The new Latin American gold rush.

Prospecting for DTH Viewers. A multibillion dollar business for the taking.

The Latin American direct-to-home (DTH) satellite business has taken on the fervor of a gold rush. At least six and possibly more competitors are prospecting for up to 75 million satellite TV viewers south of the U.S. border, and the pay-off promises to be big. The competitors are all looking to acquire new satellites for the Latin American market. Several are ready to purchase even higher power satellites that will allow expanded DTH service later in the decade. Here's the line-up:

* In Argentina, NahuelSat S.A. is offering interim DTH service on Nahuel C1, and will broaden its service with a new satellite to be launched in September 1996.

* Two companies licensed by Mexico will beam DTH programming to Mexican consumers via the Solidaridad system and possibly other satellites.

* Intelsat, with two satellites set for launch this year carrying Latin American DTH programming, will provide transponders to customers who will operate the services.

* PanAmSat is also forming a new DTH company. Although a December launch failure set back PanAmSat's plans to start service in April or May, a replacement could be in orbit by December 1995.

* Hughes Communications Inc. (HCI) has formed a new company to offer a DTH service across Latin America starting at the end of 1995.

The Players

One of the first companies to enter the Latin American DTH business was Nahuelsat of Argentina, which began offering interim DTH capacity in late 1994 on the Nahuel C1 satellite, a nine-year-old Anik spacecraft purchased from Telesat Canada.

Eckart Schober, vice president and general manager of NahuelSat, said that the satellite's Ku-based capacity will allow users to beam DTH programming to Argentina, Chile, Uruguay and southern Brazil.

According to Schober, groups in Brazil, Chile and Argentina are already discussing the startup of DTH services using NahuelSat. "Starting first," said Schober, "will allow broadcasters to capture the unserved television market and allow them to grow before they have to face competitive systems."

NahuelSat's customers could expand their service with Nahuel 1 in 1997. The new satellite will have three beams for three service regions over Argentina.

Other Latin American companies with no ties to U.S. firms or Intelsat are also getting into the business. Two such companies, Medcom and Multivision, were licensed last year to offer DTH service in Mexico. Of the 18 million households there, 84 per cent have televisions, yet less than 20 per cent are wired into the 120 cable systems in the country.

"We want to reach one million subscribers very soon, by the third year or so," said Alejandro Serna Barrera, president of the Mexico City-based Medcom Corp.'s executive committee. He said neither HCI nor PanAmSat will be able to compete with Medcom because the companies do not have landing rights in Mexico. "The licensing process is closed. There are no landing rights [for the other services] and you can't do it without them," he said.

PanAmSat officials, however, responded that they have landing rights in more than 75 countries, including the right to transmit into Mexico, as approved during the World Cup games. An Intelsat official said it will be the responsibility of the DTH operator to secure landing rights, which he did not think will be difficult, since Intelsat could work through the Mexican signatory. Joseph Del Riego, HCI vice president responsible for Galaxy Latin America, said HCI has one of the Mexican licensees as a partner.

Medcom is owned by Clemente Serna Alvaer, a Mexican broadcaster and the father of Alejandro Serna. The company owns a television station in Guadalajara - Super 6, the only independent channel in the country - as well as a Mexican news channel.

Medcom will use 10 leased Ku-band transponders on the Solidaridad 2 satellite to begin beaming 60 channels of digitally compressed programming to viewers in Mexico. The medium power Solidaridad satellite, owned by the Mexican government, was launched in October 1994.

Medcom is contemplating purchasing a dedicated higher power satellite to which it hopes to transfer its DTH service. Discussions with satellite manufacturers have begun and a contract could be signed for a broadcast satellite sometime this year. In late November, the company was making arrangements for its dedicated satellite with programmers in Mexico and the U.S., as well as equipment manufacturers and distributors. With an estimated $150 million needed to start the service, Medcom has turned to the Clemente Serna group of businesses for some of the money, and strategic partners are being recruited for the rest. In the meantime, Solidaridad's footprint will allow Medcom to cover all of Mexico.

Competing against Medcom will be Multivision, with four C-band transponders also on Solidaridad. Through digital compression, Multivision began a DTH service in August 1994, capable of delivering 26 video channels and 17 audio channels. To receive the service, subscribers must have a 1.9 meter dish and settop box. According to Francisco Vargas Guajardo, MVS Multivision's satellite services director, there were 200 dealers in place for distributing the equipment to consumers as of December, and 5,500 customers had signed up in the first four months before advertising for the service had even begun.

Founded in September 1989, MVS Multivision distributes a wide variety of programming, including movies, news, documentaries, musicals and cartoons, on a multichannel, multipoint distribution service covering the Valley of Mexico. The company, which has 1,700 employees and 350,000 subscribers, claims to have the largest subscribing television system in Mexico and the largest microwave broadcasting system in the world. MVS Multivision has been using digital compression on its satellite broadcasts since March 1993.

MVS Multivision exports its programming to Guatemala, Honduras, Nicaragua, the Dominican Republic and Venezuela via cable systems. Programming carried on its DTH service now includes TeleUno 1 and 2, ZAS, USA 1 and 2, TNT, MTV, MD ESPN, MVS, Fox, the Discovery Channel, MultiCinema, NBC, CNN, CineLatino, Cartoon Network, Cinecanal 1 and 2, HBO and Cinemax. In addition, four pay-per-view channels are offered.

Intelsat is not far behind with two satellites scheduled for launch this year for Latin American DTH. Intelsat, however, is steering clear of an operational role. According to Luis Perillan, Intelsat's former group director for Latin America, the organization will provide technical and operational support for its customers but will not compete with them. Intelsat 706 was scheduled for launch in February; however, due to a launch failure in December, the Arianespace schedule is likely to change. Intelsat 707 is slated for launch in the second half of the year.

The two Space Systems/Loral-built satellites will have high power Ku-band capacity covering the Latin American landmass. The spacecraft are Intelsat 7A versions with four steerable spot-beams, three at Ku-band and one at C-band. The Ku-band beams have 50 dBW of power, allowing 50-60 cm diameter dishes to receive the signals. Customers may lease capacity on the Intelsat 7s for 10 to 15 years if they desire, but Perillan said, they may prefer to move to a future Intelsat satellite designed specifically for high power broadcasting for the next phase of DTH service.

Once the market is known, Intelsat may order satellites optimized for DTH. Already in the works is Intelsat 806, also known as TVsat, which is planned for launch in late 1996. The Martin Marietta Astro Space-built spacecraft will serve Latin American DTH and cable users through its high power hemispheric beams that reach as far as Europe in addition to the Americas.

In the meantime, Intelsat is providing broadcasting to Latin American viewers via its Intelsat K satellite. Several broadcasters are using the satellite including Reuters, RAI, Eurocast, NTV and Deutsche Welle. Intelsat is contemplating the acquisition and launch of the Intelsat KFOs - which stands for Intelsat K Follow-Ons - spacecraft. Should Intelsat decide to go ahead with the KFOs birds, at least one will be used to service Latin America.

PanAmSat had planned to be the first into the market, but the December Arianespace launch failure carrying the PAS 3 satellite derailed the company's jumpstart. Now, instead of starting service in April or May, PanAmSat predicts it will be ready in late 1995 or early 1996, depending on how quickly the replacement satellite can be launched. (Hughes Space and Communications Co. has a contractual obligation to deliver the replacement within 11 months, but might be able to build it more quickly. PanAmSat has priority for an Ariane rocket as soon as it needs it.)

The delay gives PanAmSat extra time to pull the elements of its Latin American package together. DTH, however, has matured to the point where a few months is enough to assemble the components of the business. "It's not black magic the way it used to be," said Lourdes Saralegui, PanAmSat's executive vice president. "It's fairly straightforward."

The ground equipment is expected to cost around $700 and manufacturers will likely be from Latin America. Having Televisa, the Mexican media firm that bought half of PanAmSat for $200 million in 1992, as a partner will help the company win permission to operate in Mexico. In addition to helping PanAmSat through its many connections in Mexico, Televisa will supply some of the programming that will be carried on the PAS birds.

PanAmSat has a long history in the region. Rene Anselmo, a former broadcaster and PanAmSat's chairman, rounded the company after experiencing the sometimes archaic procedures required to obtain capacity on the Intelsat system. After winning a license to build and operate the first private international satellite, PanAmSat ordered a spacecraft from then-GE Astro Space to be launched over the Atlantic Ocean. PAS 1 provides digital data and radio, as well as compressed video services to 280 customers in 75 countries. About 75 per cent of the usage comes from Latin American countries.

PanAmSat's strategy for DTH is to divide Latin America into three markets, each of which will be served with a different package of 32 to 40 digital channels. One area, called Northern South America, includes Venezuela, Colombia and Panama. Another area is Brazil and a third, called the Southern Cone, includes Argentina, Chile, Paraguay and Uruguay.

Each set of transponders for each of the three markets, said Saralegui, will carry a mix of regional, international and local programming such as news, entertainment and special events. The initial service area will be defined by the high power Ku-band spotbeams on the PAS 3R spacecraft. The antenna pattern on PAS 3R will cover all of South America, but not all of Latin America, leaving Mexico without coverage until a subsequent satellite is launched.

In 1996, PAS 3R will be joined by PAS 6, a higher power broadcasting workhorse being built by Space Systems/Loral using its FS-1300 bus. PAS 6 will provide more local channels and expanded coverage of Mexico. With it, PanAmSat could beam up to 300 channels to the market. In addition, another PanAmSat satellite, PAS 5, will provide partial coverage of the region - the U.S., Mexico and Central America-through its Ku-band beam, and North and South America via its C-band beam.

However, last December, PanAmSat suspended an initial public offering of 22 million shares of common stock which was to have raised $298 million for the two new DTH satellites, PAS 5 and 6, for the Latin American market. According to PanAmSat spokeswoman Elizabeth Dickins, the suspension was due to market conditions and not related to the failure of PAS 3. The company is looking for alternative ways of financing the satellite.

Due to the PAS 3 launch failure, PanAmSat and HCI will enter the DTH market at roughly the same time. By then, HCI will have the advantage of more than a year's experience operating its domestic DirecTv direct broadcasting service. "We have a great start on the infrastructure due to DirecTv," Del Riego said. One dilemma is whether DirecTv equipment manufacturers can keep up with the production rate needed to serve both the U.S. and Latin American markets, or if bringing in a second supplier is better.

HCI will be looking for suppliers who are strong in Latin America. DirecTv's settop boxes for use in the United States are made in Mexico by Thomson RCA, which would be well-suited for a role in the Latin American business to manufacture equipment locally.

Hughes will beam 120 to 140 DTH video channels to Latin American subscribers. Hughes' broadcasting package will be split into two beams. Half of the channels will broadcast in Portuguese and English to the Brazilian market. The rest will broadcast in Spanish and English to the remainder of the Latin American market. The service will start via 24 Ku-band transponders on the Galaxy 3R satellite, scheduled for launch in August or September. Hughes is modifying the satellite's Ku-band antennas, which had originally been designed for fixed satellite service for the United States, to fit the needs of the Latin American market.

Hughes has asked the FCC for permission to build Galaxy 81, a high power satellite designed specifically for Latin American DTH using the Hughes 601 bus and achieving a power level of 4-6 kW. The more capable satellite could be launched in one to three years, depending on how long it takes to get FCC approval. The Galaxy 81 antenna pattern will cover a larger area than the Galaxy 3R satellite, especially over the Caribbean and Central America.

Majority control over the new DTH company will remain with Hughes, which plans to keep 60 per cent ownership. Other partners include the Cisneros Group of Companies (Venezuela), Televisao Abril (Brazil) and MVS Multivision (Mexico). According to Del Riego, investment required is in the "couple hundred million dollar range." But having money to invest isn't enough to get a piece of the action. Hughes wants the other investors to be involved as local service operators for the business. The local partners are not obligated to invest directly in the parent company, but they have to invest money to set the service up locally. In exchange, the partner gets exclusive fights to operate the service in that area. Del Riego said that each service area covers at least one country, with some covering larger geographic regions.

The Market

With a population of about 500 million, all the competitors see Latin America as an important satellite market. "There is a gigantic gap between people with television sets and people who are paying for anything they watch. That is the crack we're headed for," Del Riego said. HCI's business plan assumes that up to 30 million households in Latin America are likely customers. The company hopes to capture 20 per cent of that market, or around five million to six million subscribers within 10 years.

"The market is there for at least two possible systems," said Intelsat's Perillan, "We are sure [Intelsat is] going to be one. The speculation is that there will be four or five."

Jimmy Schaeffler, an independent consultant, said that investment in the startup DTH systems could reach up to $10 billion over 10 years. He believes the Latin American market is big enough to support two or three services into Brazil in Portuguese, and five or more in Spanish and English to the rest of the region.

Now the possibility of getting into business quickly is realistic for the first time, Schaeffler said, because encryption and other technology exists, thanks to U.S., Asian and European direct broadcast ventures already in place. Altogether, Latin America has about 75 million television households, few of which are wired for cable. Cable penetration averages less than 10 per cent, although in some places, like Argentina, the rate could be as high as 50 per cent.

In many places, market access will be limited by government regulation of landing rights. Local laws and regulations may disrupt a smooth start for DTH. A 1982 United Nations resolution says prior consent, or landing rights, are needed for direct broadcast systems. In some countries, just as in the U.S., the percentage of foreign ownership of broadcasters who are granted licenses to use public airwaves is highly restricted. Thus, it is not inconceivable that U.S. dominated DTH companies may be unwelcome in some places.

Officials from HCI and PanAmSat say they will abide by national laws and regulations in setting up their new services. "Hughes will do everything by regulation and by law only. We've made that very clear to our prospective partners. It is our company policy to do everything on the up and up," said Del Riego.

Events during the next 10 months will determine the potential for Latin American DTH. If all the plans proceed on schedule, investment could climb to more than $1 billion. If even a few of the systems materialize, Latin American nations could gain access to hundreds of channels of programming within one or two years.