The brand new Chinese mobile TV satellite has bit something of a hitch, according to filings that both Loral and EchoStar made in their latest quarterly numbers.
The fillings were highlighted by analysts quizzing EchoStar executives at a recent results conference, but almost no-one has picked up the significance of the delays and potential replacement of the Chinese satellite.
Originally the Loral built CMBStar was announced in June 2006 as a contract from EchoStar which it would use to provide the Chinese Mobile TV system, overall dubbed CMMB and often referred to as STiMi, which is the protocol that is used to deliver the mobile TV signal. The idea was to have the system ready by August 2008 in time for the Olympics, but because the system uses two signals, one in Chinese S-Band from a satellite, which is 2.6 GHz and one in 700 MHz which is delivered from terrestrial transmitters, the system is going to be up and running based purely on terrestrial transmitters, and the satellite had fallen back to a mid-2009 schedule for deployment.
One of the reasons that it was a good move by the Chinese authorities to let an American company own, deliver and operate the satellite, was so that it avoided any problems with importing satellite know how into China, which is blocked in case China ever uses it for military systems. In choosing EchoStar it was also getting its hands on a strong US content link, and may have found that it could bring content aggregation into the deal later.
But now EchoStar has said that the satellite is suspended and will be reviewed, or potentially redeployed. CEO Charlie Ergen went to great lengths to say that the likely $100 million impairment that EchoStar is considering would be just cautionary, and that he had personal experience of re-deploying satellites to different spectrum and targeting different territories and often the second customer would be more profitable than the original intended customer.
The issue seems to be whether or not the CMBStar satellite can meet it’s performance specifications. But that could mean a dozen different things the most likely of which is that there is some delay on the brand new modulation scheme that the transponder is expected to use to cover most of China with mobile TV.
The suspension may result in China opting for another satellite or it may simply be a delay, and perhaps EchoStar can recoup any shortfall in lease payments from China’s State Administration of Radio, Film and Television (SARFT). The whole thing may even be part of a complex brinkmanship negotiation.
Ergen said that EchoStar was trying to get SARFT to agree that the satellite would meet the satellite performance criteria or be close enough for SARFT acceptance.
Loral stands to lose less. It has been given stage payments by EchoStar and has a committed contract to complete the satellite. Loral could be hurt by this only if a dispute arose about whether or not any shortfall in performance was its fault, though it has led investors to expect no deleterious result.
The implications for the loss of face that China would experience for its failure to get the system into orbit will perhaps make SARFT compromise, but if EchoStar loses this contract, even if it can re-assign the satellite and launch it, it will still have lost huge amounts of experience in the Mobile TV arena, which would have stood it in good stead in the US, where it has similar ambitions using the Alcatel DVB-SH technology, very similar to the Chinese STiMi system. It would also likely mean that EchoStar would lose out on further contracts to populate Chinese space with satellites for digital terrestrial TV systems and other functions, and potentially damage a considerable amount of upside that is in its share price for a head start in China.