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September 13, 2016

Satellite Industry in Transition

VSAT 2016

Christopher Baugh

President

NSR

Industry Benchmark

Where Are We Now?

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The Satellite Industry Today- What Do We Know?

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800

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Gb

ps

Global Satellite Supply & Demand, 2006-2016Commercialized Supply (Gbps) Total Demand (Gbps)

Softening

of Gov & Mil Market

Demand

Glut of Capacity-

HTS Looming Large

Supply

Energy Market

Collapse

Demand

Service Provider &

Vertical Consolidation

Supply + Demand Brazil and

Russia Economic

Issues

Supply + Demand

And MORE…

2016 & Beyond

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Pricing recently has been flat to slightly negative, but these

forces are accelerating

Pricing pressures have not been felt equally across regions, but all regions have seen recent declines

4

Pricing Pressures Are Not New…But They Are Accelerating

$2,000

$2,500

$3,000

$3,500

$4,000

2010 2011 2012 2013 2014 2015

US

D p

er

MH

z

C-band Data Pricing by Region, 2010-2015

NAM LAM WEU CEEU MEA APAC

$2,000

$2,500

$3,000

$3,500

$4,000

2010 2011 2012 2013 2014 2015

US

D p

er

MH

z

Ku-band Data Pricing by Region, 2010-2015

NAM LAM WEU CEEU MEA APAC

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FSS Has Seen Peak Growth

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2006 2008 2010 2012 2014

Millio

ns

of R

ep

ort

ing

Cu

rre

ncy

Top-Line Revenues by FSS Operators, 2006-2015

5

• Top-Line revenue growth has leveled off

• Current business model running out of steam in face of Moore’s Law

• Downward pressure on data is greater than upward growth for video in developing world

• Developing world sees stronger demand for video, but also more acute pricing pressures for data

Others

Intelsat

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“Big Four” EBITDA Margins

Telco Players EBITDA Margins

And What’s the Impact on Bottom Line?

10%

20%

30%

40%

50%

60%

70%

80%

2011 2012 2013 2014 2015

EB

ITD

A M

arg

in

EBITDA Margin by Telcos & Big Four, 2011-2015

AT&T BT Deutsche Telekom Telefonica T-Mobile USA Vodafone Verizon Big Four

6

Telco business model is…

• High CAPEX

• High data throughput

• Relatively high OPEX due to distribution network

Satellite has remained

“special”.

This will change to some

extent, and EBITDAs will

fall because of evolving

business models

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• Launch failures notwithstanding, how many companies have been acquired, or are known acquisition targets today?

• AND what are the ramifications?

7

The Trend of Consolidation

Looking Forward

What Does Data Say About Tomorrow?

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What Will Supply Look Like Moving Forward?

9

Overall capacity to increase by ~4X in GEO

Majority is lower-cost GEO-HTS capacity,

needing new applications to soak up supply, or lead to a ”sky

falling scenario.”

Non-GEO HTS > 50% of total capacity by 2025

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2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Gb

ps

Global Capacity by Type, 2015-2025 (Gbps)

C-band Ku-band Ka-band GEO-HTS C-band GEO-HTS Ku-band GEO-HTS Ka-band Non GEO-HTS

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About the ABC’s For Growth: Aero, Backhaul, Consumer Broadband

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2015 2017 2019 2021 2023 2025

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Satellite Capacity Demand by Application (Excl. Broadband), 2015-2025

Video FSS/HTS Mobility FSS Data HTS Data

10

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2015 2017 2019 2021 2023 2025

US

$ B

illio

ns

Satellite Capacity Revenues by Application (Excl. Broadband), 2015-2025

Video FSS/HTS Mobility FSS Data HTS Data

22x Increase in HTS

Demand Yields….

4x Increase in HTS Revenues….

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And Prices Drop and Converge

27

• Large price drops for FSS, and more generally, pricing convergence

• But this need not be the end of the world

• Cost per Gbps to orbit dropping as fast or faster than capacity pricing

• And thus lower prices need not equal lower cash flows

$0

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$3,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

US

D

Average Cost per Mbps per Month by Application

FSS Enterprise Data HTS Enterprise Data

FSS Commercial Mobility HTS Commercial Mobility

$1

$10

$100

$1,000

1990 1995 2000 2005 2010 2015 2020 2025

Co

st

pe

r G

bp

s i

n-O

rbit

, $

M

Launch Year

Evolution of Cost per Gbps in Orbit

Traditional FSS Hybrid FSS-HTS HTS

Source: NSR

Looking Forward

So, Where Do We Go From Here?

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Where Do We Go From Here?

Generate $M

Make Mbps

Sell MHz

13

Service

Providers

SATCOM v1.0 Model

Yesterday: The SATCOM v1.0 Model

• Largely an FSS-centric Industry, everyone has their own ‘gears’

• Satellite Operators sell MHz to generate Revenues

• Service Providers sell Mbps to generate Revenues

• Video is Dominant

• High CAPEX, Low OPEX

End-Users Think:

“Do I Really Have to Use Satellite?”

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Where Do We Go From Here?

14

Generate $M

Make Value

Sell Mbps

Service

Providers

SATCOM v2.0

Tomorrow: The SATCOM v2.0 Model

• Only the Best/Good (And likely Cheapest) survive

• Satellite Operators sell Mbps to generate Revenues

• Service Providers sell Value to generate Revenues

• Infrastructure is Marginalized

• Hardware is commoditized

End-Users Think:

“Satellite… You Sure it’s Satellite?”

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Answering the Elasticity Question

15

Elasticity will depend on the Market AND the Specific End-user – No “One Curve Fits All”

Does Lower Pricing =

More/New Demand ?

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Someone Needs to Build It:

• Ground equipment yet to see revolutionary progress

• We are seeing more bits per hertz and lower prices, but not of the same magnitude as we have seen in the sky with FSS to HTS

• What happens when we do? Does 5 bits per hertz = a huge addressable market, or does it spell a plummet in cost paid per MHz?

16

What About Ground-Segment Markets?

2015-2025 Ground Equipment Revenue

Growth by Segment

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Going Flatter Key to Getting Bigger?

17

0

3,000

6,000

9,000

12,000

15,000

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Sh

ipp

ed

Un

its

Global Flat Panel Antennas- Shipped Units by Vertical Market - Mobility

Aero Commercial Maritime Commercial Land Commercial Land Govt.

Source : NSR

Go Light, Go Flat- The need for COTM without

slowing down troops.

Flying Out?- $391M in revenues expected

by 2025.

Sailing Away on the Oceans- The maritime industry a profitable

launchpad for electronically steered

flat panels.

Once Bitten, Twice Shy?- The commercial land-mobile market

has the potential to drive FPAs.

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Bottom Line18

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Bottom Line

19

Welcome to the data-centric telco world!

All about the ABC’s and the 3-C’s: Aero, Backhaul, Consumer optimized by Cost,

Coverage, Capacity

Be early to market with GEO-HTS

Build out distribution chain to allow for one-

stop-shop business model

Invest in new ground equipment to get

more bits per hertz, cheaper customer TCO,

etc.

Get closer to the customer and reduce

friction

Northern Sky Research, LLCOne Mifflin Place, Suite 400

Cambridge, MA 02138

www.NSR.com@NSR_SATCOM

info@nsr.com+1 617 674-7743