A Look Ahead: 2001’s Triumphs And Tribulations

by James Careless

With 2001on the horizon, it’s time to look ahead to the first real year of the new Millennium (despite all the hype, 2000 was actually the final year of the last one), and figure out what it’s going to mean for the global satellite industry.

What will be 2001’s triumphs and tribulations? It’s impossible to answer this question definitively beforehand, but not unfeasible to take some “best educated guesses.” That’s why Via Satellite recently spoke to some of the satellite industry’s best and brightest lights, for their 2001 predictions.

2001’s Likely Triumphs: The Internet Leads

Not surprisingly, the Internet and related IP (Internet Protocol) data transmissions are at the top of many people’s “2001 Triumphs” list.

One of these people is Gary Kanipe, Tripoint Global’s president and COO. “I certainly think that Internet-driven applications are really going to be the big winners, [and] driving the big demand,” he predicts. This is a view shared by Charles Jablonski, COO of Geocast. He sees 2001 as the year when “broadband availability will finally become real.”

As it becomes real, 2001 will prove to be “a critical year for a number of broadband initiatives reaching for the same market segment,” says Paul Cox, Andrew Corp.’s vice president for satellite products/systems and government antennas. He adds that, with broadband services coming to fruition, “the hectic pace is moving this year from the space segment to the ground segments.”

According to Kanipe, satellites are going to capitalize on the Internet in two ways. First, satellites will increasingly serve as the “backbone” for global Internet traffic. Second, two-way satellite services such as Gilat’s Starband Communications and Hughes Network Systems’ (HNS) DirecPC will play an ever-bigger role in delivering high-speed Internet access to consumers.

Kanipe’s predictions–especially the second one–are endorsed by both Gilat and HNS. In fact, these predictions explain why Gilat’s vice president of investor relations, Dianne VanBeber, expects 2001 to be “an incredibly exciting year,” and why Sam Baumel, senior director of marketing for HNS’ Network Systems Consumer Division, says, “there’s so much going on, it’s hard to choose” which potential triumph to name first.

For her part, VanBeber believes the “massive rollout” of competing high-speed Internet satellite systems means that “a lot of eyes are going to be on our marketplace….there will be so much more focus on the satellite industry than there ever has been before, and it’s not only going to be here in the United States, but internationally as well.” In Gilat’s case, it doesn’t hurt that Starband is also backed by Microsoft and Echostar Communications, and that Starband is now being featured in all Radio Shack retail outlets.

Meanwhile, Baumel says, “I think you’re going to see rapid growth in DirecPC, especially our ‘Powered By’ partners.” These partnerships, which link DirecPC with major ISPs, include ‘AOL Powered By DirecPC’: perhaps the most powerful marketing relationship possible for a satellite-based broadband services provider.”

Another broadband-based sector poised for a 2001 launch is Digital Audio Radio Service (DARs). Two companies, XM Satellite Radio and Sirius Satellite Radio, will be using satellites to deliver 100 audio channels to car-based receivers, says Kevin Kirkpatrick, Xicom’s director of marketing. As a supplier of hardware to this new industry, Xicom is predicting that “digital audio radio is going to be really big,” says Kirkpatrick. “It opens up a brand new market of satellite applications.”

Enterprise Opportunities

Over on the “enterprise” side of the business, HNS senior vice president Dennis Conti expects to see “the wider-spread availability of broadband delivery over satellites.” He also predicts there will be significant “performance improvements” for Web-based satellite communications.

In either case, Raymond Pieck, president and CEO of satellite equipment manufacturer Newtec America, says two-way data traffic will be “a major growth area for the industry.” Helping matters will be the comparative slowness of conventional 56 kbps telephone modems, and the problems associated with both terrestrial high-speed access over ADSL (the need to be close to the telephone company’s central office) and cable TV (network reliability problems).

“Obviously satellite has a couple of advantages” over the competition, Pieck observes. These are satellite’s natural point-to-multipoint architecture–which works well with two-way Internet traffic–and the speed with which new users can be connected.

Comsys Senior Consultant Simon Bull sees 2001 being a good year for VSAT (very small aperture terminal) vendors. In particular, he expects these vendors to profit by moving from separate products to overall integrated solutions.

“The idea is that customers will come to the VSAT companies and say, ‘this is what I have to achieve. How are you going to help me do this?'” says Bull. “This will cover everything from providing the VSAT and the space segments to organizing everything that will hang off that: PCs, TVs, audio players, LANs–the works.”

“It’s gone beyond the point that VSAT manufacturers can only sell the box,” Bull adds. The good news is “there’s good profit margins to be made from providing this level of service.”

However, David Ben-david, president and COO of NSI Communications Systems, is more interested in the higher performance he’s expecting from 2001’s new VSAT equipment. “We’re talking about 2 megs for most of the international traffic,” he says, rather than the 64 kbps still found outside the United States. This higher data rate will end up supporting the integrated solutions being predicted by Bull.

Of course, Ben-david expects to see this higher capability drive sales for his company, and he’s not alone. In fact, many in the satellite industry expect 2001 will be a good year for sales and growth, no matter what their business.

A case in point: David Helfgott, GE Americom’s senior vice president of marketing, expects “2001 to present many opportunities” for his company. These include “expanding our interests in South America, enhancing our Digital C offering with new IP-oriented services, and the continued celebration of our 25th year as a satellite operator.”

Helfgott also sees 2001 as a preparatory time, specifically for the “next generation satellites” that GE Americom will begin launching into its recently acquired transoceanic slots in 2002. His company also has “another eight spacecraft in the manufacturing pipeline,” and has announced that it intends to add a second satellite over Europe.

Space Systems/Loral is also expecting 2001 to be a busy time, says Dan Collins, the company’s senior vice president for worldwide marketing and sales. In fact, “I think 2001 will continue the trend of being a banner year” for GEO satellite contract awards, he says. Normally the global industry gets between 30-35 contracts annually, but 2000 saw this number hit 40, and Collins expects the same for 2001.

So what’s driving the boom times for GEO satellite manufacturers? Thank the end of the “Asian Flu,” replies Collins. In other words, the Far East has recovered from the financial meltdown it suffered a few years back. This has led to increased satellite usage, and hence more revenues to build bigger and better new birds.

As well, the Internet explosion is also driving the construction of what Collins calls “broadband satellites.” Put it all together, and the result is sunny times ahead in 2001.

Finally, the U.S.’ move to digital satellite transmission will also stand as one of 2001’s triumphs, says Keith Smith, president of Wegener.

So why will U.S. TV networks move to digital, after lagging so long behind the rest of the world? The answer is the economy, replies Smith. “Times are getting more difficult,” he says. “The pressure to reduce costs and increase revenues is more than it’s been in quite a long time.” Hence the changeover. One way for U.S. broadcasters to save cash–after they’ve replaced their equipment–is to slash their bandwidth usage by going digital.

2001’s Feared Tribulations

Okay, so we’ve looked at the possible good times coming in 2001. So now it’s time to bite the bullet, and consider what might go wrong.

With every big expansion come shortages. In the case of increased IP satellite traffic, the shortage many in the industry fear is space segment. Will there be enough bandwidth to support all this wonderful data capacity being promoted?

Kanipe isn’t sure. “It’s arguable whether we’re going to find enough or not,” he says. The reason: Kanipe fears the Internet may move from an asymmetric to a symmetric transmission model. In other words, users may start sending a lot more data upstream than they are now, forcing ISPs to give them more bandwidth.

If this happens, bandwidth will have to come from somewhere–namely, the backbone providers themselves. In the case of satellite Internet providers, this means they’d have to either add more transponders, or reduce network demand by cutting transmission speeds. One can only hope that more satellites will get into orbit before this happens–if it happens–to handle this additional traffic load.

Even if Internet traffic doesn’t become symmetrical, Ben-david thinks space segment availability will be a problem in 2001. He says the shortage problem is “still the same old one, but getting worse.”

For his part, Bull is concerned with how carriers package the IP spectrum they’ve got. “You can’t sell bits for bucks,” he says. “The problem with the satellite industry, if there is one, is we have a limited amount of bandwidth to sell.”

The reason this matters is because satellite’s competition, the fiber optic carriers, don’t have this problem. In fact, they have “buckets and buckets of capacity,” says Bull. Thus terrestrial carriers can afford to price their packages on “bits for bucks,” because they have enough bandwidth to spare. Where they fall down, he says, is providing access to their networks at an affordable cost.

In contrast, “satellite can provide the access for very reasonable cost, but it doesn’t have buckets and buckets of capacity,” says Simon. He worries that any satellite company who goes the “bits for bucks” in 2001 will end up in financial hot water.

Whether this comes to pass in the upcoming year remains to be seen. In the meantime, Bull warns everyone in the space industry to “look very carefully at any satellite project that’s selling bits, because if it’s selling bits I think it’s a recipe for disaster. Can’t be done.”

Meanwhile, Pieck is concerned with more technical matters, namely ensuring that high-speed two-way IP traffic will move smoothly over satellites. “To get this working is going to be the challenge,” he says, especially over Ku-/Ka-band satellites, where the downlink path will be at 12 GHz, and the uplink return at 30 GHz.

Technical matters are also a concern for Collins. In this instance, he’s worried about the new crop of launchers that are in development, including “the Atlas 5, the Delta 4, the H2A Plus and the Ariane 5.” All of these new launchers are designed to carry the next generation of satellites, which are heavier than their predecessors, due to enhanced functionality. Without these launchers, most of these new satellites can’t get aloft.

The problem, according to Collins, is that the development of these launchers is lagging. These delays “won’t pucker anything in 2001, but it could stand to pucker things beyond that,” he warns.

Over on the sales side of the satellite industry, Conti is concerned about terrestrial DSL. What’s bothering him is the public’s mistaken belief that high-speed DSL service is readily available from their local telephone carrier. Few are aware of DSL’s technical limits, he points out, such as its inability to function more than 12,000 feet away from the central office even under ideal network conditions. Others simply don’t know that just because their local telephone company says it offers DSL, doesn’t mean it offers this service to their personal phone numbers.

The reason this matters, of course, is consumers are less likely to consider satellite Internet service if they think they’ve got a DSL alternative. That’s why it’s important for satellite carriers to get the truth across to the public, says Conti, “by way of demonstrations and trials.”

Another challenge–and potential tribulation–is making the public understand all the new services being offered, says Baumel. It’s not just a matter of manufacturers designing straightforward, easy-to-use hardware, he says. It’s also a marketing problem: one where the service provider and manufactures need to clearly communicate the benefits of these enhancements to the public to support rapid acceptance and adoption.

One area where Kirkpatrick thinks this hasn’t happened is Ka-band, specifically in the satellite phone market. With Iridium having failed and Globalstar in trouble, “I think it’s obvious that phone-over-satellite is not a workable model,” says Kirkpatrick. His fear is that, having been burned once, investors will shy away from backing data-over- satellite–a product Kirkpatrick says is “a viable model.”

But consumers and investors aren’t the only people with closed minds, says Jablonski. Some satellite manufacturers and service providers suffer from techno-tunnel vision as well.

“When a new disruptive technology comes along, people always say, ‘we’ve just invented X, and it’s going to do exactly what Y is doing today,'” he says. Unfortunately, “that’s never how it works out.” Once a new technology hits the scene, it ends up being applied in new and different ways from how it was originally conceived.

As proof, Jablonski asserts that the telephone was originally invented to broadcast music, the radio for point-to-point communications, TV sets to replace movie theaters, C- band satellites to support telephone traffic, and broadband to deliver “videos on your computer.”

Clearly, each of these technologies found new uses once they were deployed. To say the least, Jablonski expects the same for two-way broadband traffic. That’s why he’s telling manufacturers and service providers to wise up.

Finally, there’s the small matter of getting people who can support all this new technology, says VanBeber. With so many changes taking place in the satellite industry, getting trained service people is going to be a real challenge in the year 2001. What’s needed is both active education of those already in the field, she says, and an active recruitment effort to bring in new blood.

2001 Could Be The Best And Worst Of Times

Put it altogether, and one can see that 2001 holds both promise and pitfalls for the satellite industry.

On the positive side, this year could be a boom time for the industry, as IP services go prime time to the world. However, it could also be a disaster, if bandwidth shortages, short-sighted marketing, and a lack of consumer services and support drive the public to terrestrial competitors.

This year’s winners will be those who look beyond today’s preconceptions, as Jablonski urges. The losers will be those who take all this change for granted, thinking they’ll effortlessly be swept to profits atop the wave of IP demand.

That this demand will exist seems unquestionable. What remains uncertain, however, is whose services and equipment will actually be selected to fulfil it.

James Careless is a contributing writer to Via Satellite.