Growth Ahead For Asia-Pacific Satellite Services
Continuing economic uncertainty has dampened demand for broadband satellite services in the Asia-Pacific region. Since 1997, the Asia-Pacific region has experienced downturns and recoveries in short cycles that have hampered investment and outlays for enhanced telecommunications services. The economic recovery that continued until 2001, following the crippling financial crisis of 1997, appears to have once again been curtailed by the U.S. recession and the war in Iraq. The Asian Development Bank in its report, “Asian Development Outlook 2003,” stated that although growth in the Asia-Pacific region generally improved in 2002, “growth remained below long-term potential in most countries and it was insufficient to substantially raise income and reduce poverty.”
In addition, the effects of SARS (severe acute respiratory syndrome) in the region have led to an adjustment of GDP growth. The ADB noted that “increasingly, a major risk to economic growth in developing [areas of] Asia, particularly East and Southeast Asia, relates to the spread of SARS. Already, the epidemic is significantly affecting travel and tourism in several countries of the region, as well as several other service subsectors, such as hotels and restaurants, retail trade, and transport, particularly air transport within the region. While it is too early to evaluate the impact of the epidemic on economic activity, as much will depend on how long it lasts, economies such as [mainland China], Hong Kong, Indonesia, Malaysia, and Singapore will be affected, even if the impact is of short duration. Hence GDP growth forecasts for these economies for 2003 have already been lowered.”
Against this backdrop, however, is the expansion of the Internet across the region continues, as well as the staggering pace of development in China and other key markets. China had 59.1 million Internet users by the end of 2002, the second largest number in the world after the United States. The number of “netizens” accounted for 4.6 percent of China’s population of some 1.3 billion people. It is predicted that the number of net surfers in China will jump 46 percent to 86.3 million by the end of 2003.
According to the International Telecommunication Union (ITU), the Asia-Pacific region leads the world in broadband Internet access with five Asian economies among the top 12 worldwide in penetration. However, most of these subscribers are using terrestrial-based platforms, specifically DSL and cable modem technologies.
The ITU said that capacity on Internet bandwidth has leapt eightfold over the last two years from 8 Gbps to 65 Gbps at the end of 2001. The ITU added that “the notion that restrictions on content would hinder Internet usage has been disproved in Asia, as the region, with 160 million users, now accounts for one-third of the total Internet users in the world, more than any other region. Innovative schemes for community access, such as Indonesia’s ‘warung’ Internets or ‘warnets,’ have boosted Internet usage, as have prepaid cards and the boom in online gaming and e-government.”
If the geopolitical and economic environment stabilizes by the end of this year, and the SARS outbreak is contained, the outlook for broadband services should begin to brighten. Internet service providers (ISPs) in need of backbone connections to the United States and mirror sites across the region, coupled with the need by enterprises and households for robust last-mile access, should favour satellite technologies for quick, cost-effective solutions.
As such, total bandwidth needs for satellite links should grow from about 6.2 Gbps in 2002 to more than 12 Gbps, or almost double the capacity, by 2007. This growth can be considered moderate given that terrestrial technologies are growing at more dynamic rates historically and will continue over the near term. Growth can be attributed to the fact that satellites are used in underserved and remote areas where development of the Internet is slower compared to urban areas that are being tapped by wireline platforms.
Growth in broadband usage is expected to continue within the Asia Pacific. However, the mode of access is expected to continue to be terrestrial-based platforms as well. As such, annual revenue growth for satellite-based services will be moderate but steady. Revenues should more than double from 2002 to 2007, representing modest but healthy growth overall.
The Greater China market, led by mainland China, as well as the South Asia market, led by India, will be the main drivers of satellite-based demand for the entire region. The ITU reported that “in 2001, the region emerged as the world’s largest telecommunication market, having added more than one new telephone user every second for the last decade. The ITU report observed that South Asia, currently the least developed sub-region with the lowest teledensity, could provide the next great spurt of growth for the region as this is where the potential for “catch-up” is greatest.
The Australasia region, led by Australia, will garner a relatively large part of the broadband revenues; however, the market is maturing in that region such that growth is likely to be flat towards the out years of the forecast.
In East Asia and Southeast Asia, stable revenues are expected. Satellite usage in East Asia is maturing, much like in Australia, while usage in Southeast Asia has a large potential; however, the region’s socioeconomic condition is expected to restrain growth until the end of the forecast period.
There are three distinct segments in the Asia-Pacific broadband services market: ISP backbone and trunking; enterprise broadband services; residential direct Internet access.
In terms of the revenue breakout for specific business units, the market is expected to shift from Internet trunking to broadband enterprise services over time. In the developed countries of the region (Japan, Korea, Hong Kong, Taiwan, and Singapore), Internet trunking services for ISP links have largely been abandoned in favour of fibre trunking. Although the region’s topography necessitates the need for satellite links, price points inhibit adoption and use of satellite platforms for cash-strapped developing countries. Residential direct Internet access services are not expected to account for a large percentage of revenues. High price points compared to terrestrial technologies and slow development of the Internet in rural and remote areas largely stifle demand for these services.
The government has been the key to development of the Internet and of broadband usage in this region. The success of Korea highlights this fact, and important lessons can be drawn from the Korean experience. Key policies and initiatives learned in Korea can be exported to developing countries that are currently instituting programs not just to catch up with their more prosperous neighbours, but to use the information and communication technologies (ICT) sector as a catalyst for overall economic growth, development and poverty alleviation.
The United Nations Development Programme (UNDP) has stated that “ICTs have repeatedly demonstrated their potential for alleviating poverty in developing countries. In many instances, impoverished people have experienced benefits in the form of increased income, better health care, improved education and training, access to job opportunities, engagement with government services, contacts with family and friends, enterprise development opportunities, increased agricultural productivity, and so on.”
The wholesale market is expected to exhibit a relatively low compound annual growth rate (CAGR) as satellite services begin to progressively lose out to fibre for trunking needs. The region, which is currently experiencing overcapacity, will also add price pressure such that wholesale transponder costs will likely continue to decline over time. As such, retail margins are expected to widen as operational costs from the service providers decline. Margins are also expected to improve as premium broadband enterprise services begin to impact the overall market more extensively.
In the Asia-Pacific region, the take up rate of satellite-based broadband services has been extremely low compared to terrestrial alternatives. However, satellite technology can play a vital role in the region since topographical challenges will limit the amount of terrestrial buildout if governments and multilateral agencies hope to bridge the digital divide within a reasonable length of time.
Satellite technology, which is currently high-priced and low quality when compared to terrestrial alternatives, will remain a niche solution if prices do not decline. Only governments and multilateral agencies will be in a position to deploy high-priced satellite services since they have high price elasticity of demand. The full potential of the corporate and residential market will continue to be stifled with the current price offerings, since these entities have low price demand elasticity.
But there is good news on the horizon. Thailand’s iPSTAR program has the right philosophical thrust in its plan to address the broadband market in the Asia-Pacific region. Shin Satellite is specifically looking to benchmark DSL and cable modem retail offerings in order to bring its iPSTAR satellite technology into the mainstream. Should the technical challenges and marketing aspects be successfully implemented, satellite platforms should enjoy greater acceptance and penetration in corporate and residential sectors. More importantly, next-generation or replacement satellites will likely follow the technical specifications of iPSTAR-1. The program will represent the next evolutionary step in the satellite industry’s continuing development in the telecommunications industry.
In summary, if the lessons drawn from Korea and the price offerings of iPSTAR can be applied to a given country as a development tool, satellite-based broadband services have a high chance of succeeding in a relatively short period of time.
The author of this article, Jose del Rosario, is a senior analyst and regional director for the Asia-Pacific at Northern Sky Research. He can be reached at email@example.com.