This transformation has come in three main areas: the proportion of fixed versus broadcast capacity and services; the proportion of capacity in different frequency bands available and in use; and the transition of video transmissions from analog to digital. The seeds of these changes were planted over the last two years; however, these trends became apparent in 2004 and they will magnify throughout the decade. In summary, the trends are:

From a baseline of 15 percent of total capacity over the U.S. in 2002, direct broadcast services capacity will represent nearly 60 percent in 2010.

While C-band and Ku-band capacity was split almost 50/50 in 2002, these bands together will constitute less than 50 percent of overall capacity by 2010.

Analog television broadcasts occupied more than half of the FSS video capacity over the U.S. in 2002; however, Futron predicts that the proportion of satellite capacity carrying high definition digital channels will exceed 60 percent in 2010.

Direct Broadcast Overtakes Fixed Services
In the broadcast satellite services industry, all three direct-to-home (DTH) video providers in the United States made impressive capacity purchases in 2004. The providers have tackled head on the problem of local-into-local programming and expansion of high definition (HD) content locally and nationally with plans to launch enough capacity to carry channels to each of the 210 local markets in HD.

EchoStar announced the addition of two more SES Americom satellites to its constellation in April 2004. EchoStar has now contracted full use of the Ku-band satellite AMC 14 along with the twin hybrid Ku/Ka-band satellites AMC 15 and AMC 16, both launched in 2004. Each of the latter two satellites has twenty-four 36-MHz high-powered Ku-band transponders, and twelve 125-MHz Ka-band spot beams.

The aggregate capacity from all three of these satellites will provide additional capacity for EchoStar's local-into-local programming, as well as the ability to provide broadband services to EchoStar's customers. The company also ordered a new satellite from Space Systems/Loral in late December 2004 to serve as a backup for their existing fleet.

DirecTV announced its aggressive plans to launch four Ka-band satellites by 2007. The first two of these satellites, Spaceway 1 and Spaceway 2, are planned to launch in 2005. These satellites will begin offering programming to consumers by the middle of the year.

The Spaceway birds will have the capacity for more than 500 local HD channels. With this addition to its fleet, DirecTV will have the ability to bring local HD programming to most of the U.S. population, as well as continuing to expand standard-definition local offerings and other enhancements.

The next two satellites, DirecTV 10 and DirecTV 11, will launch in early 2007. These satellites will have the capacity for more than 1,000 additional local HD channels, more than 150 national HD channels, and other new programming offerings. These satellites represent a total bandwidth of 34 Gbps, which is approximately 10 times the bandwidth they are currently using for DTH service in Ku band.

The third player in the market, Cablevision's VOOM HD satellite television service, contracted with Lockheed Martin to construct five new Ka-band satellites in late November 2004. The satellites range in size from roughly 150 to 200 36-MHz transponder equivalents each at different orbital slots across the country.

Their planned locations, when combined, will offer full coverage of the continental United States, as well as Alaska and Hawaii. This will expand the service market of their existing satellite, Rainbow 1, which has only spotty coverage in the Western portion of the continent, and no coverage of Alaska and Hawaii.

While the DTH video broadcast market is charging ahead, the traditional fixed services sector has remained relatively flat. This sluggish growth in the fixed services market combined with the huge projections for the direct broadcast sector is changing the landscape of satellite capacity over the United States.

DTH services, having become the highest growth and most profitable satellite service in the mature U.S. market, are now dominating the future capacity arena. From a baseline of 15 percent of total capacity in 2002, direct broadcast will represent nearly 60 percent in 2010. The amount of direct broadcast capacity being added to the U.S. capacity mix in this timeframe is greater than the total active capacity in the region in 2004, as shown in Figure 1.

KA Makes A Comeback
While the large field of original Ka-band satellite applicants dwindled over the last few years, the Ka frequency band is now starting to show signs of life. Although Ka-band was expected to herald the market for end-user broadband satellite services, this market did not emerge.

With the exception of WildBlue 1, the satellite intended to give start-up Internet service provider WildBlue their permanent home, all Ka-band capacity being launched to serve the United States is now intended for DTH video, including the Spaceway and AMC satellites detailed above. This redirection is finally giving Ka-band a purpose.

These new Ka-band satellites are more than doubling the capacity on orbit over the United States between 2002 and 2010, and in the process dramatically shifting the relative share of capacity available in different bands. While C-band and Ku-band capacity was split almost 50/50 in 2002, those bands combined constitute less than 50 percent of overall capacity by 2010, as shown in Figure 2.

With all of these changes, video has again moved to the forefront of attention in the satellite services industry. Although the video sector has always been a key revenue producer for the industry, the broadband data services market was the one seen by many as having the most growth potential.

However, it is clear that HDTV now dominates future capacity trends. The advent of HDTV provides a wide array of new growth outlets for the broadcast and cable contribution and distribution markets, as well as DTH video services.

It is important to note that the graphs shown in Figures 1 and 2 show planned capacity, or supply. Another, perhaps more important question is whether there is sufficient demand in the United States for all this video capacity. The following trend touches on this issue.

The New Digital World
Analog television is phasing out and the majority of broadcast and cable channels carried over satellite are digital. However, analog services still constituted more than half of the FSS video carriage over the United States in 2002, as shown in Figure 3. Analog channels generally 6-8 digital channels can be carried on a single 36-MHz transponder.

As analog channels are eliminated, digital channel growth would have to explode keep transponder demand level. Fortunately, with the emergence of HD content, which consumfour times as much bandwidth as standard definition, the capacity requirements will remain more or less level during this transition.

Futron predicts that the proportion of channels carried over satellite in HD will level out at around 50 percent in the long term. This is due to niche programming that will never be converted to HD for economic reasons, as well as double transmissions in both HD and standard definition. By 2010, Futron predicts that over 60 percent of broadcast and cable capacity will be devoted to HD.

Conclusion
Satellite's particular multipoint distribution advantages have always caused broadcast services to be a prominent source of business for the satellite industry. With the rise in consumer acceptance of DTH video services, and the enhanced capabilities of HDTV, this prominence is increasing.

The effects of these changes are being felt in the boardrooms of satellite operating companies, satellite manufacturers, and video content producers worldwide. The U.S. trends described in this White Paper are being felt in other markets as well, and will shape the industry for decades.

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