Multimedia Monitor: Latin America Internet Market: No Sure Thing for VSATs

By Theresa Foley

Latin America may be in the United States’ backyard, but broadband satellite services will roll out a good distance behind those in North America if the pattern established by VSATs is followed. Financial analysts have begun to recognize VSAT services as the precursor for satellite broadband in many respects. While VSAT prices have plummeted in the last decade and services have vastly improved in Latin America, the technology faces a long list of problems that will pose similar blocks to the large scale roll-out of satellite broadband in this region.

But signs like price reduction give reason for optimism. Gilat do Brasil Ltda. entered the Latin American VSAT market in 1988 with a $45,000 VSAT network product, but was able to bring the price down to around $3,000 for a VSAT in 1999 in Brazil.

The potential market for Internet services in Latin America provides more reason for optimism. Latin America lags behind the rest of the world in Internet penetration, with most countries there having just 1-2 percent of the population provided with Internet access, compared to 45 percent in the United States and 4-5 percent in the rest of the world, according to Renato Dias, STM Wireless’ vice president for sales in Latin America. Delores Martos, New Skies Satellites NV’s vice president for Latin America, said by the end of 2000, about 10 million people in Latin America will be Internet users. But free Internet services that have become popular in Latin America complicate the process of charging fees for the service.

Edmundo Arzate, Satmex director of business development, expects broadband VSAT to have a 38 percent compound annual growth rate (CAGR) over five years. He said Internet services are only 4 percent of the total satellite demand in Latin America today, with the number of transponders for Internet connectivity going from 39 in 1999 to 64 in 2000. He also indicates that these numbers are projected to go to 95.2 in 2001.

Simon Bull, senior consultant at consulting firm Comsys Ltd., said 12,000 VSATs were sold across Latin America in 1999, of the more than 100,000 sold worldwide. While the Latin American sales were up 70 percent over 1998 figures, Bull says international sales are disappointing overall because 70 percent of total VSAT sales were in North America, and 98 percent of that was in the United States. “The industry has a high rate of compound annual growth, 17.5 percent last year, but sales in the developing world have started to dip,” Bull says. “This means that all those areas that were the ‘great white hope’ for VSAT are losing ground versus the heavy infrastructure plays (for VSAT) in the United States, Canada and Europe.

“The future does not play well. Links for Internet are going to go away in the near future (as fiber is installed in heavy traffic routes). We’re being lured into a sense of complacency,” Bull told the Global VSAT Forum 2000: Latin American conference in Miami in June, sponsored by Phillips Publishing and the Global VSAT forum. Bull says fiber has been scarce in Latin America, but is being installed and will quickly knock the bottom out of the satellite Internet transport market. An E-1 fiber link leases for $1,200 a month in cities in Argentina, and will drop to $400 a month, which is less than the $600 or more a satellite VSAT connection costs in most Latin American locales. Bull warns that in Asia, when fiber moved in, some satellite service providers saw their businesses fall to pieces in three to six months, because the incursion of fiber competition was so swift.

In Brazil, satellites have long been used but suffer from a very negative image, according to Christovam Nascimento, technology specialist at Unisat Ltda., a Rio de Janeiro- based satellite services company. “The satellite solution is like a little ugly duck. Nobody wants it,” he says. Satellite services are perceived as too expensive and suffering from latency problems. Meanwhile, in cities in Brazil, cable modems and DSL for broadband access are becoming available at low cost. And, while satellites are being used for ISP transport services in Brazil, no one is yet talking about satellite dishes as the last-mile solution to bring Internet to end users.

Despite the difficult market, companies are developing new satellite broadband offerings in Latin America. In Mexico, Redsat is working with Shiron Satellite Communications on a two-way broadband network system called Intersky. The system uses a DVB protocol for streaming and can run a 53 Mbps forward link, and a 384 kbps downlink. And Intelsat is introducing BVSAT (Broadband VSAT) this summer. The service will cost less than $15,000 per terminal, be capable of voice and data, and provide 99.96 percent reliability, Ruben Levcovitz, Intelsat group director for Latin America, said.

There is a market for VSATs in Latin America, albeit not an easy one to corner. Fierce competition from fiber, DSL and cable modems threaten to hold back satellite access for broadband. However, falling VSAT prices and possible regulatory reform keep hopes alive for the satellite expansion there.

Theresa Foley is Via Satellite’s Senior Contributing Editor.