HTS: Can They Have a Global Impact?
High Throughput Satellites (HTS) offer great hope to satellite operators to derive new revenue streams, yet outside of North America, it remains difficult to predict just how much of an impact they can really have.
Since he was in college, David Williams has been studying Africa, specifically its economic evolution. For the past 30 years, he has observed many changes in most of the continent’s 57 countries. As chief executive at Avanti Communications Group in London, he offers numerous examples of these changes. Fresh sources of capital, emerging middle classes, rising GDP, accelerating demand for consumer telecoms, and intense new business activity requiring enterprise networks are just a few. Governments gathering and spending more income on health, education, security and defense, and the huge demand for a communications infrastructure to meet consumer, business and government needs have impacted the countries as well.
“In Africa, you have one very large Western-European-sized economy spread across a very large continent,” says Williams, adding that African nations are leapfrogging from practically no technology to very advanced networks and applications at a very intense rate. “Pretty soon, Africa will be equivalent to two to three very large western economies. High Throughout Satellites (HTS) are a perfect technology to cherry pick the wealthier parts of those economies.”
HTS represent the future of satellite communications. By reusing frequency, they enable operators to push more capacity through spot beams, which translates to lower prices. Because of the cost savings, the technology has become very attractive, opening up many doors for satellite operators in emerging markets around the world.
Consider Africa; a continent that some perceive as one giant pot of gold. According to Afrobarometer, a survey research project on democracy, markets and civil society in Africa, seven in 10 Africans across 34 countries now own a cell phone, with 59 percent of those users sending or receiving text messages while 16 percent use the phones to send or receive money or pay bills. However, Internet access is experiencing slower growth. Since 2008, monthly access has increased from 11 percent to 15 percent in 20 countries.
Williams adds that many African governments are focused on universal access funds and developing infrastructure for mobile networks to ensure communication access for consumers and businesses beyond big cities.
Still, some investors are nervous. Escalating conflicts, terrorism, and political instability are part of the continent’s turbulent history. Yet, during such times, governments urgently need advanced security and defense infrastructure. When the chaos fades, the demand doesn’t disappear, it simply changes, Williams says. Commercial activities typically increase, large companies buy enterprise services, and consumer broadband cellular backhaul starts to flourish.
“In East Africa, particularly, there is a wonderful cohort of technology entrepreneurs, very often from India and Asia,” Williams says. “They’re making noise in the market. They’re pioneering, aggressive, buying capacity early… East Africa to me feels friendly for business.”
Now, cable hasn’t experienced the same degree of luck. Williams says a government official in a large East African country revealed that 47 cable cuts occur each day on the government fiber network, partly due to theft and poor building standards. Frustration is enormous among those who have built cable infrastructure, he says, adding that although cable for international IP transit has been developed, not many companies are using it to connect different provinces.
With such promise and opportunity in Africa, some satellite operators still go wrong. Some falsely assume that governments, companies, or consumers will tolerate poor quality services. He says the satellite and VSAT markets have delivered fairly low quality and high priced services to emerging markets for a long time, which created skepticism among newcomers.
Williams says the real challenge, especially for telecom and commercial broadcast companies, is building a new customer base in every emerging market.
“You don’t get a big TV company that is already broadcasting 100 TV channels and needs another eight transponders in three years,” Williams says. He explains that satellite operators need to build their demand patiently from a low starting level and, if they provide a far higher commitment to service than customers have previously experienced, the customer base will stay and grow with them. “Subsequently, larger companies observing satellite technology from the margins will quickly adopt,” he adds.
Although the technical ability to push more megabits through a megahertz has been around for many years, the development of high throughout architecture enables satellite operators to now deliver that algorithm in very specific markets. Still, satellite operators must drill down further to understand what those new megabits mean to emerging markets, explains Scott Sprague, chief commercial officer at NewSat. Some questions to consider include: What will they support? How will they be used? Is there a market for that much capacity?
“You don’t have to look any further than North America where the initial strategy for WildBlue’s roll out was to cover every market in North America with beams,” Sprague says, explaining that it later realized there weren’t enough people in Montana, North Dakota or Wyoming to fill the beam. “So what they now use is a mix of high throughput Ka-band and large regional Ku-band beams. That’s what service providers and customers are going to use moving forward.”
Sprague believes Africa is not far behind the technology evolution that has occurred in Latin America over the past decade. Back then, he says there was little demand in Latin American countries and an oversupply of capacity. Price points were starting to drop and there was even a concern about fiber penetrating the market and displacing satellite services that, historically, were point-to-point services.
However, Latin America today is an “absolutely robust market” for all types of satellite services, Sprague says, HTS included. Between consumer broadband, educational broadband, and enterprise VSAT networks, he says the Latin American market is exploding. “I believe the same thing will happen in Africa,” he adds. “It might take a little bit longer but we can clearly see the evolution. Latin America went through the same political instability but one of the things that transformed the market was when some of the big players in Mexico, Argentina, and Brazil became more stable.”
Although not a new service or application, Sprague says HTS’ ability to lower costs is opening emerging markets like in Africa and Asia Pacific. Specifically, there will be growth in consumer broadband and DTH. Business cases that couldn’t close in the past due to pricing issues will be closed in the near future, he says.
“You’re going to see a lot of things that will drive demand for high throughput capabilities in those marketplaces,” Sprague says. “One of the untapped markets that is highly regulated at this time and can be difficult as far as barriers to entry is Saudi Arabia. There are great growth opportunities from a consumer broadband and cellular perspective.”
Educate, Upgrade and Learn
Last November, Euroconsult released a report on the market take-up of HTS globally. On average, people in developing countries can afford up to $50 per month for connectivity. But in emerging markets like Brazil, Russia or Asia, the focus shifts from consumer broadband to governments building networks that provide connectivity for schools and underserved or unserved communities, says Nathan de Ruiter, senior consultant at Euroconsult.
Each country also requires a different market entry strategy. No two are alike. For vertical markets like consumer broadband, he says satellite operators will be challenged with managing new business models, since there are numerous ways to distribute capacity to clients. Another downside is the increased amount of capacity offered.
“We project capacity to almost triple over the next three years, from 500 to 1,400 Gbps in 2016,” Ruiter says, adding that the rise is unprecedented. “When you have a lot of capacity in these regions, there’s a risk of oversupply. Historically, that means pressure on prices to drop.” Still, that isn’t stopping the launch of HTS systems. Over the last decade, he says 31 HTS systems have been launched, and another 33 are expected to be launched within the next two years, either as HTS satellites or HTS payloads.
Christopher Baugh, president of NSR, believes there are still many lessons to be learned when entering the African market. As an example, he mentions Intelsat’s most recent quarterly filing, which reveals the African government’s negative impact on its business. “Africa is just an oversupplied market for traditional capacity but still is a very good opportunity,” says Baugh. “HTS is not necessarily in the same demand in Africa as it is in Eastern Europe or the Middle East. It’s just taking a lot longer [to penetrate] and is more challenging than expected.”
More Opportunities, More Hurdles
Many opportunities for HTS in emerging markets will be focused on HTS payloads on satellites also carrying conventional payloads, says Dave Rehbehn, senior director of marketing at Hughes. “If you’re a regional satellite operator and you’re already spending more than $200 million for a satellite with C-band and Ku-band capacity, there’s a relatively small, incremental cost to add an HTS component to that satellite,” he says, explaining that quite a few regional players are planning or have already built smaller HTS payloads. While Hughes is also tracking and pursuing HTS opportunities worldwide, larger countries, such as Brazil and Russia, will present the most potential for large scale broadband systems. Rehbehn says both have very large populations spread across diverse geography, which typically represent the types of areas best served by satellite.
But as in all markets, including emerging economies, Rehbehn says Internet access will drive demand. Now that they can afford satellite services, small to medium businesses will be in the driver seat, pushing for Internet connectivity wherever they’re located.
Rehbehn points to new vendors who are introducing flat panel antennas at reasonable costs, and explains that more mobile applications would be deployed if the cost of the antenna dropped. Some players, he says, are promising to significantly reduce the antenna price, changing the whole dynamic of mobile antennas. It could make a big difference. With lower prices, he says, the market for on-the-move services could be extended to include affluent consumers seeking broadband connectivity on their recreational boats or vehicles.