Vodafone Germany wants to migrate its broadband DSL subscribers to its own LTE wireless network because it is paying Deutsche Telekom 500 million euros ($719.18 million) annually for the use of its wired network. According to a recent news story, the planned LTE network offers adequate bandwidth to replace Vodafone’s current DSL broadband service and customers not moving to LTE could be sold to another carrier more interested in maintaining a DSL business.
If a terrestrial wireless network can replace DSL then it seems that there is an opening for satellite as well. A few months ago I discussed the new, high-capacity satellites that were coming online and how satellite broadband companies saw an opportunity to, for the first time, compete directly with terrestrial broadband providers. At the time it was mostly an idea without numbers attached, but since then there has been an analysis by Hughes Network Systems that gives surprise form to this idea and dovetails neatly with the notion that the fortunes of DSL are declining.
While I am not inclined to simply accept anyone’s public market projections as real, Hughes numbers are eye opening. Hughes sees what I will call the “DSL replacement market” as slightly larger than their current market. According to Hughes, their current market to totally unserved households is 21 million. One can quibble with the number and, having generated similar projections myself, I know how hard it is to get a really firm number, but for the purpose of discussion I find it a reasonable ballpark estimate.
Hughes estimates that of the 109 million households that receive broadband service, 22 million receive service of less than 3 Mbps. If these numbers are reasonably accurate, then the addressable market for satellite broadband will be doubled by the launch of ViaSat-1 and Jupiter, which has higher capacity and reduces costs to a point competitive with DSL (Hughes claims that bandwidth on Jupiter or the similar ViaSat-1, will cost a tenth of that on the current Spaceway 3 or 1/25 of the Wildblue 1 satellite).
Hughes says that another 33 million households are passed by terrestrial broadband service but have not subscribed to any service. One might argue that, if satellite can compete with DSL, these households should be included in the traditional 21 million household “unserved market.” In both cases the struggle is to sell not the choice of broadband providers but the idea of broadband itself. This has always provided one of the great imponderables in estimates of the potential market for satellite broadband. Hughes feels that this market is only 5 percent filled, but if only half of these households will ever want broadband then the market is smaller than that 5 percent would suggest. On the other hand, if satellite can compete for some portion of the 33 million passed but not served households, the game changes again.
In this context it is interesting to note that the 3 Mbps market is composed entirely of households that have already chosen to acquire broadband service. The 22 million households that Hughes (and ViaSat) are preparing to pursue are all current broadband users and ripe (perhaps) for a better offer than their current service.
There is danger, however, in the development of wireless competitors. If Vodafone’s plan signals a weakness in DSL they also portend a growing threat to what has been the core satellite broadband market of unserved customers. These customers are not, as many think, in the middle of rural North Dakota; they are sprinkled across areas that are mostly covered. These are people a little too far from the central office, people who’s copper is too dirty for DSL or people not covered by a cable system. It will be a long time before rural North Dakota is covered by an LTE network, but many currently uncovered households will gain access to wireless networks as a matter of course.
In the next few years, satellite broadband providers will be able to expand their market envelope and market to current terrestrial broadband users. This has the potential to vastly increase the truly addressable market for broadband satellite services and help establish satellite broadband as more than a high-priced last choice. With some luck and a good product these initiatives will result in a much larger market space for satellite broadband as it introduces moves upscale, displacing lower quality terrestrial broadband offerings. However, there are other players aimed at many of the same customers and the satellite broadband industry will need to move quickly and craft its offerings with care.
Max Engel is an experienced satellite industry and telecom industry analyst and founder of The North Star Consultancy. He can be reached at firstname.lastname@example.org.