Consumer Satellite Internet Access in Europe

By Patrick M. French

In the coming year, the space industry will closely watch the launch of a future generation of broadband satellite services aimed at the consumer and small office/home office (SOHO) market in the United States and Canada. These services will be a major departure from existing offerings and will be the first to make large scale use of Ka-band capacity. Will this service succeed? Can the price points be met? Will the technology work satisfactorily? Most importantly, Will consumers buy it?

All of these questions are fair ones to ask and will hopefully be answered before the year is out. However, in a recent study published by Northern Sky Research (NSR) assessing worldwide broadband satellite markets, it was clearly pointed out that the path chosen to address the consumer/SOHO market in North America is not the only road to success. There are different business models that are equally interesting and offer just as much opportunity for breaking into this emerging market area.

Step-by-Step

In Europe, the satellite industry is taking a different, step-by-step approach by first trying to bring down the cost of customer premise equipment in order to get this market rolling. Using this less expensive equipment and capacity on existing satellites, the idea is to build up a customer base to prove the viability of the market before considering the launch of a dedicated satellite or adding significant new Ka-band capacity to a future satellite. In many ways such an approach is well suited for a market that is as fragmented and diverse as the one found in Europe. In addition, the European Union, through the eEurope broadband policy initiative, is pushing for the development of national broadband strategies with the goal of converting half of all Internet connections to broadband by 2005. This initiative is no doubt pushing overall broadband investment in the region for both terrestrial and satellite-based services, and is the main reason for proposals before the European Commission (EC) to fund the purchase of an initial 300,000 satellite terminals.

If broadband satellite services for consumers and SOHOs are to emerge as a viable market in Europe, the most likely path will be using existing Ku-band capacity, taking advantage of the large number of dishes already pointed at key satellite TV neighborhoods serving this region. There are over 46 million satellite TV homes in Europe and, while the large majority of these are free-to-air viewers, this represents a dynamic, established market that could be receptive to broadband satellite services.

Lower priced customer premise equipment (CPE)would be distributed through the extensive and diverse network of satellite TV equipment resellers, outlets and shops throughout the continent. The biggest challenge will be securing the first big order of equipment needed to pull down the price. Our analysis indicates that, in the eyes of the consumer, a satellite service can not be priced much differently than a terrestrial broadband option. This implies a monthly service price on the order of 30 to 40 euros ($37 to $50) and equipment cost and installation of no more than 500 euros ($624). This is an important price point because for a consumer, this means a service that will cost less than 1,000 euros ($1,249) in the first year, a very important psychological barrier. Any figure of a 1,000 euros or over (essentially 4 figures) will drive consumers away from such service. Key to success will be keeping the first-year cost to a number that is only three figures (999 euros or less) where the service and equipment cost is on the order of what a consumer would pay for a satellite TV service in the first year. A typical consumer in Europe might pay up to 200 euros ($250) for a set top box, another 100 euros ($125) for installation, and 40 to 50 euros ($50 to $62) a month in service fees.

Gap Filler

NSR does not project service and CPE pricing to reach the levels described above until 2006. In the meantime, NSR has noted an important trend among the large European telcos and Internet service providers (ISPs). More and more often, these large service providers add one-way and two-way satellite broadband solutions to their mix of product offerings targeted at the consumer market. Key among these operators in Europe include Tiscali, British Telecom, Deutsch Telekom’s T-Systems, and France Telecom. While these offerings tend to remain expensive, compared to xDSL, and are meant more as a gap filler than anything else, this trend is nonetheless significantly raising the profile of satellite as an option in the eyes of consumers. It will take a number of years for these large telcos and ISPs to get a handle on marketing satellite services to consumers and SOHOs, to train their sales staff, to implement key customer service operations and to develop the distribution channels. However, it looks as if much of this structure will be ready just as the lower priced satellite services hit the market in late 2005 and 2006.

One-Way Not the Answer

NSR forecasts that the consumer and SOHO satellite broadband market will remain relatively flat through 2005. There were an estimated 45,000 two-way consumer and SOHO subscribers in 2003, and this number is projected to only increase to 68,000 by the end of 2005. This estimate does not include tens of thousands of one-way satellite subscribers; however, NSR does not see one-way satellite services as a viable, long-term segment and projects that one-way subscribers will eventually migrate to two-way services once the next generation of lower cost options become available. Starting in 2006, NSR sees rapid growth as the next generation of low-cost equipment hits the market. Two-way satellite subscribers are projected to top 360,000 in 2008.

Just as there is more than one road to arrive at a destination, so there is more than one way to tackle a market. The initiatives being undertaken to develop consumer and SOHO broadband satellite services in Europe are taking a different road than in North America. With some hard work and good planning, it appears that there is a real chance for success in Europe. Of course, there is no guarantee of success and important roadblocks could appear in the coming years. Yet, it is NSR’s opinion that right choices are being made and companies trying to introduce satellite broadband to residential and SOHO customers have definitely started off in the right direction. Let us hope that this path does not prove to be too difficult to follow.

Patrick M. French is a senior analyst for Europe and Northeast Asia at Orlando, Fla.-based consultancy Northern Sky Research. He can be reached by e-mail at [email protected].This article is based a new NSR report entitled Broadband Satellite Markets, 3rd Edition. Information on the report can be found at http://www.northernskyresearch.com .