By James Careless
Tough slogging: that is the outlook for the satellite Internet market. Whether it is selling direct Internet access to consumers or providing backbone links for ISPs, there is no killer app ahead.
However, not all the news is bad. In fact, there are some areas where satellites and Internet access go together naturally, specifically for enterprise/business clients. Moreover, when sold as part of an integrated VSAT package for business clients, Internet access via satellite is a worthwhile "value-added" perk.
Consumer Satellite ISPs: Hard Times
Face it: this is not an easy time to be a satellite ISP. The trouble is money. Anywhere that terrestrial high-speed access is available--whether via cable TV or telephone DSL-- it is cheaper than satellite Internet. The reason is volume. For the same investment in equipment, terrestrial service providers get a lot more bandwidth than satellite carriers do. As well, when a terrestrial service fails, you do not have to replace the entire thing, as you do when a satellite dies. The result: for point-to-point transmissions, the terrestrial business case wins virtually every time.
Factor in the economic slump and the dot.com crash and one can understand why satellite-based ISPs have been having a tough time. Especially Starband, the Gilat-backed ISP that was forced into Chapter 11 bankruptcy after Echostar pulled out last year.
Since entering Chapter 11, "we have been through some very painful cost-cutting and layoffs," says Zur Feldman, Starband's chairman and CEO. However, with its debt load now under control, Starband is determined to persevere after emerging from Chapter 11 protection. Today its subscriber base stands at 40,000, the same number Starband cited before the Echostar pull-out. "We are basically adding and churning customers at the same rate," Feldman explains.
Once it is in the clear, Starband's strategy is to grow slowly. As well, Feldman intends to boost his company's chances by focusing on customers who lack access to either cable TV or DSL. He estimates this rural/remote population to number "in the millions," and notes that of the 125 million Internet users in the United States today, only 16 million have high-speed. Put these factors together, Feldman contends, and you have enough opportunity for Starband to grow, and ultimately thrive.
Meanwhile, Hughes' Direcway is still alive. In fact, it broke the 100,000 subscriber mark in early 2002, which is no small feat. "There is a considerable broadband market out there for which Direcway is clearly a winning solution," says Pradman Kaul, Hughes Network Systems' (HNS) chairman and CEO. "We are very optimistic about the future and the continued success of Direcway. With all of the business and marketing alliances we have secured, we see enormous potential for growth of Direcway services spanning all markets-- enterprise, small business and consumer alike."
Kaul's optimism is shared--albeit in a much more low-key manner--by industry consultant Stephen Blum, president of Tellus Venture Associates. "Direcway is growing more slowly than predicted, but its growth is at least constant," Blum says. "However, it's still not clear how Direcway's customer base will end up migrating to HNS' Spaceway service, if at all." (Due for commercial launch in 2004, the Spaceway Ka-band satellite system is meant to exceed Direcway's performance and capacity for business and consumer users alike, while challenging terrestrial-based frame relay systems on cost-effectiveness.)
Meanwhile, Wildblue Communications--the North American satellite-based ISP that has been on ice due to lack of funds--has been revived by a cash infusion from Liberty Media, Intelsat and the National Rural Telecommunications Association. Their goal is to launch high-speed Internet access by satellite throughout the continental United States in 2004. "This is a natural step for Intelsat and part of our plan to establish a foothold in important new markets in a cost-efficient manner," says Conny Kullman, CEO of Intelsat Ltd. "We believe that retail satellite broadband services in North America will be an important component of future growth in the fixed satellite services industry....We have confidence in Wildblue's strategic plan and believe it represents a key opportunity for Intelsat to capitalize on this market gap."
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