The Underserved of Europe

 A single “last mile” is separating European satellite operators from a broadband consumer market potentially worth millions of customers and dollars.

Common wisdom has it that broadband have-nots reside mainly in the developing world. This is, of course, largely true. In its 2009 report “Measuring the Information Society — The ICT Development Index,” the International Telecommunication Union (ITU) reported that fixed broadband penetration notches 4 percent in Asia and the Pacific and just 0.1 percent in Africa — meaning there is just one fixed broadband subscriber in Africa per 1,000 people.

Yet, it would be a mistake to assume that broadband access is a problem limited to the least-developed regions of the world. In the same report, fixed broadband penetration in Europe is thought to be at 20 percent, with peaks of nearly 60 percent of the population reported to be “offline” in Eastern European countries such as Hungary. The overall European average for percentage of the population without access to the Internet, while lower than that, remains remarkably high. “Latest figures for Internet penetration in Europe show that 58 percent of the population uses the Internet,” says Aarti Holla-Maini, secretary general of the European Satellite Operators Association (ESOA).

These numbers appear to be staggering to those not familiar with these issues, but their importance, however, is not so much in the numbers per se, but in their consequences for society at large — i.e., what they actually mean for individuals, communities and nations alike. The ability to exchange information, in fact, is crucial to economic development, and in this sense broadband is, just like water and electricity, an integral part of national infrastructure. “In the 21st century, affordable broadband access to the Internet is becoming as vital to social and economic development as networks like transport, water and power,” says ITU Secretary General Hamadoun Touré.

It is widely believed that future social and economic development will depend in large part on the availability of broadband networks. E-services in areas such as health, education, finance, etc., which increasingly will contribute to the wealth and quality of life of individuals and communities, would be unthinkable without broadband access to the Internet. The issue, in other words, is no longer one of “digital divide,” as it was known within industry circles until recently. Rather, it is turning into one of a broadband divide.

Perhaps more importantly, however, is the definition of such divide. It would be a mistake, in fact, to assume that this is simply a north-south issue, as demand for broadband access to the Internet is high in the underserved areas of the developed world. This is commonly referred to as the “last mile” market, though within the satellite industry there seems to be a need to redefine this. “It may be worth clarifying that the term ‘last mile’ refers to the last percentage of people out of terrestrial telecom coverage and not what is generally understood in the satellite industry: the last part of the telecoms infrastructure to reach the end customer also known as ‘local loop,’” says Holla-Maini.

“As we deliver full access to every household in the footprint of the satellite, satellite broadband is an end-to-end solution and not just a solution for the last mile,” says Patrick Biewer, vice president of technology at Astra Broadband Services. Crucially, then, the opportunity for satellite lies in serving customers outside of terrestrial telecoms infrastructure. Biewer adds, “We target unserved and underserved households mostly in rural regions which cannot get access via terrestrial broadband networks.”

As such, the developed, affluent markets of Europe and the United States are primary targets for satellite broadband service providers. 

Broadband Cake

But how big is this opportunity? Naturally, estimates vary, but all experts seem to agree that the untapped market in Europe is huge — at least potentially. “According to the European Commission, millions of people today still have no access to broadband,” says Holla-Maini.

“According to the latest surveys, between 5 percent and 10 percent of all European households are still not connected to broadband,” Biewer says. “As most of these households are located in rural areas with low population rates, the expansion of terrestrial fiber networks is very unlikely. In order to connect them to the broadband Internet fast, satellite broadband is the ideal solution.”

Naturally, these sentiments are widely shared within the European satellite community. “The market for satellite consumer broadband in Europe is estimated to be at least 30 million households in Europe and another 18 million in North Africa and Middle East,” says Arduino Patacchini, Eutelsat multimedia director and CEO of Skylogic, a Eutelsat subsidiary. “This data includes not only the people that are unserved (i.e., they do not have ADSL connectivity) but also those underserved that have a poor connectivity due to the fact that they are too far from a DSLAM to have a reasonable quality of service.”

Although terrestrial and wireless broadband networks are expanding at a fast pace throughout Europe, there are still many geographical areas without broadband access to the Internet. In these regions, investing into the development of high-speed broadband networks such as VDSL or fiber may not be economically viable.

To understand the exact dynamics of the issue, it is worthwhile to take into consideration the example of one of Europe’s most densely populated and dynamic markets: the United Kingdom. “In the case of the United Kingdom, for instance, we want to extend the fiber connection, now limited to only a few percent of the population,” says Patacchini. “The cost of deploying fiber (FTTP/PTP) is around 30 billion pounds ($46.8 billion). In addition, if we analyze the cost of bringing broadband to the areas that are concerned by the digital divide, we see that the cost per household served increases dramatically due to the dispersion of the population. So if you try to connect the last 7 percent of the population, the cost is around 5,000 pounds ($7,800) per household, or 28 percent of the overall cost.”

According to the latest surveys, between 5 percent and 10 percent of all European households are still not connected to broadband. As most of these households are located in rural areas with low population rates, the expansion of terrestrial fiber networks is very unlikely.
— Biewer, Astra Broadband Services

Clearly, even in the case of the United Kingdom, the economic factor does not seem to be on the side of fixed terrestrial solutions. In addition, the issue of increasing demand should be taken into consideration. The size of the broadband market is getting bigger because consumer demand is rising. “These days many terrestrial service providers offer broadband speeds of 8 megabits per second (Mbps),” says David Williams, CEO of Avanti Communications, a provider of satellite broadband to homes and businesses in rural and remote areas of the United Kingdom and Europe with 14 years of experience in the satellite industry. “However, speed depends on the distance a user is from the node and often actual speed is no more than 2 megabits per second. There is rising demand from the edge of terrestrial networks which will only make this worse.”

Satellite technology, on the other hand, is the only broadband technology that provides 100 percent coverage — no matter if households are located in metropolitan or rural areas. A further advantage compared to other technologies is the fact that the satellite broadband connections can be set up immediately without high investment in terrestrial infrastructure. Users only need a satellite antenna and a modem to get their broadband access. “Another major advantage of satellite-based services is the fact that the upfront investment cost per user is clearly known. On the contrary, this capex cost for terrestrial services is linked to the number of consumers using the local loop,” says Holla-Maini. “Telecom service providers might be investing, in some cases, millions of Euros to end up servicing only a few consumers, so it is clear that satellite based solutions are also most economical for serving regions with low population density.”

As such, it is no surprise that satellite broadband plays a major role in the broadband development plans of the European Union and the national European governments. Europe’s political institutions have realized that their aim to provide broadband connections of at least 1 Mbps for all households cannot be reached without the satellite. “Our Astra2Connect service is part of a number of projects in Europe which use the satellite broadband technology to close the white spots,” says Biewer.

In many cases, governments are even directly contributing to satellite solutions. There already are fixed subsidization schemes in France, the Netherlands, Wales and Scotland for households without access to terrestrial broadband networks. In Germany, the federal state of Baden-Württemberg currently is testing subsidization schemes for satellite broadband in the white spots. Other countries, such as Spain and Poland, are following their example.

But how successful is satellite broadband in Europe? Are customers voting for satellite solutions with their wallets? Is broadband via satellite truly proving to be a killer application for the industry? While this remains in the early states, and industry-wide numbers are, at least for the moment, still difficult to interpret, there is clear optimism in the air. “In about two years of operations, the satellite broadband market has grown to about 100,000 consumers using the service offered by various providers,” says Holla-Maini. More than 60,000 of these are claimed as customers by broadband service Astra2Connect, though, as Biewer stresses, “there is still a great potential.”

Will broadband via satellite continue to grow? Many factors will influence its destiny. Naturally, a major issue is that of bandwidth capacity. Notoriously, the bandwidth available on conventional C- and Ku-band payloads is, relatively speaking, limited, certainly not suitable for serving hundred of thousands of individual users — as well as mostly earmarked for other applications. With the launch of Ka-band platforms, however, this part of the equation will change and those operators that are investing in Ka-band will have the potential to serve a considerably larger customer base. Eutelsat seems committed to developing Ka-band platforms, says Patacchini. “This role of satellite is possible thanks to the new high-throughput satellites (HTS) that with spot beams and Ka-band have a much bigger capacity than a traditional satellite. Ka-Sat, Eutelsat’s satellite that will be launched in November 2010, is a HTS that has the capacity of 35 traditional Ku-band satellites and will enable cost-effective consumer broadband to serve more than 1 million households in Europe and the Mediterranean Basin.”

There is no doubt, in fact, that Ka-band will multiply bandwidth capacity over Europe’s skies. “In the near future, with the launch of Ka-band satellites over Europe, there will be sufficient capacity to serve the increasing number of consumers relying on this technology,” says Holla-Maini. “Thanks to the advances in ground equipment and satellite technology, monthly service and equipment costs are now really becoming a viable option for millions of consumers.”

However, this is only part of the story. While important, bandwidth availability is not the only constraint to business growth — so far, for example, SES Astra seems to be still rather reticent about Ka-band plans and yet fully committed to broadband via satellite. The reality is that in order to succeed, satellite broadband requires operators to enter what is a largely uncharted territory for fixed satellite service providers: the consumer market. 

A Not-So-New Business Model

Selling services directly to consumers is a relatively new experience for fixed satellite operators, which traditionally have thrived in the corporate market. Yet, the satellite industry has been engaged in providing services to the consumer market for years. The likes of Iridium and Inmarsat, for example, provide mobile satellite services to a large customer base that, at least in part, could be considered to be made up of “simple” consumers, however, it is in DTH television that the satellite industry has remarkable experience of customer relations with the general public. There are signs that, at least in Europe, operators are being inspired by their experience with the DTH business model of partnerships with domestic distributors. For example, SES Astra’s satellite broadband service Astra2Connect is marketed to end customers via wholesalers and local ISPs in Europe, Africa and the Middle East. “Among those are several telco incumbents such as Deutsche Telekom, France Télécom and Telekom Polska,” says Biewer. “For them, Astra2Connect is an ideal solution with which they can offer customers access to broadband although their terrestrial networks do not reach that far.”

Similarly, Eutelsat’s Skylogic has signed a string of local distributors to market Tooway, the company’s brand for consumer broadband services. “We already have more than 60 distributors in Europe that distribute the Tooway service,” says Patacchini. “Among these distributors we have: Swisscom, SFR, Tiscali, Fastweb, Telecom Italia, Hellas On Line, El Corte Inglés and 3 (Ireland) via one of our value added resellers.”

This seems to be an industry-wide approach for European players, as the case of Avanti shows. “We sell our services through local partners rather than directly to consumers,” says Avanti’s Williams. The company is about to launch its own satellite fleet. Hylas 1 is expected to launch in the second half of 2010, while Hylas 2 will follow in 2012. While they are expected to inaugurate a new era for Avanti, its business model is not set to change: Local distributors based in European countries ranging from Ireland to Albania will act as intermediaries with consumers, providing them with hardware as well as services. “Most consumers will require a third-party dish installation, similar to that done by DTH service engineers: roughly one hour to install a 70-centimeter antenna and a cable running to a computer,” says Williams. “The system is plug-and-play, and there is no software on the client’s PC.” 

Wireless Versus Wireless

One question remains hanging over the future of satellite broadband services. Are terrestrial wireless technologies such as WiMax and mobile phone networks stealing the limelight, and the customers from the wireless technology par excellence, i.e., satellite? The answer from the satellite industry seems to be unanimous. Due to the existing satellite infrastructure and open capacity, satellite broadband has the best time to market compared to terrestrial and WiMax solutions. The competition coming from mobile phone networks is also generally dismissed. “Mobile phone networks do not have the capacity to deliver throughput to fixed users, and some mobile networks are already putting a cap on customers’ data usage” says Williams. “Unfortunately, often there is confusion in the industry between mobile users and fixed users and their respective requirements.” Williams take on the issue is clear: There is no real competition between satellite and terrestrial wireless system, rather the two complement one another. “They do not provide substitute to fixed broadband services,” he says. “Rather we provide services to them by providing backhaul capacity.”

The future might be one of cooperation between different technology operators. There are several examples of European telcos proposing a satellite-based service for consumers who want a broadband connection but are outside of terrestrial coverage. “In France, we also have WiBox on board as distribution partner for Astra2Connect, a WiMax operator which is complementing its portfolio with the satellite service to cover the entire French territory,” says Biewer.

It looks like that after years of undeclared war between them, the old enemies might have learned to live side by side and prosper for their benefit and that of consumers.

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