Can iPSTAR Revive Broadband?

By Jose del Rosario

In 2004, Shin Satellite (ShinSat) of Thailand will launch a new iPSTAR satellite aimed at providing telecommunications and multimedia services to households, businesses and public organizations. Individual households also will be targeted to provide access to a wide variety of pay television and video-on-demand (VOD) services, low-cost IP voice telephony, as well as high-speed Internet connections.

The services will be offered at price levels comparable to other terrestrial broadband services, such as ADSL (asymmetrical digital subcriber line), cable modem, and LMDS (local multipoint distribution service). Shin Satellite also plans to use the advantages of geostationary satellite technology, such as flexible service locations and quick deployment, to tap markets located in rural and remote locations.

Other features of the service include:

• Large Capacity – iPSTAR’s capacity will be 40 Gbps for two-way applications and aggregate bandwidth of approximately 1 Gbps for broadcast applications;
• Low Cost — Standard Mbps pricing for iPSTAR broadband satellite is expected to be less than one-third of a conventional satellite. Service providers can pass this cost reduction on to end subscribers to increase their subscriber base while still enjoying the upside of retail profitability and other value-added revenue potential.
• Bandwidth on Demand
• Low Price, Small User Dishes – The iPSTAR dishes will be offered at a price of less than $1,000. The terminal will offer return capability of up to 4 Mbps and forward capability of up to 8 Mbps per user.

Broadband Projections

Current Northern Sky Research market projections show a moderate but steady uptake of satellite broadband services in the Asia-Pacific region. This growth largely is driven by ISP links, government-backed initiatives for bridging the digital divide and private sector consumption for e-commerce functions.

However, as markets begin to shift from ISP links to broadband enterprise services, the success of iPSTAR should not only enlarge the overall broadband via satellite market, but also change the mix of revenue streams and hasten the market shift over time. The residential direct access segment should also perform better and account for a larger share of overall revenues. These trends do not mean the satellite ISP business will lag. iPSTAR also will target smaller ISPs that have limited bandwidth needs, in the area of 4 to 8 Mbps, to serve smaller communities.

The thrust is to address the broadband market in the Asia-Pacific region. However, the scope of the project is substantial, well beyond anything that has been done in the region before. ShinSat may find itself stretched in trying to meet ground segment fulfillment to the customer base.

IPSTAR Prospects

Broadband enterprise services and residential direct Internet access are the two market segments that iPSTAR targets. ShinSat already has signed agreements with CS Loxinfo (one of the largest ISPs in Thailand), VSAT operators such as Samart and Siamsat, and the Communications Authority of Thailand (CAT). While these clients will become iPSTAR’s service providers in Thailand, the operator’s strategy is to market the broadband service largely outside the country. The reason is twofold. First, the migration to broadband services from dial-up in Thailand is difficult due to competition with flat rate, dial-up services. According to iPSTAR, a user can be online for eight hours and only pay roughly 6 cents per call or connection. Although this business model cannot be sustained, it will take time for flat-rate dial-up services to disappear. In fact, ISPs are beginning to consolidate since margins have remained low. Second, even if Thai customers move to broadband, the market is not expected to be large given the satellite’s capacity. iPSTAR’s Patompob Suwansiri indicated that “the iPSTAR satellite can serve up to 10 million broadband users throughout the Asia-Pacific region. It will provide the largest capacity that this region has ever seen.” iPSTAR is therefore on the right track in terms of concentrating on large markets to sustain its business plan.

ShinSat sees that on the whole, demand in the Asia-Pacific region is promising for the upcoming iPSTAR service.

“The company’s emphasis during the early years of service will be the Chinese, Indian and Australian markets,” Suwansiri said. “We have signed cooperation agreements with partners in these countries and are in the process of rolling out the iPSTAR infrastructure and [we will] begin to provide services before the iPSTAR-1 satellite is launched in 2004.”

Several other operators are planning to launch new satellites over the next two years. They include Hong Kong’s AsiaSat and APT Satellite Company. The Indian government, one of ShinSat’s major customers, also plans to launch a satellite. The question then is – how much access can iPSTAR gain in these targeted markets? Rival operators complain that both China and India have given preferential treatment to national satellite operators as a matter of principle, and this trend likely will continue over time.

Robust Revenues

ShinSat also is looking to achieve revenue growth of 10 percent to 15 percent this year, reaching 5 billion to 6 billion baht ($116 million to $140 million), mainly due to contributions from its Internet and Indochina businesses. These revenue projections are necessary partly to cover investments made in the iPSTAR program. Given the region’s overcapacity and economic challenges, these revenue projections are a bit aggressive but certainly achievable. Demand and access to the Chinese and Indian markets will have to increase in order for these revenue projections to materialize.

One positive is that 35 percent of iPSTAR’s capacity is pre-sold. According to ShinSat, that pre-sold capacity generally is for the 12-year estimated life of the satellite. Payment terms vary for consumers. Some of them may pay each year or period, while others agree to accelerate payments. On the average, traditional satellites begin earning profits at the 60 percent fill rate. ShinSat claims that due to the immense capacity of the iPSTAR spacecraft, the breakeven point should be between 15 percent and 20 percent.

ShinSat has “soft launched’ its iPSTAR service using its existing Thaicom satellites to verify the technical aspects of the technology on the ground segment. Remote area enterprise and Internet cafés have now signed on for the service. It seems that the program is technically sound.

The largest advantage of iPSTAR is the low monthly service costs that traditional satellite platforms will not be able to achieve. From a purely technical and pricing perspective, the iPSTAR program has the right mix. Service provider partners will have to pressure the national governments to open up satellite services to avoid having iPSTAR restricted by way of tariff or non-tariff barriers.

Conclusion

The iPSTAR program is nothing short of revolutionary and forward looking in its technical and marketing thrusts. The program is ambitious and, given the right conditions of market openness and demand, may well succeed.

In assessing the program, Northern Sky Research surveyed market players, including iPSTAR’s potential customers and competitors. One concern that remains on the minds of market participants is the reputation and branding of ShinSat. Although most participants agree the program is sound, they feel that ShinSat may be rushing the service since the company is not a well-recognized player in the Asia-Pacific market. Since the operator has not yet reached the stature that would instill confidence in the service, many market players recommend an extended soft launch period.

Northern Sky Research does not share this view. One way to gain confidence in ShinSat and iPSTAR is for customers to test and use the product. The broadband satellite market largely has failed due to technical and cost considerations. iPSTAR may be able to change this poor history. Should iPSTAR succeed, operators worldwide would likely begin to replace traditional satellites with broadband satellites. The role of satellite technology as a niche player, due to service cost issues, may begin changing. The key is for the price of satellite bandwidth to be competitive with terrestrial alternatives.

In assessing the program, Northern Sky Research assumes technical and price challenges will be overcome. The bottom-line is that the top challenges iPSTAR will face are market access and branding issues. Market access will ensure service take-up, lead to market recognition and build confidence in the iPSTAR brand.

Finally, iPSTAR also is considering next-generation applications, such as videoconferencing and Wi-Fi on university campuses. However, if all else fails, the satellite is equipped with broadcast beams and unicast beams to provide traditional satellite services. As a hedge strategy, direct-to-home (DTH) satellite TV service, trunking services for small ISPs (4-8 Gbps capacity), and rural telephony may be targeted by the operator to fill capacity on the spacecraft. This configuration provides for a sound selling point. With this approach, traditional services will be running on a next-generation satellite with a lower bandwidth price point.

Jose del Rosario is senior analyst and regional director for the Asia Pacific at Northern Sky Research. He can be reached at [email protected]