Cover Story: Serving ISPs: Strategies To Rival Fiber

By James Careless

Talk to some ISP executives, and you may get the impression that the market for satellite-delivered Internet backbone connections is dead. Take Jeff Henriksen, for instance, the director of marketing communications for Cogent Communications. This company bought the major U.S. assets of PSINet after this large global ISP went bankrupt during the dot.com meltdown. Today, Cogent is a Tier One ISP that owns and operates its own 19,900 mile fiber optic network running at 80 Gbs capacity and provides small-to-medium enterprise corporations with dedicated Internet access in major U.S. business districts.

So where do satellite Internet backbones fit into Cogent’s high-speed empire? Nowhere, Henriksen replies. "Satellite is not part of our network architecture," he says. Cogent’s fiber optic network, which runs on a Dense Wavelength Division Multiplexing platform, charges $30 per megabyte per month. In such a situation, "It’s very hard to cost-justify a satellite-based backbone," Henriksen adds.

On a megabyte-by-megabyte basis, satellite Internet backbones cannot compete with fiber. This does not mean, however, that satellites have no place in the ISP world. This comparison is flawed, because it assumes that ISPs have access to both options. If they do not, then the game entirely changes. For ISPs in this situation, satellite makes sense.

Coverage is not the only reason satellites appeal to ISPs. Speed of deployment also counts. "It takes very little time to set up an earth station and get an ISP connected to the Internet backbone," says Bridget Neville, Panamsat’s senior vice president of engineering and operations. "In contrast, terrestrial links can take months to install and activate."

Put these two factors together and one can understand why some ISPs count on satellites. Small wonder that "more than 100 ISPs worldwide use Intelsat for Internet backbone connectivity," says John Stanton, president of Intelsat’s data, carrier and Internet business unit. "Today, Internet traffic accounts for 10 percent of our business."

The same is true for Panamsat, which launched the SpotBytes two-way Internet backbone service in September 2001. (The one-way service was launched four years earlier.) Back then, Nigerian ISP Cosmos was SpotBytes’ only subscriber. Today, "We have more than 50 ISPs signed up," says Neville.

As for Verestar, the communication solutions provider that sells the satellite-based IPLex product suite to ISPs, profit growth continues to materialize. "We’re experiencing five to 10 percent growth a year," says David Liddle, Verestar’s vice president of global sales. "That’s not overwhelming, but it’s still steady growth during very tough times."

Who Is Using Satellites

Cogent Communications’ non-use of satellites mirrors what is happening with U.S. and Western European ISPs. Well supplied with international fiber optic links, they have moved away from satellite backbones en masse.

This, however, is not true for the rest of the world. For many countries, satellites are still an important part of their Internet backbones. Of course, some regions use satellites more than others. For instance, for Intelsat, "The ISP markets that have traditionally been strong for our Internet trunking business are the Asia-Pacific and Latin America," says Stanton. "We’ve also seen a lot of demand recently in Africa, the Middle East and India."

"Africa has been a very significant growth market for us in 2001 and 2002," says Panamsat’s Neville. "Latin America is also strong. In fact, we’re seeing growth in Internet backbone traffic via satellite everywhere outside of the U.S. domestic market."

As for Verestar, "Satellite Internet traffic continues to hold up in Africa, the Middle East and Central/South America," says Liddle. "We also see satellite still being used in Indonesia, China and Vietnam."

In these regions, small and medium-sized ISPs are driving the use of satellite Internet backbones. This is a trend that has not surprised Panamsat. "When the big carriers began moving their traffic from our transoceanic satellites to fiber, we shifted our attention to smaller ISPs," Neville says. "We knew they’d need us, because they’re typically in areas where fiber hasn’t arrived or isn’t cost effective, and the local telephone loop is poor."

In many cases, these smaller ISPs are connecting to Internet caf�s that offer public Internet access. Think of them as the "payphones of Web surfing." Such shared facilities are often the first way new technologies are introduced in poorer areas, simply because the costs can be divided among many users. It is worth noting, however, that these ISPs are also starting to install access in private homes, as well as supporting business users.

Once these clients have narrowband Internet access, it does not take long for them to demand broadband. The results, increased growth in subscriber numbers and per-subscriber bandwidth use, are two good trends for satellite service providers. A case in point, "South Africa, Nigeria and Tanzania are all markets that are developing rapidly in the number of ISP access points," Stanton says, "and also in their demand for broadband."

To help spur growth, satellite service providers are offering creative bandwidth packages. For instance, "One of our African ISPs is operating Internet caf�s," Neville says. "They buy access from us on a per-megabyte basis, with a minimum monthly traffic commitment and the option to ‘burst up’ during low demand times of the day."

Beyond helping ISPs to control costs, Panamsat’s approach offers them some leeway to do creative marketing. For example, thanks to the "burst up" option, such caf�s can boost business by offering "Internet Happy Hours," charging less to customers for usage during off-peak times. As well, Panamsat allows Internet caf� owners to add new locations without having to buy more bandwidth, at least not until demand at their new outlet justifies the expense.

Beyond keeping bandwidth costs down, "We’re always trying to find ways to bring hardware costs down for ISPs, by locating new, more efficient and less expensive earth stations," Neville says. "If we can help them get a more cost-effective solution at their end, it lowers their costs, allowing them to offer more service to more people.

"We’ve been able to do this over the past few years," she adds, "and our clients have dropped their prices in turn, bringing more users into the marketplace."

Is Fiber’s Advantage Overstated?

Okay, it is true there is a tremendous amount of fiber optic networks webbing the globe, and that connectivity on them is going cheap. The reason is supply and demand. With so much overcapacity on the terrestrial market, "The fiber guys are really hurting," says Liddle. "Around the globe, according to reports, average fiber optic utilization is only roughly 35 percent. In contrast, satellite utilization worldwide is between 70 to 80 percent.

"A lot of countries don’t have international fiber connectivity today, and aren’t likely to get it in the near to medium-term future," Stanton adds. "As well, countries with fiber connectivity aren’t necessarily out of the woods when it comes to broadband access. Once you get a little distance from the international cable station, often the capacity outside the main urban center is limited, and it’s just not economically worthwhile to roll fiber outside of existing hubs. As a result, even in these places, there is often still a good case to be made for satellite."

Holding Onto Customers Once Fiber Arrives

So what does the smart satellite operator do when fiber does arrive? At Panamsat, "We leverage the content to keep our clients," says Neville. "For instance, we offer services capable of providing special streamed sports programming packages via satellite that would be difficult to replicate using fiber. What this means is that when it comes to clients considering fiber, it’s not just a matter of changing pipes. Drop satellite, and you end up losing content services that you value. This is something that matters to ISPs because it matters to their clients."

Another smart tactic is "If you can’t beat ’em, join ’em." In other words, if fiber threatens to cut into your market, then it is time for your satellite company to get into fiber.

Such is the thinking behind Intelsat’s Globalconnex Solutions, which combines satellite and fiber to maximize service to ISPs. "In the last 18 months, we have connected our earth stations and points-of-presence by fiber links," Stanton says. "This allows us to pull traffic off our satellites and put it on fiber when this makes more sense from an overall network perspective. Not only does this help us keep our existing clients, but it frees up satellite bandwidth which can be used for satellite-specific applications and/or sold to new clients."

Warning: One Size Does Not Fit All

Just because satellites are the only game in town for many ISPs, does not mean that the service should be priced like a Microsoft monopoly. Put another way, it makes sense for service providers to offer a range of transmission plans to ISPs, so they maximize what they spend on building their businesses.

This is why Intelsat’s Globalconnex Internet Trunking Services (ITS) provides three levels of ISP connectivity: Shared User Group (128 kbs-2 Mbs), Basic Internet Trunking (128 kbs-8 Mbs), and Dedicated Internet Trunking (up to 45 Mbs). With this level of choice–each appropriately priced–small and medium-sized ISPs can buy the capacity they can afford.

Panamsat’s SpotBytes services are also designed to give ISPs some price choices. In this case, the difference is based on one-way or two-way satellite service. SpotBytes’ one- way service gives an ISP a digital circuit via a Panamsat satellite directly into the Internet backbone, with a terrestrial return path. To save money, ISPs currently sending two- way traffic on a T-1 landline can switch to satellite for the bandwidth-eating return path, and reassign the entire T-1 line to lower-demand upstream traffic. Meanwhile, SpotBytes’ two-way service provides two digital circuits via satellite, one upstream and one return. Given that return path traffic eats more bandwidth than upstream traffic, however, Panamsat lets clients order different-sized (asymmetrical) channels. For instance, the upstream channel might be 1.5 Mbs, while the return path is 10 Mbs.

Verestar’s IPLex Backcast service offers ISPs a range of data speeds, from 64 kbs all the way up to 155 Mbs. Like Intelsat and Panamsat’s offerings, IPLex Backcast is a complete turnkey solution for ISPs. Moreover, customers can set the channel sizes whichever way they want from simplex, duplex, symmetrical or asymmetrical two-way configuration. Verestar also guarantees one-hop, 1:1 access to the U.S. Internet backbone.

Satellites And ISPs Do Go Together, So Act Now

If there is a lesson to be learned, it is that the Internet backbone market is not closed to satellites; far from it. Granted, markets such as the United States and Western Europe may likely remain an all-fiber preserve. There are many other regions on the planet, however, that want Internet access, and where ISPs see satellites as the fastest, most effective way to deliver it. Moreover, by being willing to consider fiber when fiber makes sense, smart satellite operators are positioning themselves to stay competitive no matter what options become available to their client ISPs.

The bottom line is that there is and always will be a place for satellites in the Internet backbone market. For satellite operators, this truth suggests a need for an action plan.

First, look hard at your current market. Where does fiber land, and where does it not? As well, how financially healthy is your local fiber optic competition? Do they have any money to expand, or are they like so many other fiber-based services: cash-poor, plant-rich and unable to woo funding from an investment bank.

Next, look ahead. Is fiber due to come into your territory? If so, who is bringing it and how well are they capitalized? Will they be a threat tomorrow, next month or sometime next century?

Third, decide whether fiber is a real threat or not. Can you buy into the fiber network and take advantage of its economies? If not, then can you offer value-added services that will keep your clients loyal, no matter what?

Finally, once you have assessed the fiber threat, be sure to act. Whatever you do, keep your ISP clients happy and help them to boost business. If they are healthy, then these ISPs will pay their bills and may even buy more bandwidth. If not, then there is no point counting on them, because they will not be here for long.

One thing is certain: ISPs are worth cultivating by any satellite services operator. Even with the dot.com crash, the Internet continues to grow. In fact, the United Nations Conference on Trade and Development projected 665 million Internet users worldwide by the end of 2002, compared to 500 million the year before. That’s 22 percent growth in one year alone. Clearly, this is no time to give up on the Internet backbone market.

James Careless is senior contributing editor to Via Satellite.