industry. The priority is to target this audience as well.

Buydinov: The most efficient way to connect those 4 million people is from highly elliptical orbit. We are speaking about four satellites in a HEO fleet, in Ku-band. We need four, with two of them working simultaneously at any time.

Drozdova: Basically all those countries situated close to the polar region, including Canada, will be covered by this system. Broadcast radio communications is included in the services. Highly elliptical orbit is expected to bring additional services in addition to the GEO orbit.

What is the status of this program?

Buydinov: It is under discussion in the Russian government, because this will have a very specific legal form of a public-private partnership. We expect the project to meet performance targets set by government.

Drozdova: We are very optimistic on the outcome because in those ministries and those federal agencies in charge of RSCC, they have coordinated this project. So the last milestone is that the project is coordinated within the Russian government. We can say it’s settled, it’s decided.

There will be private investment too?

Buydinov: It’s both. It’s going to be public investments dedicated to the manufacture of satellites, and private investment and RSCC investment dedicated to the development of the ground infrastructure, which will include construction of the hub and the customer terminals.

Will capacity on this system be sold outside of Russia in other Arctic areas?

 

Drozdova: For countries with an interest in the Arctic region, the capacity could be sold to foreign customers. During a recent Arctic forum in Finland, the Express RV project was presented and many countries expressed a real interest in it — among them Finland and Germany.

The satellite broadband mega-constellations planning will need landing rights in big countries. What is the status in Russia?

Drozdova: This question is best addressed to Russian authorities, because when we need to get one or another license to use the frequencies, we apply to the same frequency authorization center. We need to go through the same procedures.

You’re asking how these companies are going to get the same authorizations, the same licenses and landing rights. The frequency authority in Russia comprises many different parts, many ministries. Even the ministry of transport is part of it. It’s a complicated, difficult system. We go through the same procedures when we need to get a license. It is the minister of telecommunications which acts on the top of this frequency committee, but if one or another part of this complicated body expresses reluctance to give the license, the minister is supposed to give a negative decision. The rules are applicable to RSCC like to any other global operator.

Global broadband LEO constellations will cover the Arctic as well as the equator. That changes things, no?

Drozdova: It’s the same type of competition which is going on right now. Express RF won’t be so different.

The reality is about 27 foreign operators are allowed to work in Russian territory and we sell more than 50% of the satellite capacity abroad. And when Express RV is in place, whether there is a global LEO constellation or not, this will be the same. In 2012 Russia joined the WTO and became a very open market.

But if you plan a project and then find lots of competition is coming, that won’t change the equation?

Drozdova: I’m not scared of competition. Let me explain: There are many companies that distribute water. But there is still a huge demand that will never disappear.

Competition moves us forward. Without it, we would never develop this company. For the last 12 months, there were about 600 MHz coming from our competitor telecommunications operators to RSCC fleet. I think it’s quite impressive.

600 MHz of capacity moved onto your fleet from competitors?

My point is that despite the competition, an impressive 600 MHz of capacity was gained by RSCC in the past year because we have favorable contract conditions. It’s very comfortable to work with us. Customers can leave the RSCC satellite any time they see conditions at another operator that are preferable than ours.

Please clarify that.

If you are using satellite capacity and you decide you don’t like something, you may terminate the contract and choose to go to another operator.

These are not have binding contracts that last a certain amount of time, and if customers want to leave early there’s a penalty?

There is no penalty. Russian Federal law applies here for Russian customers.

For foreign customers, it’s different, and it depends on each particular case and under which legal scheme it’s covered.

I didn’t mention the other conditions that make us favorable and more practical for Russian customers, and that is our technical support. There is also the cost, which is calculated in rubles, and rubles against the dollar — you know how it’s going right now. Lastly there is teleport availability. We have an extended system of teleports everywhere in Russia.

Buydinov: There are five teleports in Russia that belong to RSCC, and 72 Earth stations everywhere in Russia, and 192 people working under the technical support group for 24/7 support.

Many big fleet operators are struggling to maintain revenue. How was RSCC’s revenue in 2017?

Drozdova: In rubles, it’s been a positive trend. We have a gain. The problem is that the exchange rate leaves it looking like zero despite the positive ruble trend, We reported around $196 million in revenue, of which 50% was in Russia and the CIS countries.

In fact, 50% is very good because lots of customers are using compression equipment. We could say 50% CIS is equal to 80% of users. We calculated that Russian customers using capacity on a foreign satellite operator total 1,000 MHz. This does not include Gazprom or Eutelsat, which sells capacity through RSCC.

Eutelsat leases capacity from RSCC on one out of four satellites. And of these four satellites, two small-size satellites Express medium-size satellites, Express 1 and 2. The other two satellites, a common project between us, are Express AMU1 and Eutelsat W7.

How does 2018 look so far for revenue, in rubles?

Drozdova: We expect an increase.

Why?

Because we have two satellites in very comfortable position — Express AM8 at 11 degrees west and Express AM7 at 40 degrees east. With Express AM8, we’ve got coverage of Latin America and we are working very closely with customers there.

Lots of competition in Latin America now.

We know the competition in Latin America is very high, with Eutelsat there, among others. But Express AM8 can put such a configuration that enables us crosslinks between Latin America and Europe, and Latin America and Africa. That makes the satellite valuable compared to others.

Speaking of broadcasting and terminals, we use in fact the equipment which is acquired from one of the foreign companies.We use equipment from HughesGilat and iDirect. The stumbling block is there are some difficulties in acquiring this equipment…

What difficulties?

The cost of the terminal equipment. Sales were going up and there has been a real interest in these sorts of services. We were quite happy about that, but then the exchange rate became quite unfavorable, especially during the last months, we realized that the figures are not that good.

You mentioned aeronautical and in-flight connectivity. Who are you working with on that?

Drozdova: There was an interest from Panasonic and Gogo, and from Viasat in Ka-band. We are open to discussions with companies that come to RSCC to lease capacity. It’s not a real business for us at the moment. The real business for us in mobile applications is maritime.

Is IFC going to be a big deal for RSCC?

It’s difficult to calculate the real demand and so it’s very difficult to predict.

Some satellite operators are looking at IFC as a large new market.

Drozdova: For us it’s not a panacea, not a salvation. For us it may be value-added services.

Buydinov: If Express RV is in place we could also capture some demand because there is aircraft transportation through the North Pole.

Is maritime a big piece of  your business now?

Buydinov: It’s 10 percent of the VSAT revenue of roughly 1 billion rubles.

Few companies provide VSAT to the Far North. Everything that goes above the Baltic Sea to the north pole and to those northern regions it is covered by RSCC VSAT. That’s one of our competitive advantages. We also provide maritime in the southern regions, including cruise ships.

A system developed by RSCC called RSCC VSAT Maritime System is used for roaming on three different RSCC satellites and three teleports in Russia. With this maritime VSAT system we set a record for data-transfer. We managed to detect the satellite through an angle equal to 1.2 degrees. It’s 1.2 degree angle for the antenna installed on the ship. It’s an auto tracking system. We also connected to the farthest station in the north, the big station at 82 degrees. At 82 degrees north, for the fixed antenna, the angle is practically zero. We are proud of this.

You had big ambitions in consumer broadband. Where are you now?

Drozdova: Currently in Ka-band we’ve got 10,000 terminals in service, with 25,000 end users including collective units where 10-15 people use one terminal. We had expected that in 2018 we would have approximately 100,000 end users. It turned out to be less. So we try to do less forecasting.

Consumer satellite broadband providers had difficulties in early deployment in the United States and Europe, too.

Drozdova: We have no choice but to believe in this market, given the size of Russia and the the conditions of living in Russia. In areas of permanent frost, there is no way to develop fiber. Satellite communication may be the only way to provide communication to people. So for us it’s not a matter of belief, it’s a matter of necessity.

We operate in a different way compared to Viasat and Hughes because we work closely with one provider in Russia, Rostelecom, which is a fiber provider. But if this provider cannot serve the permafrost area, they come to RSCC and buy satellite capacity.

There are no plans for a dedicated broadband satellite?

Drozdova: RSCC satellites are profitable because we use different bands on them —  Ku- and C-band, and some Ka-band. We do not have satellites with just Ka-band. We play on variation, on different functionalities.

We do not intend to sell Ka-band capacity outside Russia. Our Ka-band beams now are focused specifically in Russian territory.

Does the Russian government offer financial incentives to deploy broadband capacity to the Russian Far East or north?

In the Far East, we provide Ka-band capacity. The demand for Ka-band there is very high. There is no specific order necessary to be given to RSCC because we’ve already investigated the market, we’ve seen there is the need for the capacity in that region and we’ve started to work on that.

There is a debate on whether a satellite broadband seller like you can depend on a telco like Rostelecom to market your service correctly.

Drozdova: I totally agree. Viasat has developed its own way to provide services without any other third party or communications provider that does not care about Viasat’s business.

But Viasat works in the United States. We work in Russia and we have to comply with certain Russian rules. Among them: A document issued by Rostelecom specifying access conditions to telecommunications services.

What is the average fill rate on your fleet?

Drozdova: 70%. We know that with the same amount of capacity taken, 70%, the price of the capacity is going down because of the exchange rates. So a MHz turns out to be cheaper than it used to be.

That’s a worldwide phenomenon.

Drozdova: Yes, it’s a world phenomenon. But we take care of our customers. And even if the price is dropping, we try to stay with the customers because we are loyal, even with the price going down.

Viasat is building two monster satellites — the first over the Americas, the second for EMEA and a third planned for the Asia-Pacific. It’s looking for partners. You’re an Asian operator…

Drozdova: We’re also in Europe.

Could you partner with Viasat on a Ka-band broadband business?

Drozdova: RSCC and Viasat have been negotiating these issues. It’s not yet settled. We like the Viasat approach. We find these two monster satellites quite attractive. We like the management of Viasat, and currently we are considering the possibilities. They are very creative people, very enthusiastic about technical solutions at Viasat.

But it’s no secret that the Russian legal system slightly complicates Viasat’s enthusiasm.

You worked out a deal with Eutelsat some years ago, so it’s possible.

Drozdova: RSCC and Eutelsat have had close relations for 30 years. The relationship ensures that Eutelsat understands the Russian system, adapts to it and is ready to invest when they need to invest — in development, ground infrastructure, or other aspects of the business.

As we started to negotiate these issues with Viasat, it turned out they are not ready to invest in the development of the ground infrastructure, to adapt to the requirements of the Russian legal system, including the frequency-coordination and assignment system.

And each time we send them feedback about the potential development of these coordinates, they tend to get quiet or start wondering about whether they can do it.

You know what happened between Viasat and Eutelsat. They announced a broadband marriage in EMEA, then they called it off.

Drozdova: We played the part of the shoulder to cry on.

For Eutelsat or Viasat?

Drozdova: For both.

Ka-Sat has been a struggle for Eutelsat.

Drozdova: Well, that’s a difficult story.

There is an academic discipline called multicultural management. We try to stay objective and estimate what is going to be the best for RSCC in the multicultural environment.

We are trying to adapt our strategy because we expect that in the near future RSCC will have to act in the middle.

We are somewhere between Europe and America. Taking into account the IFC business, the development of other sectors, and our geography, RSCC’s destiny is to be in the middle deciding these sort of questions, either from the technical point of view, or satellite capacity availability and strategic management. This is how I see our role.

That may be true.

Drozdova: That might indeed be true — in the middle because when we try to adopt what Viasat is enthusiastically trying to apply in their business, it’s not an easy job for us. We try to tailor the technical design, to adapt to their specifications for the satellite for one or another application which might be used.

We also try to adapt the performance of one or another RSCC satellite as well, to develop them to invest in the ground infrastructure, to calculate the amounts of the investments in the ground infrastructure. We try to take into account their model of business development as well. It’s not easy.

By Peter B. de Selding @ Space Intel Report

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