Transcript Satcomms A (autumn 2002) Part 4

EEM.scmA
Satellite Communications A
Part 5
The Satellite Business, financing
& planning
-Professor Barry G Evans-
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.1
Contents
1.
2.
3.
4.
5.
The players and the business
Financial elements of the business
Costs and finance –PVC and IRR methods
Funding and risk assessment
Business planning
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.2
The satellite business
1. The players and the business
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.3
(1) Elements of the business
• Manufacturing/engineering –space, ground,
networks
• Launchers –US, European, Chinese, Japanese
• Marketing and sales
• Operations of satellites
• Service provision and billing
• Operation and maintenance ground segment
• R&D
• Regulatory, legal and institutional
• Consultancy –coordination, tenders, etc.
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.4
(1)Size of the business
•
•
•
•
•
•
180 international operators of satellites
3-4000 transponders in Geo
Global market $200B (2000)
Satellite industry revenues $83B
Satellite service revenues $37B
Revenues will go from $100B in 2001 to
$300B in 2010
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.5
(1) The big players
• Manufacturers
–
–
–
–
–
Boeing (incl. Hughes)
Lockheed Martin
Loral
Astrium (MMS/DASA)
Alcatel space (Alcatel/Thales/Dassault/Aerospatiale)
• Operators
–
–
–
–
–
Intelsat + New Skies
Inmarsat
Eutelsat
Panamsat
Astra Global
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.6
(1) The big players (cont’d)
• Launchers
– Boeing
– ILS
– Arianspace
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.7
(1) Strategic partners
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.8
(1) Does it make money?
Return or Capital
%
1995 revenue
$M
Intelsat
17
805
Eutelsat
15
67
Inmarsat
24
340
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.9
(1) AsiaSat earnings model 1996-1999
Revenues HK$ million
AsiaSat 1
1996
318
1997e
341
AsiaSat 2
436
AsiaSat 3
AsiaSat 4
1998e
1999e
39
41
585
668
711
0
0
544
581
0
0
0
0
70
31
10
3
Total revenues
824
957
1,261
1,336
Cost of services
43
46
49
53
261
277
391
328
Selling, general and administration
69
71
74
78
Insurance premiums
39
39
70
70
Total costs
412
433
584
529
EBITDA
673
802
1,068
1,134
Pre tax profit
399
473
588
716
Net profit
395
464
576
702
Deferred Revenues
Depreciation and amortizations
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.10
(1) Where does it make money?
• FSS Systems
– IP provision (30-40%)
– TV distribution
• DTH/DBS
– Eutelsat/Astra Europe (80% European digital TV
delivered by satellite)
– DirecTV/Echostar in USA (43% digital services and
growing)
• Mobile
– Inmarsat –only 200,00 customers- niche market but
successful
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.11
(1)
• Where didn’t it make money
– Big LEO’s
• Constellation cost $3-10B
• (Iridium/Globalstar/ICO)
– Little LEO’s
• Orbcom (<$1B)
• Will it make money?
– Geomobiles
• ? Aces/Thoraya $1B
– Multicast/broadcast
• ? DMB services
– Broadband
• Spaceway }
• Skybridge }
• Euroskyway }
Autumn2004 © University of Surrey
$1-10B?
SatComms A - part 5 - B G Evans
5.12
The satellite business
2. Financial elements of the
business
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.13
(2) Business plans
•
•
•
•
Conditional on funding
Costs and revenues over time
Likelihood of making a profit
Assumptions and sensitivities
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.14
(2) Costs
• Setting up system
– Preparation of business plan, co-ordination, regulations,
clearances and licenses
– Design, spec, build satellites
– Launch and insurance
– Design, spec, earth-segment
– Installation earth-segment
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.15
(2)
• Operating system
–
–
–
–
–
TT&C and operations staff
Maintenance satellite/earth-segment
Billing
Planning
R&D
• Factors
– Lifetime 10-15 years
– Number of transponders
– Satellite coverage/position
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.16
(2) Revenues
•
•
•
•
Type of traffic required by market
How well use transponders
How well placed satellites w.r.t. market
Tariffs w.r.t. competition
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.17
(2)
• Example
–
–
–
–
–
–
Typical satellite
Launch cost
Insurance
TT&C
Expenses
TOTAL
Autumn2004 © University of Surrey
85 US$M
85 US$M
20 US$M
5 US$M
5 US$M
205 US$M
SatComms A - part 5 - B G Evans
5.18
(2)
• Example (cont’d)
–
–
–
–
Satellite has 30 transponders
Revenues $1-2M per year
Seems reasonable that over 10 year life will make a profit
Costs are up-front; revenues are down-stream.
How can we take account of time values of costs and
revenues (money)?
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.19
(2) Satellite project timescale
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.20
(2) Costs and finance
• Capital cost
– Satellites
– Launch vehicles
– Ground segment
• Operating expenses
–
–
–
–
Transponder capacity
People
Marketing
Depreciation
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.21
(2) Billions out – billions in?
1000
800
600
400
$M
200
0
-200
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
-400
-600
-800
-1000
Year
Capital
Autumn2004 © University of Surrey
Op Ex
Income
SatComms A - part 5 - B G Evans
5.22
(2) Satellite capacity
• Most projects will not need to procure satellites or
launches
• Instead they will lease capacity from existing
satellite operators
• You can either negotiate directly with satellite
operators
• Or you can utilise one of the new ‘electronic trading
floors’ for example….
– http://www.e-sax.com (the London Satellite Exchange)
– http://www.satcap.com (SatCap)
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.23
(2) Transponder prices
• Transponder prices are variable and have been
falling recently
• Europe Ku-band: ~US$7000/MHz/month
– I.e. ~ US$3M per annum per 36MHz
• Africa C-band: ~US$4700/MHz/month
– I.e. ~ US$2M per annum per 36MHz
• This probably represents the high end of the market
and there will be discounts for bulk and commitment
• There will be much cheaper options!
– E.g. Russian satellite capacity (<US$1M per annum??)
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.24
(2) Typical transponder lease charges
Asiasat-1
$2.0M per year
5 year lease with
annual increase
C band 36MHz
Asiasat-2
$2.5M per year
5 year lease with
annual increase
C band 36MHz
Asiasat-2
$4.0M per year
5 year lease with
annual increase
Ku band 36MHz
Intelsat 7
$1.2M per year
10 year lease non
preemptible
C band 36MHz
Hemi/Zone/Spot
Intelsat 7
$2.11M per year
10 year lease non
preemptible
C band Global
Intelsat 7
$1.51M per year
10 year lease non
preemptible
Ku band Spot
Eutelsat
ECU1.7M
6 month lease non
preemptible
Ku band 40MHz
Eutelsat
ECu960K
6 month lease non
preemptible
Inclined orbit
satellite
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.25
The satellite business
3. Costs and finance – the time
value of money
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.26
(3) Net present value (1)
• Or the Time Value of Money
• Would you rather I give you £100 today or in 5
years time?
• Would you rather pay me £100 today or in 5 years
time?
• Cash today has a higher value than cash tomorrow
• How to value a long-term project?
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.27
(3) Cost over time
•
•
•
•
Telecoms projects have long life times 10-20 years
Large investments up-front £1M-£B
Revenues down-stream over many years
Operating and equipment costs as well as
depreciation spread over life time of project
• Need to combine costs/revenues in a single plan
• Make decisions on whether to go ahead or which of
several methods to implement project
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.28
(3) Net present value (2)
• The cumulative cash value of a project may be
misleading
• “Discount” all income and expenditure back to the
‘present’ (conventionally ‘year zero’ defined as the
start of trading)
• The present value (PV) of each income and
expenditure allows a meaningful comparison to be
made
• NPV is the sum of all PVs of incomes and
expenditures.
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.29
(3) Compounding and discounting
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.30
(3) Discounted cash flow
• PV of sum in the future is subject to a discount rate
• E.g. in year n (£1is worth)
n
r=4%
8%
12%
16%
10
0.676
0.463
0.322
0.227
20
0.456
0.215
0.104
0.051
• Discounting allows cash in the future to be moved
backwards in time –discount rate
• Compounding allows cash now to be moved forwards in time
–interest rate
• Choice of the rate ‘r’ is crucial and will be a mix of
interest/inflation rates
• Projects sensitive to rate chosen –do sensitivity analysis
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.31
(3) Example 1
• What is the PV of £100 received in 5 years time if
the discount rate is 14%?
PVn 
Sn
1  r 
n
100

5
(1  0.14)
 51.94
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.32
(3) Net present value (3)
• Formula
– Present Value of a sum S received at the end of the year
n for a discount rate r is:
PVn 
Sn
1  r 
n
– Hence Net Present Value of a sequence of payments at
the end of each year 1 …N is:
NPV 
N
 1  r 
Sn
n 1
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
n
5.33
(3) Net present value (4)
• Often use “discounting tables” to find NPV
or use the Excel NPV() function!
R
a
t
e
(% )
10
11
12
13
14
15
16
17
18
Value in Year 0 of 1 unit in year:
4
5
6
7
8
9
0
1
2
3
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
0.91
0.90
0.89
0.88
0.88
0.87
0.86
0.85
0.85
0.83
0.81
0.80
0.78
0.77
0.76
0.74
0.73
0.72
0.75
0.73
0.71
0.69
0.67
0.66
0.64
0.62
0.61
Autumn2004 © University of Surrey
0.68
0.66
0.64
0.61
0.59
0.57
0.55
0.53
0.52
0.62
0.59
0.57
0.54
0.52
0.50
0.48
0.46
0.44
0.56
0.53
0.51
0.48
0.46
0.43
0.41
0.39
0.37
0.51
0.48
0.45
0.43
0.40
0.38
0.35
0.33
0.31
SatComms A - part 5 - B G Evans
0.47
0.43
0.40
0.38
0.35
0.33
0.31
0.28
0.27
0.42
0.39
0.36
0.33
0.31
0.28
0.26
0.24
0.23
10
11
12
13
0.39
0.35
0.32
0.29
0.27
0.25
0.23
0.21
0.19
0.35
0.32
0.29
0.26
0.2 4
0.21
0.20
0.18
0.16
0.32
0.29
0.26
0.23
0.21
0.19
0.17
0.15
0.14
0.29
0.26
0.23
0.20
0.18
0.16
0.15
0.13
0.12
5.34
(3) Net present value (5)
• Note that income and expenditure is assumed to
come at the end of each year
• If there is any cash flow at the start of the first year
(i.e. end of year 0) it is added in ‘undiscounted’
• Choice of discount rate is critical
– Dependant on risk
– Dependant on inflation/bank interest rate
– Traditionally satellite projects have looked for a 14%
return
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.35
(3) Cash flows related to base year
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.36
(3) Cash flow diagram
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.37
(3) Sensitivity analysis
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.38
(3) Costs and revenues
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.39
(3) Internal rate of return
• Allows comparisons of the financial return of
multiple projects
• The discount rate at which the NPV=0
• Only computable for a project in which there are
both incomes and expenditures
– Excel has an IRR() function which is much simpler to use
than trying to iteratively calculate NPVs using PV tables!
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.40
(3) Example 2
• I spend £500 today and then receive £110 at the
end of each of the next 5 years; the discount rate is
12%; do I make a profit?
• What is the IRR?
• From discount tables, PV multipliers for years 1 to 5
are 0.893, 0.797, 0.712, 0.636, 0.567
• NPV= 500+(0.893x110)+(0.797x110)+(0.712x110)+(0.636
x110)+(0.567x110)
=-103.45
• IRR=3.263% (using Excel!!)
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.41
(3) Comparison projects
•
•
•
•
•
Use Net Present Value (NPV)
Discount each item cost or revenue to base year
To be profitable NPV must be +VE
Project plan with largest NPV is most profitable
Also use ‘internal rate of return’ (IRR)
This is discount rate which makes the NPV=0
• Plan with largest IRR is the best
• IRR’s range 20-30% acceptable
• Also payback period is No. years to NPV=0
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.42
(3) Example of comparison using NPV
• Owning versus leasing
–
–
–
–
Costs with time (NPV or IRR)
Sensitivity to discount rate and traffic predictions
Security and availability
Politics
• Trade agreements
• Alignments
• Kudos
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.43
(3)
• Leasing versus purchase
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.44
(3) IRR applied to leased transponder
• Satellite transponder lease $2M per year
• Start-up costs $5M
• What revenue profile must be targeted to achieve
IRR of 20%?
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.45
(3) Example of use of IRR to evaluate
project
• VSAT network  Hub + 100VSAT’s
• Add 20vsats/year –up-front hub + infrastructure
Revenue
Revenue profile
Time
Hub
Costs
•
•
•
•
Sat retr..
VSATs+0.9M
Project
NPV and IRR (r’fn NPV=0)
IRR tells you how quickly pay back
Balance revenue profile with build up of VSATS to achieve IRR acceptable to financers
Note revenue in early years dictates IRR
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.46
(3) Exercise: Financing
•
A developing country wishes to provide telephone capacity over a 5 year period as follows:
•
The two options are:
–
–
•
(i) a dedicated satellite system (NEWSAT)
(ii) leasing capacity from INTELSAT
1
2
3
4
5
Circuits
2,411
5,125
7,840
10,550
13,270
15,984
Dedicated satellite (NEWSAT)
•
•
•
•
•
•
•
–
Transponder bandwidth
No. of transponders/satellites
Transponders are bandwidth limited
Satellite cost
Launch cost
Insurance cost
Operations cost
= 36MHz
= 24
= $150M/satellite
= $100M/satellite
= 25% of satellite + launch costs
= $1.2M per year
INTELSAT lease
•
•
•
•
0
The characteristics of the two options are as follows:
–
•
•
Year
Transponder bandwidth
No. of carriers supported/transp.
Annual lease charge
= 36MHz
= 280
= $1.5M
The communications are via SCPC carriers with 30kHz allocated bandwidth.
Assuming a financial discount rate of 14% as follows:
Determine which solution is to be preferred.
Autumn2004 © University of Surrey
Year
0
1
2
3
4
5
Value of
1 Unit
1
0.88
0.77
0.67
0.59
0.52
SatComms A - part 5 - B G Evans
5.47
The satellite business
4. Funding and risk assessment
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.48
(4) History of satellite financing
• Government established organisations
• Purpose was to provide public service obligations
• Each government chose a single local
telecom/satellite operator to invest
• Investment was made by signatories according to
usage, once established
• Example organisations are Inmarsat, Intelsat and
Eutelsat
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.49
(4) Funding
PanAmSat
Globalstar
ICO
Iridium
Consumers
Eutelsat
Government
Consortia
Number of
Customers
Intelsat
Research
Single
Government
Military
Sputnik
Tax
Autumn2004 © University of Surrey
Funding
SatComms A - part 5 - B G Evans
Market
5.50
(4) Inmarsat
Assembly of
parties
Council
Directorate
Autumn2004 © University of Surrey
• Inter governmental
organisation
84 governments
22 representative
signatories (of the
84 signatories)
Management of
Inmarsat’s
operations
– Established to provide GMDSS
– Operates as sole provider global
mobile communications (prior to
Iridium)
– Signatories invest in proportion to
usage of the system
– Signatories have unlimited liability
– Decisions are made on the basis
of signatory consensus
SatComms A - part 5 - B G Evans
5.51
(4) Need for restructuring
• The primary reasons for the restructuring of these
organisations are
– Need for investment
• Usage of system is not related to capacity to pay
– Need to move away from consensus management
• Owners manage business by consensus
– Political reasons
• Pressure to allow competition and open investment
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.52
(4) Inmarsat – post transition
• Unlisted public limited company
Shareholders
84 shareholders
IGO
Golden
share
New
Inmarsat
Autumn2004 © University of Surrey
– Public service obligations are
enforced by IGO through golden
share
– Managed by Board of Directors
– Shareholders have limited liability
– Corporate structure allows more
flexible investment and access to
capital markets
Board of Directors
SatComms A - part 5 - B G Evans
5.53
(4) Types of funding
• Equity
–
–
–
–
Shareholders
No profit = no return (dividend)
Higher risk
Costs more
• Debt
–
–
–
–
–
Banks and bonds
Lower risk
Cheaper
Risk related to level of Gearing
No profit = interest payments
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.54
(4) Types of capital
Typical annual return
Low risk
Debt
Quasi
debt/equity
Equity
Autumn2004 © University of Surrey
Bank debt/investment
grade bonds
LIBOR
High yield
LIBOR+5%+
Mezzanine financing
Interest coupon and equity option
Quoted equity
FTSE returns
Venture capital
30%+
Private/seed capital
50%+
SatComms A - part 5 - B G Evans
5.55
(4) Comparison of capital markets
finance
Equity
High yield
Mezzanine
Bank debt
Issue size
Effectively
unlimited
US$100-500m
Up to US$175m
Effectively
unlimited
Maturity
Perpetual
7-10 years
7-10 years
6-9 years
Coupon
Dividends
Fixed
Fixed
Floating
Covenants
None
Moderate
Restrictive
Restrictive
Security
n/a
Typically
unsecured
Secured
Secured
Early
redemption
features
n/a
After 5 years
(penalty)
At any time
(usually no
penalty)
At any time (at a
premium)
Principal
repayment
n/a
Bullet
Bullet
Amortisation or
bullet
Effect on
existing equity
Dilutive
None
May be dilutive
none
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.56
(4) Emergence of high yield
High yield debt insurance by year
4,700
5,000
(US$m)
4,000
3,000
2,000
1,000
– High coupon
– Improvement in credit rating
845
440
335
275
1993
1994
1995
0
Autumn2004 © University of Surrey
• High yield debt is a
classification for subinvestment grade bonds (i.e.
rated Ba1/BB+ and below
Moody’s and S&P)
• Investors in the high yield
market do so to achieve
returns in terms of
1996
1997
• Ideally suited for start up
companies that are
perceived as high risk and
wish to minimise dilution
SatComms A - part 5 - B G Evans
5.57
(4) Process of an Initial Public Offering
Analysis of
business plan
Publish
research
Bookbuilding
Autumn2004 © University of Surrey
Due diligence
Pre-marketing to
institutional investors
Pricing/deman
d allocation
Valuation
Issue
prospectus
Trading Day 1
SatComms A - part 5 - B G Evans
Develop
investment case
Roadshow
Stabilisation
“greenshoe”
5.58
(4) Typical satellite project – free cash flows
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.59
(4) Current market conditions
• Recent correction in equity markets has driven
investors towards quality earnings and strong
brands
• Investors have less appetite for companies with
negative earnings
• For future satellite financing to be successful,
investors will have to have made money with the
current projects
• Any further bad news will seriously jeopardise any
future MSS or broadbond satellite financing
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.60
(4) Satellite business risk
• Technical
• Financial
• Market
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.61
(4) Technical risk
• Identification
– Launch vehicle
– Satellite
– Ground segment
• Mitigation
– Early adopter vs. follower
– % of new technology
– Insurance
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.62
(4) Financial risk
• Identification
– Project timetable
• Overruns
• System definition to service introduction
– Budget overrun
– Sensitivity analysis
• Mitigation
– Risk sharing
• Joint ventures
– Experience
• People
• Strategy
• History of results
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.63
(4) Market risks
• Identification
–
–
–
–
Demand/supply and size of market
Market access
Delay to market
Competition
• Law of unintended consequences…
• “every action has an equal and unexpected reaction!”
– Take up rate
• Mitigation
– Market segmentation
– Conservatism
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.64
(4) Risk vs. reward
High
.com
Startup
?
Satellite
Project
Risk
?
Retail
Bank
Low
Autumn2004 © University of Surrey
Reward
SatComms A - part 5 - B G Evans
High
5.65
(4) Dealing with risk
• Be aware of it!
• Analyse
– Make a realistic assessment
– Sensitivity analysis
– SWOT analysis can help
• Manage
– Plan for contingencies
• Know when to say NO!
– Be prepared not to proceed with a project if the risks are
assessed as too great
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.66
The satellite business
5. The Business Plan
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.67
(5) Converting Ideas into
Businesses
Regulatory
Technical
Risks
Idea!
Planning
Finance
Market
Autumn2004 © University of Surrey
Environment
SatComms A - part 5 - B G Evans
5.68
(5) Business Planning Cycle
Strategic
Direction
Monitor &
Review
Business
Plan
Implementation
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.69
(5) Strategic Direction
• “Mission statement”
– Currently in vogue
– Succinct focus on activity
“To be the World’s leading global satellite
multimedia network provider offering a full
range of high-quality services to our customers
worldwide with the financial objective of
increasing shareholder value while providing
value for money and remunerating our people
fairly in line with best practice.”
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.70
(5) Planning
• There are many approaches to planning
• BUT really you just need to answer the right questions!
• Kipling’s “Six Honest Serving-men”…
– What?
– Why?
– When?
– How?
– Where?
– Who?
• These questions are an excellent structure for
business planning!
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.71
(5) Implementation
•
•
•
•
•
This part is down to you…
You have developed a plan now…
Raise the finance
Find and hire the people
Develop and sell your product or service
• Make money!
 Hopefully!
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.72
(5) Monitor and Review:
Objectives
• Monitoring is crucial
– How else do you know if you’ve succeeded!
• Planning objectives should be:
SMART
•
•
•
•
•
Specific
Measurable
Achievable
Realistic
Timed
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.73
(5) Developing the Business Plan
• Developing the business plan is probably the
most critical element of the planning cycle
• The plan will tell you how to implement your
objectives in an organised way
• The remainder of this lecture will study the
preparation of the details of the business plan
• Focus will be on tools and techniques
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.74
(5) The Project
• Five interlinked parallel processes:
– Technical
– Regulation
– Finance
– Corporate
– Market
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.75
(5) Technical
Capacity
Quality
vs.
Cost?
Satellite
Customer Terminals
Ground Network
Launch Vehicles
Interconnections
Gateway Terminals
New
vs.
Tested?
Build or buy?
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.76
(5) Regulation
International (ITU)
and Domestic
Regulatory
Framework
Spectrum
and Orbit
Availability?
Autumn2004 © University of Surrey
Spectrum
Licence
SatComms A - part 5 - B G Evans
Service
Licence
(landing rights)
5.77
(5) Finance
Equity
Strategic Alliances
Cash Flow
Quasi-Equity
Joint Ventures
Risk
Debt
Autumn2004 © University of Surrey
Partners
SatComms A - part 5 - B G Evans
5.78
(5) Corporate
Corporate
Governance
Autumn2004 © University of Surrey
Location
SatComms A - part 5 - B G Evans
Tax
Structure
5.79
(5) Market
Price
Distribution
Solution
Market
Size
Customer
Requirements
Marketing
Billing
Competition
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.80
(5) Five Interlinked Parallel
Processes
Capacity
Price
Satellite
Customer Terminals
Ground Network
Launch Vehicles
Interconnections
Gateway Terminals
Quality
vs.
Cost?
New
vs.
Tested?
Distribution
Solution
Market
Size
Customer
Requirements
Build or buy?
International (ITU)
and Domestic
Regulatory
Framework
Spectrum
and Orbit
Availability?
Spectrum
Licence
Marketing
Billing
Competition
Service
Licence
(landing rights)
Equity
Strategic Alliances
Quasi-Equity
Joint Ventures
Debt
Partners
Cash Flow
Corporate
Governance
Autumn2004 © University of Surrey
Location
Tax
Structure
Risk
SatComms A - part 5 - B G Evans
5.81
(5) The Market
• Understanding the market is a key part of the
planning process
• Analysing the market means understanding:
– The demand for your product or service
– Your ability to satisfy the market demand
– The competition
– Your expected share of the addressable market
– Price sensitivity
– Launch timing
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.82
(5) Market Analysis Steps
• Marketing audit
– Internal factors – the company environment
– External factors – market research
• SLEPT analysis
• SWOT analysis
• Strategic marketing plan
–
–
–
–
–
Product performance
Pricing and profitability
Product positioning
Launch activities and timing
Advertising and promotion
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.83
(5) SLEPT Analysis – The market
environment
• Social and cultural
– Structure of society
– Family life, education
– Demographics, language, values, beliefs
• Legal and institutional
– Operating restrictions
– Licensing regulations
– Spectrum allocation policy
• Economic
– GDP, state of economic development
– Per capita income, disposable income
– Currency & exchange rate stability
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.84
(5) SLEPT Analysis (2)
• Political
– Political risk factors (e.g. stability of government… very
important)
– Trade barriers
– Tariff barriers
– For satellite projects local sensitivities to non-domestic
broadcasts are very important
• Technical
– How the service will be used
– Infrastructure support
– Specific local conditions
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.85
(5) SWOT Analysis
• Strengths
– The internal strengths of the organisation
• Weaknesses
– The internal weaknesses of the organisation
• Opportunities
– The external opportunities of the business
• Threats
– The external threats to the business
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.86
There are many marketing tools…
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Balanced score cards
Benchmarking
BCG matrix
Competitor profiling
Concurrent engineering
Core competencies
Customer satisfaction surveys
Discounted cash flow
Delphi techniques
Dynamic simulation models
Environmental scanning
Experience curves
Gap analysis
Integrated value chain analysis
Kaizen and Kanban
Learning organisation
Life cycle analysis
Market value added
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Mission statements
Nominal group technique
4-Ps
5-Forces (Porter)
6-Sigma
7-Ss
PIMS analysis
Portfolio analysis
Psychographics
Quality circles
Re-engineering
Scenario planning
Shareholder value analysis
Strategic planning
SWOT analysis
Technology S-curves
Value chain analysis
Visioning
SatComms
A - part
5-B
G Evans
Source: Management
Planning
Society,
1994
Autumn2004 © University
of Surrey Tools & Techniques, Bain & Co. & Strategic
5.87
(5) Creating Market Space
Manifest Needs
(customer aware)
Satisfaction
Survey
Lead User
Studies
Latent Needs
(customer unaware)
Observational
Studies
Present Needs
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
Future Needs
5.88
(5) Putting it all together…
• Having done al this analysis and work sit
down and write the…
Business Plan
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.89
(5) The Business Plan (1)
Typical Business Plan headings…
• 1. Introduction
• 2. Business objectives
– 2.1 Have all the relevant factors been considered and
has the business been defined in a sufficiently specific
manner?
– 2.2 Can the business compete in the marketplace?
– 2.3 Can operations be initiated in a timely fashion to
meet the aspirations of the most attractive markets?
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.90
(5) The Business Plan (2)
• 3. SWOT analysis
• 4. Strategic marketing plan
– 4.1 Market drivers and inhibitors
•
•
•
•
–
–
–
–
4.1.1 Market drivers - supply side
4.1.2 Market drivers - demand side
4.1.3 Market inhibitors - supply side
4.1.4 Market inhibitors - demand side
4.2 Target addressable markets
4.3 Market size and trends
4.4 Market assessment assumptions / total addressable markets
4.5 Competition, satellite addressable markets and market share
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.91
(5) The Business Plan (3)
– 4.6 Estimated market share achievable
– 4.7 Strategic marketing plan
• 5. Summary of service and network definitions
– 5.1 Traffic models
– 5.2 Total traffic estimates
– 5.3 Space segment resource estimates
• 6. Financial analysis
–
–
–
–
6.1 Highlights
6.2 Projected capital requirements
6.3 Pricing
6.4 Projected gross annual revenue, costs, profit and loss
• 6.4.1 Projected gross annual revenues
 6.4.1.1 Cost of Revenue
 6.4.1.2 Gross margin
• 6.4.2 Projected gross annual operating expenses
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.92
(5) The Business Plan (4)
– 6.5 Price flexibility
– 6.6 Projected cash flow statements, NPV and
IRR
– 6.7 Sensitivity analyses
• 7. Overall conclusions and recommendations
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.93
(5) Conclusions
• Planning is the key to success
• Make use of relevant and appropriate tools
and techniques
• BUT be aware of their limitations
• Develop plans appropriate to your needs
• Be aware of and plan for the risks
• Follow the planning cycle
• Keep plans up-to-date
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.94
Exercise C – Business Case
• A developing country wishes to provide telephone capacity over a 5 year
period as follows
Year
Circuits
0
1
2
2,411
5,125
7,840
3
10,550
4
13,270
5
15,984
• The two options are
– (i) a dedicated satellite system (NEWSAT)
– (ii) leasing capacity from INTELSAT
• The characteristics of the two options are as follows:
– Dedicated Satellite (NEWSAT)
•
•
•
•
•
•
•
Transponder bandwidth = 36MHz
No of transponders/satellite = 24
Transponders are bandwidth limited
Satellite cost = $150M/satellite
Launch cost = $100M/satellite
Insurance cost = 25% of satellite + launch costs
Operations cost = $1.2M/year
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.95
Exercise C – Business Case
(cont.)
– INTELSAT Lease
• Transponder bandwidth = 36MHz
• No of carriers supported/transponder = 280
• Annual lease charge =$1.5M
• The communications are via SCPC carriers with 30kHz allocated
bandwidth.
• Assuming a financial discount rate of 14% as follows:
Year
0
1
2
3
4
5
Value of 1 unit
1
0.88
0.77
0.67
0.59
0.52
• Determine which solution is to be preferred.
Autumn2004 © University of Surrey
SatComms A - part 5 - B G Evans
5.96