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Satellites and the Internet: Opportunities Do Exist

By | February 1, 2003

      By James Careless

      Tough slogging: that is the outlook for the satellite Internet market. Whether it is selling direct Internet access to consumers or providing backbone links for ISPs, there is no killer app ahead.

      However, not all the news is bad. In fact, there are some areas where satellites and Internet access go together naturally, specifically for enterprise/business clients. Moreover, when sold as part of an integrated VSAT package for business clients, Internet access via satellite is a worthwhile "value-added" perk.

      Consumer Satellite ISPs: Hard Times

      Face it: this is not an easy time to be a satellite ISP. The trouble is money. Anywhere that terrestrial high-speed access is available–whether via cable TV or telephone DSL– it is cheaper than satellite Internet. The reason is volume. For the same investment in equipment, terrestrial service providers get a lot more bandwidth than satellite carriers do. As well, when a terrestrial service fails, you do not have to replace the entire thing, as you do when a satellite dies. The result: for point-to-point transmissions, the terrestrial business case wins virtually every time.

      Factor in the economic slump and the crash and one can understand why satellite-based ISPs have been having a tough time. Especially Starband, the Gilat-backed ISP that was forced into Chapter 11 bankruptcy after Echostar pulled out last year.

      Since entering Chapter 11, "we have been through some very painful cost-cutting and layoffs," says Zur Feldman, Starband’s chairman and CEO. However, with its debt load now under control, Starband is determined to persevere after emerging from Chapter 11 protection. Today its subscriber base stands at 40,000, the same number Starband cited before the Echostar pull-out. "We are basically adding and churning customers at the same rate," Feldman explains.

      Once it is in the clear, Starband’s strategy is to grow slowly. As well, Feldman intends to boost his company’s chances by focusing on customers who lack access to either cable TV or DSL. He estimates this rural/remote population to number "in the millions," and notes that of the 125 million Internet users in the United States today, only 16 million have high-speed. Put these factors together, Feldman contends, and you have enough opportunity for Starband to grow, and ultimately thrive.

      Meanwhile, Hughes’ Direcway is still alive. In fact, it broke the 100,000 subscriber mark in early 2002, which is no small feat. "There is a considerable broadband market out there for which Direcway is clearly a winning solution," says Pradman Kaul, Hughes Network Systems’ (HNS) chairman and CEO. "We are very optimistic about the future and the continued success of Direcway. With all of the business and marketing alliances we have secured, we see enormous potential for growth of Direcway services spanning all markets– enterprise, small business and consumer alike."

      Kaul’s optimism is shared–albeit in a much more low-key manner–by industry consultant Stephen Blum, president of Tellus Venture Associates. "Direcway is growing more slowly than predicted, but its growth is at least constant," Blum says. "However, it’s still not clear how Direcway’s customer base will end up migrating to HNS’ Spaceway service, if at all." (Due for commercial launch in 2004, the Spaceway Ka-band satellite system is meant to exceed Direcway’s performance and capacity for business and consumer users alike, while challenging terrestrial-based frame relay systems on cost-effectiveness.)

      Meanwhile, Wildblue Communications–the North American satellite-based ISP that has been on ice due to lack of funds–has been revived by a cash infusion from Liberty Media, Intelsat and the National Rural Telecommunications Association. Their goal is to launch high-speed Internet access by satellite throughout the continental United States in 2004. "This is a natural step for Intelsat and part of our plan to establish a foothold in important new markets in a cost-efficient manner," says Conny Kullman, CEO of Intelsat Ltd. "We believe that retail satellite broadband services in North America will be an important component of future growth in the fixed satellite services industry….We have confidence in Wildblue’s strategic plan and believe it represents a key opportunity for Intelsat to capitalize on this market gap."

      Backbone Internet Via Satellite: Slow Growth

      Compared to the satellite ISP business, the Internet backbone sector is doing relatively well.

      "We are still seeing continued demand in specific regions," says Janice Thomas, Intelsat’s senior product manager for Global Connect. "Africa has a lot of demand, as do the Pacific Rim and some parts of Latin America."(Intelsat’s clients include PTTs, small ISPs, and enterprise customers. Some are existing clients who are adding Internet access to their existing networks.)

      This said, the satellite Internet backbone market has been bitten into by fiber optic cables. The reason: thanks to the insane overbuilding of the craze, fiber is now reaching into regions that used to be the exclusive preserve of satellites.

      "The upshot is that wherever fiber becomes available, traffic shifts away from satellite big time," notes Roger Stanyard, who owns and operates DTT Consulting. "In Latin America, there’s been a wholesale shift from satellite to fiber. In the Middle East, satellite’s been dropped by the Israelis, the Egyptians and the Saudis."

      In response to these incursions, carriers such as Intelsat are "specifically going after those routes where fiber is not available," Thomas says. "There are a lot of places where fiber makes contact on a nation’s shore, but doesn’t reach into the interior."

      Meanwhile, Loral Cyberstar is coping with the glut by packaging itself as a "solutions provider." "As far as our customers are concerned, what matters is they get the connections they need, not how," adds Ed DiCarlo, Cyberstar’s vice president and general manager of product management. "This is why we’re using a hybrid approach–combining our satellite and fiber optic facilities to best serve each client, in whatever balance makes the most sense for them." As for Intelsat? It is also willing to go hybrid in order to win clients, Thomas says. "Typically, we use fiber to provide complementary alternative routes where necessary."

      However, as far as Stanyard is concerned, doing the reverse makes more sense. "I think the game is to use satellites as backups for ISPs," he explains. "You put a dish in where you’ve got fiber coming in: if the fiber drops, the satellite can take over seamlessly."

      Value-Added Internet Access By Satellite: A Winner

      If there is one bright spot for the satellite Internet market, it is the enterprise/business VSAT market. For instance, at Gilat subsidiary Spacenet, "we have continued to grow our customer base," says Fritz Stolzenbach, Spacenet’s director of marketing. "We’re also continuing to make money, which is a good thing in this economic climate."

      There are many reasons why satellite Internet makes sense to business VSAT users. First, many are already committed to satellite communications: they have the antennas and terminals in place to support private, secure business networks. Second, many of these companies are already migrating to IP-based software as the standard for all their internal network communications. This means that much of today’s VSAT traffic is already IP-based. "For companies that are not already VSAT users, satellite offers a wide range of fundamental strategic advantages–such as ubiquity, security, ease of deployment and single network ownership–that make the satellite broadband choice an easy one," Stolzenbach says.

      A case in point: the Goodyear Tire and Rubber Co. uses Spacenet’s Skystar Advantage VSATs to provide two-way links to 2,000 Goodyear stores across North America. Through VSAT, each store now has high-speed Internet and Intranet access, plus credit authorization and nightly sales polling.

      According to Stolzenbach, most Spacenet customers now see high-speed satellite Internet as a fundamental necessity for their private networks. "Some of them use high-speed IP access for moving human resources data around their corporate Intranets," he explains. "Others just want to provide high-speed Internet access to their back offices, whether they [are] restaurants or automobile dealerships."

      Satellite Via Internet: The Outlook

      With the global economy still reeling, it is unwise to predict a rosy future for any tech-related venture, let alone satellite Internet. Still, each sector of this market offers opportunities for those companies bold and fortunate enough to realize them.

      For satellite ISPs such as Starband and Direcway, the opportunity lies in sticking to those customers that cable and DSL cannot reach, and maybe never will. The downside is that such ISPs will likely never match terrestrial ISPs in subscriber numbers. However, this fact only matters if it motivates satellite ISPs to compete head-to-head with terrestrial. That’s a battle satellite just can’t win.

      For Internet backbone providers such as Intelsat and Cyberstar, opportunity also lies in their willingness to "go hybrid" whenever it makes sense. Specifically, It is time for satellite carriers to stop watching terrestrial carriers take their clients. Instead, satellite carriers should be the ones moving their clients onto fiber, in order to keep their business.

      Finally, for Spacenet and other VSAT companies, the smart move is to sell customers on IP-based private networks, then to add high-speed Internet access as a logical follow- on.

      Conclusion? Contrary to what the cynics may say (a cynic being defined as "someone who knows the price of everything, and the value of nothing"), satellite Internet does have its place in the communications marketplace. The key is to offer satellite Internet where it makes sense, and not to where it doesn’t. This may sound obvious, but it’s astounding how often the obvious is missed in business.

      James Careless is the senior contributing editor to Via Satellite.

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