EXECUTIVE SUMMARY

The video markets, in terms of contribution, distribution and DTH services, have remained the bread-and-butter of the satellite industry and are expected to continue to remain so for the foreseeable future. Developments in HDTV, video-on-demand (VOD), and interactivity are expected to drive revenue streams as well as add to capacity demand for transponder usage to support these services.

Internet Protocol (IP) is also fast becoming the standard by which telecommunications services are being implemented. The world of IP is beginning to be preferred for data as well as voice services, and is now beginning to emerge in video services as well. Even the U.S. Military that prefers proprietary platforms for security considerations has increasingly incorporated IP due to the many benefits it brings.

In recent years, a new technology platform has emerged, which marries the growing preference for IP and the compelling business case for video. IPTV (Internet Protocol Television) is an emerging and potentially lucrative service model in the pay-TV market, which could change the pay-TV industry over the long term. As a likely competing platform to DTH and cable-TV services, IPTV is being touted as a revolutionary delivery system that can incorporate interactivity and other value-added applications on top of an existing broadband IP platform. As a disruptive technology that could with time transform TV viewing or the entire video industry, the giants in the telecommunications and IT industry are all developing solutions and spending billions of research and infrastructure dollars to enable IPTV.

Telecom industry heavyweights Microsoft and Cisco are among the companies that see IPTV as a tremendous opportunity for future revenue growth in terms of telco investment in this platform. Technology development backed by many forward-looking companies in the industry may lead not only to IPTV services being at par with DTH and cable TV services, but with time could prove to be superior to current pay-TV offerings due to unique feature sets the platform offers.

Some market professionals forecast that by 2007, there will be more than 200 million digital TV homes subscribers with 25% global market penetration. Worldwide subscribers to cable VOD services will increase from approximately 5 million at the end of 2003 to almost 14 million in 2007. Broadband penetration in the United States and Europe will grow from 25 million in 2002 to 290 million in 2008. These positive trends have led IPTV market forecasters to predict that by 2010, global IPTV subscribers will pass the 20 million mark, generating revenues of $17 billion.

Satellite technology’s ability to provide cost-effective broadcast services can be positioned as a natural broadcast enabler and would seem a perfect fit to distribute and deliver TV programming to IPTV providers. Satellite capacity providers can act as “headends-in-the-sky” and become an infrastructure core component in enabling IPTV services. Satellite-based service providers can likewise generate retail revenues through revenue-sharing arrangements with content providers and IPTV service providers. Indeed, NSR believes that a service model dubbed “Content Aggregator Service Provider” will generate attractive revenue streams that the satellite industry can support in the IPTV value chain.

However, despite an apparent opportunity for satellites to enable IPTV on a global scale, true demand and opportunity for satellite-delivered IPTV is not entirely clear at this early stage. Many questions remain regarding the precise demand for satellite broadcasting in a fiber and copper-centric telco environment, particularly in the United States, and if IPTV as a whole will ever become a mainstream pay-TV application.

With the assumption that technology developers will indeed deliver a superior IPTV experience to consumers making IPTV a compelling and highly competitive platform against cable TV and DTH services, NSR foresees a healthy, albeit niche, market proposition for IPTV via satellite. NSR expects the IPTV via satellite market to reach over $500 million in 2010 from over $50 million in 2005. This 10-fold increase is largely due to revenue-sharing arrangements between satellite-based service providers with content providers for the provision of IPTV services to households worldwide. If the market forecasters are correct in estimating overall IPTV services to reach $17 billion by 2010, the satellite industry based on NSR’s estimation would represent 3% of the overall market.

Exhibit 1.1 Global Transponder Demand for IPTV via Satellite Services

In this early stage of the market cycle, extensive analysis on the potential of IPTV via satellite in terms of market and technology trends and the role that the satellite industry can play in the emerging IPTV industry has to be undertaken. Quantifying satellite capacity demand and revenue streams for different service models that various players in the satellite industry can target, will help determine whether investments in infrastructure, human resource and engineering capabilities, and development of core competencies required in developing a high-quality IPTV offering can be recouped within a reasonable time frame.

The most important conclusion in this market study is that the greatest opportunities over the long term rest not so much in the service provision of IPTV, but in gaining a revenue slice from the owners of content. Market players that secure content rights for distribution and negotiate a percentage share of the consumers’ ARPU should garner sustainable and growing revenue streams over time.