Is There Demand for Rural Service?
Satellite solutions are a proven technology for the delivery of television, broadband and mobile services to rural and remote locations, but is rural a sufficient growth market in Asia? Beitchman acknowledges that optical fiber and VDSL are widely deployed in a country such as Japan, but BB Sat does not need to compete with those services. "Japan, a country with 51 million households, still has digital divide problem of about 1.5 million households, and with our high speed service, we can also provide high quality service to rural ADSL customers who are far from the D-SLAM and consequently receive slow, low-quality service. That is an additional market of more than 2 million households," he says.
Patompob Suwansiri, IPStar’s head of marketing, has a similar view but also sees more demand closer to urban regions. "The natural market for us is the rural market, but more accurately, we target the unserved and underserved markets nationwide. From our deployments, we see that the majority of the customers are concentrated in the suburban areas surrounding the central business districts," he says. "… In Asia, the rural market is an important target market for us due to the fact that, in most countries, terrestrial infrastructure is quite limited. We distribute our services through multiple local service providers in the country. The IPStar satellite can potentially serve up to 2 million retail broadband subscribers, which may sound like a lot, but in actual fact is only approximate 1 percent of the broadband market in Asia."
IPStar’s Australian entity announced a goal for 60,000 total subscribers and 60 percent subscriber growth in Australia. "There are still up to 1 million households in Australia that do not have access to terrestrial broadband services, therefore, we will continue to expand into this retail market by working closely with our local service providers," says Park Boonyubol, general manager of IPStar Australia.
Does the Price Point Make Sense?
But with rural incomes still low in many parts of Asia, is there a price that makes sense for consumers? "In determining price points for our services, our goal is to benchmark with existing terrestrial services in the market," says Suwansiri. "Even though satellite-based broadband is relatively more costly to provide services compared to DSL, it is important that we try and get as close as possible their price points. This is the key if you want to get any sort of economies of scale as consumers are very sensitive to prices, even in remote areas where they may have limited choices."
Beitchman has no qualms about the purchasing power in rural Japan for satellite broadband services. "Like the United States, the customers have both the need for the service and the ability to pay for it," he says. "We can price our service at or slightly above the ADSL market because in the digital divide, other remedies are not available and we can offer better service in some rural ADSL markets. Our plan shows that at this level of pricing we have a good business with a good return."
On-orbit satellite capacity economics constrain service offerings available, as does competition from other technologies in the region. For example, using conventional Ku-band, Optus Broadband Satellite service offers service with maximum data rates starting at 256 kilobits per second (kbps) down and 64 kbps up, but there is a maximum 1 gigabyte per month download at prices of 39.95 Australian dollars ($26.72). More download capacity is available at higher prices. In Japan, BB Sat’s basic service will be 2.5 Mbps download and 512 kbps upload. "These rates are higher than those of consumer networks in the United States because of the high-speed, high-quality requirements of the Japanese market," says Beitchman.
Economic development studies have shown links between Internet and telecoms access and economic development in a community. For this reason and others, government-backed projects for rural Internet connectivity are supporting rural broadband growth in markets in Asia. "Many governments have some sort of Universal Service Obligation funds in place to bring telecommunications infrastructure into the rural areas and bridge the digital divide. We believe that satellite-based services are the most cost effective and efficient means to do this," says Suwansiri.
Australian government support for subsidizing rural communications through the Australian Broadband Guarantee program, also plays a role. The program, managed by the Department of Broadband Communications and the Digital Economy, grants subsidies to qualified service providers to provide broadband services to areas in Australia that are unable to access metro-comparable broadband services. Optus is an accredited member of the program. "We have recently watched the popularity of our direct-to-home satellite broadband service grow within our consumer customer market since the introduction of the Australian government’s subsidy schemes in 2004, where eligible customers are offered an attractive financial subsidy towards their Optus Broadband Satellite charges," says Sheridan. In December 2007, Optus ordered a pair of SkyEdge satellite hub stations and thousands of VSATs from Gilat Satellite Networks to support the expansion of the program. Optus deployed one of the first SkyEdge networks and this latest expansion brings the number of Gilat VSATs operated by Optus to more than 20,000.
Thaicom also has beefed up operations in Australia and New Zealand, adding distributors qualified for Australian subsidies. "The best model that we have seen is from the Australian government with their Australian Broadband Guarantee program," says Suwansiri.
In Japan, too, "the government may assist with subsidization of the consumer satellite broadband market and, though our business will succeed without such funds, there is no doubt that such subsidization would increase demand for and speed deployment of our network," says Beitchman. "We are working the national and local government on this matter. We are a member of government-organized committees studying this problem."
While only a tiny piece of Asia’s rapidly expanding broadband market, satellite is now a proven and growing solution for addressing the digital divide in many parts of Asia. New ventures are targeting Asia for broadband satellite investments from inside and outside the region, and with financial backing from outside of the satellite sector, business prospects look promising.
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