Beating The Satellite Broadband Blues

By | June 28, 2004 | Feature

By Roger Rusch, TelAstra

The Internet has been one of the most sensational innovations in history, with the full impact beginning to be felt about 10 years ago. The number of users was doubling every year, and the amount of data was growing even faster. At the end of 2003, the International Telecommunication Union (ITU) reported 303.4 million subscribers to Internet services worldwide, with 64.7 million of these (21 percent) having broadband access.

Satellite broadband became a hot topic when Hughes Network Systems proposed Spaceway, and Craig McCaw and Bill Gates sponsored Teledesic. It could be said these proposals were like Helen of Troy: They launched 1,000 spaceship registrations at the ITU. Initially, many of us remained skeptical.

Late in 1996, ESA asked my company to examine these multimedia initiatives to determine if they were sound business proposals. Were these concepts realistic? Would they really materialize? Certainly, we knew that data communications was so efficient that it had never utilized a major fraction of transmission networks. Satellite data services had been a dream that first emerged with Satellite Business Systems (SBS), but it never developed as rapidly as planned. SBS was a financial disaster, but business data services remained a hope for the future.

After we studied the Internet growth patterns, we were converted to true believers. The trends certainly suggested that there was strong demand and that satellites would be needed to serve many areas of the world. We had vehement reservations about extravagant Low Earth Orbit (LEO) solutions that would require massive investment, but geostationary satellites looked promising. Unfortunately, the expected growth has not materialized, and we still are waiting for the satellite-data inflection point.

False Starts

Early attempts to provide high-speed data services by satellite have been disappointing because the quality of service has been low, and the end-user prices are high.

A number of these systems are in service today including: Aramiska (2000 DVB-RCS terminals), DirecWay (200,000 subscribers worldwide), Divona (a subsidiary of Monaco Telecom), Hispasat (300+ users in Spain), Intelsat, Satlynx (12,000 VSATs), and Starband (50,000 user terminals). Although the total number of users is less than 300,000, broadband satellite services have secured a larger market share than mobile satellite services (MSS). Figure 1 compares the growth of terrestrial broadband with satellite data services and market forecasts. Over the past few years, most of the spectacular systems have withdrawn. The terminated systems include once-famous names in the satellite industry: Astrolink, Celestri, Cyberstar, GE*Star, Millennium, M-Star, SkyBridge and Teledesic.

We now are entering a new era. Several new satellite systems are scheduled for launch soon. WildBlue will use a Ka-band package with Beamlink technology on Anik F-2, which will be launched in July. Spaceway and iPSTAR will be launched in late 2004 or early 2005, according to latest reports. DirecTV Group now plans to use Spaceway for DTH broadcasting of HDTV signals into local broadcast markets in addition to providing broadband services.

Nonetheless, interest in broadband satellite service seems to have waned. Several conferences that focus on Internet satellite services have been canceled. We found great difficulty obtaining participation on satellite panels to discuss the broadband / multimedia business area. No doubt there are many competing activities for these systems, but we have to wonder if the remaining new systems have solid financial commitments.

Business Fundamentals

New satellite systems face an awkward dilemma: They must offer low transmission prices but they must also recover large costs. Most of these systems use high capacity to drive down their cost per data-bit. However, the important parameter is cost-per-revenue data-bit, not cost per theoretical data-bit. It takes time for system capacity to be fully utilized, and many systems are grossly underutilized.

There are two key factors that can have a profound impact on system success:

1) A good distribution system. Millions of customers must be able to locate a dealer, purchase the product, and arrange for service.

2) Low-cost user terminals. Considering consumer alternatives and economic conditions in thin route areas, it may be necessary to drive the price down to $250 or less.

Lessons Learned

It’s not too early to consider what we have learned from the satellite broadband turmoil of the past decade. In a private conversation, Ed Fitzpatrick, leader of the Spaceway project for several years, offered the following suggestion for broadband satellite services:

  • Use evolutionary not revolutionary technology. In other words, don’t use a cannon to kill a mouse. Many of the systems are too sophisticated and too costly. This has delayed their entry into a rapidly growing market.
  • Evaluate, understand and reduce the total cost for the end user. Consider more than just the space segment. The total cost of service will determine the number of subscribers and the amount of usage.
  • Include partners from all parts of the value chain. Establishing a successful business requires active help from all elements of the business. It is extremely difficult to have adequate proficiency in all elements of a business. Don’t become too vertically integrated.
  • Beware of proprietary technology. Be sure to have open standards for equipment. Include multiple equipment suppliers, and don’t be greedy.

In the past decade, we lived through an era where technical excitement triumphed over sound business decisions. Today, investors are more cautious. Satellite operators must implement conservative plans skillfully, and they must offer affordable services. We continue to believe that there is an opportunity for broadband satellites to provide multimedia services to disadvantaged Internet users.

Roger Rusch is the president of TelAstra Inc. You can contact him at 310/373-1925 or via e-mail at RogerRusch@telastra.com.

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