Ka-Band: Ready to Make a Business Impact?

The Ka-band market looks poised to become a major revenue generator for the global satellite industry. What will the market look like in the future and is it large enough to support the current players as well as new entrants that certainly will come if the market begins to meet its revenue potential?

Until April, WildBlue had been the sole provider of Ka-band consumer broadband services in the United States via its WildBlue-1 satellite and capacity aboard Telesat’s Anik F2 satellite. Hughes Network Systems introduced competition to the market with the commercial debut of the Spaceway-3 satellite and more than doubled the Ka-band capacity available for broadband. If Hughes and WildBlue are successful in reaching a combined goal of 1.5 million subscribers in the next 24 months, annual revenues for Ka-band satellite broadband in the United States could top $1.5 billion across just three satellites.

Switching on Ka-band

Market research firm NSR anticipates that global satellite broadband Internet access revenues will hit $3.9 billion by 2017, up from $823 million in 2007. According to Patrick French, senior analyst and author of "Broadband Satellite Markets, 7th Edition," released in June, "The promises first made for satellite broadband Internet access services in the late 1990s dot.com heyday are now finally on the verge of being fulfilled." Not only will consumer subscriber sites — mainly in North America — surpass all global VSAT sites combined by the end of 2008, according to the report, but "satellite capacity dedicated to single site satellite broadband Internet access services will exceed that used by corporate and governmental VSAT networks". While WildBlue does not market its services in areas with established high-speed terrestrial networks, that still leaves a market of 7.5 million rural households in the United States, says Ed Knudson, WildBlue’s vice president of sales and marketing. Michael Cook, senior vice president of Hughes, sees an ever larger market. "We estimate 12 million to 15 million homes are beyond DSL reach. Even if it is 7.5 million to 8 million consumers that are ever likely to buy broadband, there’s still a lot of opportunity for us in the satellite Internet business."

Already the world’s leading VSAT manufacturer, the launch of Spaceway-3 filled a Hughes’ desire to became a vertically integrated provider of broadband Ka-band services and equipment that dates back to the 1990s. The company’s planned Spaceway-1 and Spaceway-2 Ka-band satellites were diverted for use by DirecTV when the two companies were under the same ownership. Spaceway-3, which has about 10 gigabits per second of capacity, finally will allow Hughes to migrate consumer broadband customers being served by leased Ku-band capacity to its own next-generation Ka-band spot beam system. Hughes reported that its Ku-band consumer broadband business showed high growth in 2007, and by the end of 2008 first quarter, Hughes had 401,000 subscribers. Ka-band subscriber figures had yet to be released by press time but Hughes was running about 15,000 gross additions per month on Ku-band in the first quarter, and in the second quarter all new subscribers will be put on Spaceway 3. Hughes also plans to market to a new segment of small- and medium-sized businesses based on the premise that Ka-band price points will work for a market that could not make Ku-band economical.

WildBlue, which markets using direct consumer sales and through its wholesale partners and network of regional distributors, reported about 330,000 Ka-band subscribers at the end of June. "Our wholesale strategy seems to be working," says Knudson. "DirecTV has just started to roll out its wholesale business, so it will spin up this summer. Dish has been selling WildBlue since April 2007 and probably sold the most."

Echostar (Dish) is an investor and distributor of WildBlue services but also owns three Ka-band satellite payloads over North America, but the capacity remains largely unused for a variety of reasons, and the company has not announced consumer broadband plans of its own. According to Dean Olmstead, president of satellite services at Echostar Holdings, "Now that the market is demonstrating receptivity to the service from WildBlue and Hughes, you might expect the capacity to be in heavier demand."

In 2007, WildBlue’s rapid growth triggered concerns about its satellite capacity, particularly for high-demand spot beam regions. The prospect of a slowdown in WildBlue terminal sales was alarming to ViaSat, the exclusive supplier of consumer terminals. Knowing it could take three years to order and deploy new capacity, the ground equipment supplier made a strategic move of its own, and in January ordered the ViaSat-1 Ka-band satellite from Space Systems/Loral (SSL) ViaSat claims its system will transform the market for satellite broadband by increasing the amount of capacity on a single satellite by more than a factor of 10.

"We estimate our costs of bandwidth in space for ViaSat-1 to be about one-tenth of the cost of the even the best second generation Ka-band satellites, i.e., Spaceway, and 100 times more cost-efficient than Ku-band fixed satellite services," ViaSat CEO Mark Dankberg says. With this satellite, the company says it can serve several million subscribers at a competitive speed of 2 megabits per second, compared to today’s median DSL speed of 768 kilobits per second. ViaSat’s next-generation SurfBeam terminals also will offer an order of magnitude higher throughput than the units ViaSat ships today for WidlBlue, says Tom Moore, president of Viasat Satellite Ventures LLC.

While ViaSat’s move could make it a potential competitor of customer WildBlue, Moore says the two companies have a longstanding and strong partnership, and he hopes they will continue to work together on this initiative. ViaSat plans a wholesale business model where capacity will be sold on a wholesale basis to distribution partners who will handle the subscriber-based financial investments and the economic benefits of subscriber ownership, help desk, retail services and billing. In this context, Moore thinks WildBlue, would make a synergistic distribution partner for the new service.

International Markets

Broadband Ka-band developments in the United States have raised interest in the market around the globe. NSR estimates that 83 percent of global broadband subscribers in 2007 were in North America, 10 percent in Asia and 7 percent in the rest of the world, but several international companies are looking to expand their share of the market. In the United Kingdom, Avanti Communications is seeking funding for a Ka-band commercial system with anticipated capacity for 330,000 broadband users to serve part of Europe. In Australia, NewSat, citing U.S. market success, is seeking government funding and support to develop a Ka-band broadband system.

Eutelsat is the first major player to purchase a satellite. Ka-Sat, being built by EADS Astrium, is scheduled for launch in the 2010 third quarter and will offer a total throughput of more than 70 gigabits per second, providing end-user speeds comparable to ADSL. ViaSat and Eutelsat are cooperating on their systems using ViaSat’s Ka-band SurfBeam networking system and a similar wholesale business. "We see the WildBlue success in the United States, so we see a big advantage in Ka-band compared to traditional Ku-band broadband solutions," says Jean-François Fremaux, Eutelsat’s director of multimedia product development. "… The goal is not to compete with high-speed terrestrial networks but to provide, in unserved and underserved areas, a service comparable to ADSL in speed and price. Independent market research says there are several million users not served by ADSL, so there is an important consumer market." Eutelsat expects Ka-Sat to produce annual revenues of more than 100 million euros by the second year of operations," says Fremaux.

Yahsat also sees potential in the Ka-band market in the Middle East. The company’s Yahsat 1A satellite will carry Ka-band transponders, though the services that Yahsat will provide via Ka-band have not yet been determined, says Jassem Al Zaabi, the company’s CEO. "The demand for satellite services in the region is growing rapidly, and due to this, there is going to be shortage of C-band and Ku-band spectrum over the region and hence utilization of Ka-band spectrum will become important in the near future," he says. "Ka-band based internet services have helped satellite operators to penetrate the consumer sector by offering DSL like services and prices that are comparable to terrestrial services. These have already been successfully launched in the U.S. market and there is potential for this in other markets as well."

Tim Farrar, president, Telecom, Media and Finance Associates Inc., is less optimistic about the potential for satellite broadband demand outside of North America. "Most in Europe do not expect a great deal of success in Western Europe for two-way broadband via satellite, but it might take off in Eastern Europe." Farrar also is cautious about Ka-band prospects in other areas of the globe. "It’s hard to justify the equipment cost for broadband via satellite in parts of the world where the cost is $10 to $20 per month for broadband terrestrial. You see IPStar struggling because it can’t afford to subsidize all the gear," he says, referring to the Asian broadband IP system currently using Ku-band satellite.

Million and Beyond

"There’s no question today that satellite broadband, especially in North America, is coming into the mainstream," says Moore. "By the end of 2008, if you combine the customers of WildBlue and Hughes, there will be approximately 1 million satellite broadband subscribers in North America. So satellite broadband is of real relevance." Thanks to Ka-band market developments, satellite broadband is taking off and likely will transform the fortunes of key contributors. For players with the technology to put broadband two-way satellite communications bandwidth in the home at an affordable price, the future looks very bright.