Global VSAT Review: The Truth About Chicken Little

by David Hartshorn

There are a lot of resumés in the mail these days. They appear cheek-to-jowl in mail slots among press releases that are littered with euphemisms like “rationalizing the workforce,” “eliminating redundancies” and “streamlining corporate cost structures.”

Yet despite the storm clouds (not to mention industrial-strength hail and lightning), the sky is not falling. Not, at least, for the VSAT industry’s core players. This point was made repeatedly during two key events held in March in Washington, DC: The GVF’s Global Satellite Industry Summit and PBI Media’s Satellite 2002 Conference and Exhibition.

The VSAT-industry spreadsheet: On balance–and in stark contrast to the bleak performance of other telecom industries–enterprise-sector VSAT sales saw slightly negative to marginally positive growth during the period.

Fundamentally, the core VSAT business is strong, said Simon Bull, senior analyst at U.K.-based Comsys, who noted that enterprise contracts for anywhere from 100 to 5,000 sites are still being signed with regularity. “The business is still out there. I was talking the other day with someone about a [pending] contract for 25,000 sites,” he added.

Predictably, there were notable exceptions in the form of high-profile broadband failures, several of which have dominated headlines for months. But at the other extreme there have been notable broadband successes.

For example, positive broadband satellite results were reported by Bernd Steinebrunner, STM Wireless’ vice president of product management and sales engineering, who said the U.S.-based manufacturer’s revenues increased by 70 percent last year, much of which was attributable to demand for broadband systems.

“We are finding that the higher the data rate, the greater the revenue contribution,” said John Miller, director of satellite networks for Cable and Wireless. Miller added that while 64 kbps services account for more than 25 percent of Cable and Wireless’ volume of VSAT installations, they only generate seven percent of VSAT-related revenues.

The broadband satellite picture is quite different, however. While 2 Mbps services account for less than three percent of the company’s volume of VSAT installations, they generate nearly 40 percent of the revenue contribution.

The VSAT industry’s core strengths were also evident when measured against terrestrial alternatives, in some cases outperforming companies’ efforts in other telecom sectors. “Look at Impsat in Argentina. They focused 99 percent of their business on fiber, and now the best part of their business is VSAT… which it always was.

“Acumen in Thailand is another example. They are a tiny part of the Jasmine Group, but Acumen–a company focused on VSAT services–is basically carrying the Jasmine Group,” said Bull.

Meanwhile–and perhaps ironically–the residential and small-to-medium enterprise (SME) VSAT markets may actually gain from the recent telecom downturn. As Bull explained, the commercial roll-out of DSL is running into “huge problems” and the uptake has been slow. The satellite industry’s ability to provide total coverage of a market with a relatively small investment makes it likely that it will be able to take advantage of DSL’s difficulties.

Other key industry indicators revealed during those events included:

• Northern Sky Research reported that approximately 10 percent of all broadband services are currently provided via satellite.
• Voice over IP (VoIP) is a “major growth area” for the VSAT industry, according to David Hershberg, chairman and CEO of Globecomm. And it continues to be driven by deregulation.
• Claims that the fiber industry is beating satellite services at its own game are “absolute rubbish,” according to Bull. Last year, for example, Europe–a region noted for the availability of cheap fiber–recorded extremely strong sales of VSAT-based services.
• Millions of dollars in cost are being stripped out of the satellite industry’s earth station type-approval process, enabling more competitive pricing and faster time to market. For example, the GVF Mutual Recognition Arrangement is a technical framework that streamlines terminal type approvals. More than $1 million in savings were reported by a single company, Patriot Antenna Systems.
• Blanket licensing of VSAT terminals is implemented and working “very well” in Brazil, according to Star One, which was the first company to receive such a license in the country. The regulatory reform followed close coordination between the regulator, Anatel, and the GVF.
• DTT Consulting said that nearly 15 percent of all ISPs in the world are linked to content sources via VSAT. (In some regions–like Latin America and Africa–approximately 50 percent of ISPs are obtaining content via satellite.)

Do these indications suggest that the global satellite communications industry is out from under the clouds? Not quite. Some balance sheets remain out of balance, certain country markets are struggling economically, competition has never been more intense, and next-generation broadband is still awaiting its moment in the sun.

So in the meantime, carry an umbrella. But rest assured–the sky is still on the up and up.

David Hartshorn is the Secretary General of the Global VSAT Forum. For more information, e-mail: [email protected].