Sunk in space: the economics of the European satellite industry and prospects for liberalization

European satellites Damien Neven, Lars-Hendrik Röller and Leonard Waverman The EC Commission is proposing significant liberalization of the European satellite industry, relying on competition in operations in space to generate lower prices for end-users and lower costs for manufacturers on earth. However, since both manufacture and operation entail scale economies, full liberalization may be inefficient. We construct a model of both the manufacture and operation of satellites, and calibrate it with real data. We then simulate different policies. We conclude that, although some form of liberalization should be welcomed, existing satellite operators will then make losses. Some exit will be required (mainly the government-owned PTTs) even though, with lower prices, the market will expand. Further consolidation of satellite manufacturers is also required if European producers are to compete with those in the US. Cogent policies need to be designed to safeguard competition whilst preventing predation.