Satellite’s Role in Bringing Broadband to the United States (Part 1)

In these difficult economic times, U.S. federal and state governments are looking for alternatives to cut costs of living for citizens. While the concept of upgraded infrastructure has long meant building more bridges and roads, political parties are focusing on a new area — broadband and communications infrastructure.
Technology, it seems, is being explored as the solution that will allow the country to grow out of its current economic slump. What role will the satellite industry play in the building process? What technology and hardware will be necessary to achieve these goals?
Already, there are several players in the industry planning for the years ahead. Over the next three weeks, Satellite News will present a three-part feature on the satellite industry’s role in updating America’s broadband infrastructure. Weekly installments will appear each Friday, focusing on the areas of bridging the broadband divide to unserved rural areas, enhancing emergency networks for municipal governments and how the industry can help the telecommute reduce our nation’s energy cost.

Part 1 — The Rural Divide

[Satellite News 07-31-08] There are roughly 110 million households in the United States, and 16.5 million of those are in rural communities — areas of the country that have a population density of 50 households per square mile or less where penetration by DSL and other landline services are less likely to occur because of expensive landline installations. Analysts and industry executives agree that this market is a potential goldmine for satellite, but they disagree on how to bridge the rural divide.
    “I do not understand why satellite companies have not been more competitive in rural telephone and Internet services,” said Steve Radio, principal analyst with iSuppli. “They could clean up, but I keep reading about new fiber installation contracts.”
    “We have millions and millions of miles of fiber,” said Frank Prautzsch, a director with the newly formed Rapid Initiatives Group for Raytheon. “They go to the same urban trunk systems in the same direction. There are significant portions of America that are still complete white space — like most of the western Rocky Mountains, sparsely-populated parts of the North and in some cases the South. You can say they have a wireless provider and that they have sporadic issues with their capabilities, but there are still major chunks of America that won’t have good service anytime soon, if at all.”
    In a study released by The Brooking Institute, “The Hamilton Project,” Jon Peha, a professor of engineering and public policy writes, “Roughly one-third of households in rural America cannot subscribe to broadband Internet services at any price. Rural users rely far more on dial-up and far less on broadband.” Peha’s study pushes the need for broadband infrastructure, and more importantly, funding from the federal government. However, satellite-based solutions are absent in its 35 pages of recommendations.
    Ed Knudson, vice president and director of sales and marketing for WildBlue, advertises his satellite Internet provider as a cost-effective service that focuses on providing to underserved regions. “We focus on customers in rural America who do not have access to DSL, cable, WiMax or any other high-speed service, specifically households whose only option for getting on their Internet is a dial-up connection or WildBlue,” he said. “We spend a lot of our time trying to project where DSL has penetrated and where it has not. We have some highly advanced algorithms that factor where central offices are, where stingers reach, etc.”
With two satellites in orbit, WildBlue can provide its service to the entire continental United States. So why, according to Peha’s study, do less than 40 percent of rural households have broadband internet access — 20 percent less than those who have access to dial-up?
Phil Doriot, program director and partner of CFI Group North America, suggests that the industry may not fully understand or reaching out to the rural customer. “I think that advertising in the United States needs to evolve and marketers and advertisers will have to get a lot smarter about the type of consumers they interact with,” he said.
WildBlue is using the upcoming presidential elections to illustrate how important it is for rural users to upgrade to satellite broadband, said Knudson. “The most important message is how the Internet is changing and how it is becoming even more inaccessible to people on dial-up — especially in the upcoming elections where the candidate’s Web sites are saturated with audio and video media,” he said. “This is the most information intensive year for our country and people need access and these sites assume that people are using a broadband connection.”

What are the Economics of Implementation? One of the major issues surrounding broadband rollout in rural markets is the economic viability of implementation. How does the industry approach the market responsibly?
    “The most cost-effective way is to go ahead and have satellite act as an intra-state, or an intra-region or even international axis point,” said Prautzsch, who discussed the role of the satellite in the big picture. “It is a point-of-system reference point for being able to operate distributed enclaves. If I am a satellite provider, I do not need to have 35 satellite links in an area of 9 square miles of a town. It is ineffective, and it is actually cost-prohibitive. Having said that, having one, maybe two, links and having distributed wireless services and or other fiber access tied to the satellite systems, you could go from there. That is relatively smart.”
Doriot believes that, in terms of funding, U.S. government agencies are too conservative. “I think the FCC (U.S. Federal Communications Commission) is largely too protectionist with respect of any rural roll out,” he said. “They are probably going to slow down the various providers that want to get out there and migrate the customer base through this evolution quicker than the FCC will want them to.”
    Knudson disagrees, stating that satellite often is viewed as the most reliable solution by government agencies. “Most telecommunications companies do not have the financial ability to have a phone company install DSL lines for them,” he said. “There’s always going to be a sizable portion of the country without access because the economics just do not work, and satellite is a great solution for them. They can get speeds up to 20 times faster than dial-up and that now gives them access to sites that they couldn’t get access under dial-up. “
In a speech delivered at The Brookings Institute July 25, Virginia Gov. Tim Kaine (D), said the problem with finding government funding for any sort of broadband infrastructure is that the subject “is not sexy enough” and that politicians simply do not grasp the industry’s lingo. In his home state of Virginia, Kaine uses the state’s tobacco tax to reinvest in tobacco-producing regions by funding broadband connectivity programs.
    WildBlue is involved in similar programs, Knudson said. “We have been involved with the Connect Kentucky initiative,” he said, “Connected Nation is a non-profit organization that is heading these efforts by taking state models and instating them in other similar areas of the United States. The idea is to provide the best technology possible for rural areas and coming up with government programs that will help fund the project. In many areas, our technology is the best for certain areas of the United States. We are always interested in participating in government programs even though we do not need it.”

How Will the Rural Satellite Market Evolve? Not only do satellite commercial service providers need to catch-up in terms of making themselves available, they have to update their technology in order to stay ahead of countries like Korea, France and eventually China, said Blair Levin, managing director of Stifel Nicolaus, who spoke alongside Peha at the Brookings conference. Peha’s study goes beyond foreign competition to assert the consequences of lagging behind. Bringing updated broadband to a specific area not only makes the land values go up but increases job growth rate by more than 1 percent and increases the amount of newly established businesses by almost 0.5 percent, he said. However, Peha and fellow panel members shrug off satellite’s limited date rate. “The speed of the uplink is a problem,” said Peha.
    How do satellite companies stay ahead of potential IP providers, who tout data speed as the major advantage over satellite? “In situations where satellite is a viable competitor for services like Verizon Fios, they will have a fairly tough go of it,” said Doriot. “There has to be a high-speed connection for them to get the uplink. The availability of that in all households is probably not a big winner because the consumer ultimately wants simplicity, in some respect. In my mind, having a satellite and a broadband connection to have a speedy uplink is more complex than a fiber broadband connection to a home. And the consumer is more likely to gravitate towards something that’s ultimately simple.”   
    Doriot added that while these services are three years in the future, rural customers are savvy to bundling services. “You start with the most acceptable because it is most understood, and at some point, consumers desire fully-featured bundles and so forth and end up in the same position that you see in a few places now where they want choice or control in different facets of the bundles,” he said.
    How will companies structure themselves for bundling?
    “Bundling is a huge issue for all of the satellite providers,” said Doriot. “They are not trying to partner with another company. They are trying to add the service themselves. The ever-expanding broadband fiber networks around the [United States] make all sorts of individual plays and partnerships even more important than they were a few years ago.”
    Knudson, however, does not worry about IP providers, which he believes are focusing too much on IPTV and will lose their customer base on what he believes is a faulty service. “I’ve seen customers and their passion for their television,” he said. “Cable companies took such a beating because it was hard to get their services working consistently. It is going to be tough for people to switch to IP providing solutions. It is going to have to be a value composition for people to switch. It is just not working,” he said.