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WORKING PAPER SECTION 5 THE UHF SPACE SEGMENT AND SURFACE FEEDER OWNERSHIP AND OPERATION AND MAINTENANCE COSTS - Assume that in-space support services become an operational and economic reality within a decade or so. Then assume that the space segments would be designed to have an overall useful (amortized) lifetime of 20 to 30 years or more, with a service call every 5 years. Assume that the cost to the system-service would be approximately $50 million for each service call, i.e., an average of $10 million per year, or 5 percent per year of the space segment's acquisition cost. Assume that the space segments are acquired and paid for by the private sector.24 Assume, further, that the cost of capitalizing the system-service would require that two-thirds of the investment involved would be debt costing l5 percent per year, and one-third equity that would expect a 30 percent per year return. The total financing cost, averaged over the 20 to 30 years, would then be 20 percent per year before taxes. With allowance made for depreciation tax deductions, investment tax credits, etc., the cost after taxes would be approximately 15 percent per year. Assume that the annual operating cost of the surface feeder site, including Intelsat audio channel charges for channels from the individual government broadcasters and surface monitoring sites, would be $10 million. Thus the yearly cost of amortizing and operating the system's entire space segment would be ($500 million) (0.15) + $20 million or, roughly, $100 million per year. (All of the regional space segments need not be installed at the same time. If they were phased-in over time, the initial financial cost impact would be considerably less.) If the assumptions made about the space segments' acquisition underestimated their cost by as much as 50 percent, and if the Shuttle pricing policy for this kind of launch service required a $90 million per full-flight charge, the operating cost would then be approximately $130 million per year. Or if the assumptions about financing rates were too low by one-third, for example, the annual cost would, again, be approximately $130 million per year. Of course eventually the cost assumptions could just as well be found to have been too high. Recall that each channel could serve an area averaging approximately 10,000 square miles (25,000 square kilometers). Recall, also, that each regional space segment could serve as many as 300 of these standard areas at a time, or provide as many as 300 Standard Service channels at a time, or a lesser number of each simultaneously. The maximum number of beams X 24. The estimates that follow reflect the author's U.S. experience and judgement re U.S. financial markets. Other persons especially in other countries, could make different estimates based on their experiences. - 41 - WORKING PAPER
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WORKING PAPER channels that could be served simultaneously would be approximately 23,000. Recall, also, that by reorienting the radiated package of beams in step with local surface time, each regional space segment could serve as many as three times this number of beams X channels/day, for intervals of 2 hours each in both the morning and evening hours, and that there could be four regional space segments. Thus the maximum regional daily capacity would be (3~23,000) = some 70,000 beams X channels, to be used for both morning and evening service. The worldwide capacity would be four times this number, or approximately 300,000. If only one standard area o, approximately 10,000 square miles were served under these circumstances, then the per-channel cost of doing so would be $100,000,000/~300,000) i.e., $400 per year for 4 hours per day. This suggests that programs could be broadcast throughout France's 200,000-square-mile area for 2 hours each morning and evening, every day of the year, for (5400~200~000/10,000) = about $S,000 per year, and that programs in three different languages could be broadcast simultaneously throughout Switzerland during both the morning and evening hours for ($400~16,000~/~10,000~3) = about $2,000 per year. This estimated cost is quite low for the kind of broadcasting service provided. An area of 10,000 square miles is, roughly, three to lO times (depending upon the terrain features) the primary service area of a fine AM (MF) or FM (VHF) over-the-air audio broadcasting service. The latter, however, would be available about 20/4 = 5X as many hours/day as the former. Thus, on a normalized square miles X broadcasting hours basis, they each provide roughly the same service. But the local stations' annual financial cost of ownership and operation can be one or two orders of magnitud~2(or25more in difficult terrain) greater than the cost of the DBS-A service. ~ 25. A paper entitled "Concerning Satellite Broadcasting (Sound) In The Band 0.5 - 2.00 GHz," August 20, 1985, was submitted by the U.S.S.R. to Committee 4, Working Group 4A, at the first session of the International Telecommunication Union World Administrative Radio Conference in Genevae In this paper "...a comparison is drawn between the cost of satellite broadcasting (sound) systems and conventional methods of high-quality sound broadcasting." The paper's Annex 2 gives the cost estimate for providing two audio programs via a terrestrial VHF-FM network to the Ukrainian Soviet Socialist Republic, and Annex estimates the provision of such a Ukrainian service were it to be provided by a space segment. A comparison of the two methods "...shows that the establishment of terrestrial sound broadcasting systems is 5-40 times cheaper...." The paper's main conclusion is: "In view of the fact that sound broadcasting-satellite systems are not economically justified, the U.S.S.R. Administration considers it inappropriate to allot frequency bands for satellite broadcasting (sound) in the 0.5 - 2 GHz range." (Continued on following page) - 42 - WORKING PAPER
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WORKING PAPER Of course, cost is one thing, price is another. If the total price charged to the individual government broadcasters were to be expected to (footnote continued from preceding page) This broad conclusion cannot be reached on the basis of such a narrow compari son and i s i ncorrect. A common-user, comon-carrier system of the character outlined in this paper takes advantage of the fact that, using sophisticated space technology and operating methods, enormous areas can be appropriately served and a very large number of sound channels can be made available to the large number of broadcasting users of the service offered. This can be accomplished for only a modest increase in the cost of a space segment designed to provide a low-capacity, small coverage area service of the kind outlined in the U.S.S.R. paper, making the unit cost per sound channel per desired coverage area quite small. The U.S.S.R. paper, for example, suggests that the acquisition cost of a space segment designed to allow two voice channels to be broadcast throughout the Ukraine's 230,000 square miles from a geostationary transmitter would be $144 million. The space segment cost estimated here would be approximately $170 million for each of the four required to provide a worldwide service. Such a segment would be capable of serving 7.5 million square miles (i.e., 33X the area of the Ukraine) and providing 300 sound channels (i.e., 150X the number used in the U.S.S.R. paper's Ukrainian example), an (area X capacity)/cost advantage of some (33) (150) (144/170) = 4,200X. And the Ukraine is not representative of many areas in the world where the terrain is not flat and where, consequently, a greater surface density of transmitters would be required. This is a particularly graphic and useful example of the economic power of the common-user, common-carrier, sophisticated technology approach to providing telecommunications services. Long appreciated by the terrestrial and space long-hau] trunk telecommunications engineering community, it can now be be applied to the sound broadcasting area as well and with great economic advantage. While the official conclusions of the WARC-ORB '85 are not available at this writing (early October 1985), the text of that portion of its proceedings which red ate to satellite sound broadcasting systems that was submitted to the Editorial Committee on September lO, 1985, "recommends" that further service, technology, systems and cost studies be carried out--studies involving "multiple user satellites." The text observes that: "Investigation is required into the ... use of the same satellite by more than one administration to satisfy their individual requ i remeets. " - 43 - WORKING PAPER
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WORKING PAPER defray the entire DBS-A system-service cost, then averaged over time the price charged to them for a channel would have to approximate the ratio of the system's annual cost to the number of channels used. But if, for example, only lO percent of the system's available capacity were utilized over the year, then the price that a broadcaster would expect to pay would have to be lOX greater. Considerable thought, therefore, needs to be given to sizing the system's service capacity so that its annual cost is reasonably well matched to its use and, consequently, to the revenues this use could be expected to command. Another way of looking at the service's cost distribution is to observe that, if it were shared equally among all of today's HE broadcasting countries, on average it would cost each of them somewhat less than $] million per year. Inasmuch as some countries could easily use 10 percent or more of the service's capacity at an annual cost to each of them of some $10 million per year, then other countries could have their comparatively modest broadcasting needs met for $10,000 to $100,000 per year. (At the present time, of the $160 million per year the VOA spends for other than the acquisition of equipment and facilities, it spends approximately t50 million to broadcast to the Soviet Union and Eastern Europe and, approximately $~10 million to broadcast to the rest of the world. If the YOA could use lO percent of a DBS-A service to broadcast to countries other than the Soviet Union and Eastern Europe at a cost of SlO to 20 million per year, it could then reduce its ongoing broadcasting costs by about $100 million per year.) As was pointed out in Section 4, an initial system-service could be installed earlier and with greater confidence in the technology development schedule and cost if its capacity were scaled down by a factor of lO from the large capacity example given here. In such circumstances its acquisition cost and therefore its ongoing financial cost would be significantly less. The order-of-magnitude annual cost estimate of $100 million per year for a large capacity system is sufficiently accurate, however, for the purposes of this paper. - 44 - WORKING PAPER