By Juliette Salvati

Considered by many, in the 1990s, to be the next big step in satellite communications, and subsequently rejected at the outset of the tech bubble crash, the Ka-band is regaining attention. Intelsat’s $200 million investment in WildBlue (a Ka-band satellite broadband provider that targets the consumer market), Liberty Media’s increased stake in Astrolink (a similar system designed for the business market), and Hughes Network Systems’ imminent launch of SpaceWay (also designed for business use) has brought Ka-band back to the forefront. Each of these systems, particularly those targeting the consumer market, will face significant market challenges.

One of the greatest impediments to the diffusion of Ka-band is equipment migration. In order to use these new satellite systems and to benefit from Ka-band, customers will have to switch from their existing Ku-band terminals to Ka-band terminals. Unless service providers are willing to subsidize the cost of new terminals (which they are disinclined to do), customers will be reluctant to face the expenditure of adopting Ka-band technology. The migration problem applies more to business users, many of which already have Ku-band VSAT terminals for lower-bandwidth applications. However, operators and service providers will gain traction if they bundle Ka-band services. A business will be unlikely to switch equipment for faster Internet access and wide area network alone, but will be quicker to welcome the new technology if services such as videoconferencing can be packaged with the deal.

In the case of consumer and SOHO markets, the difficulty in attracting Ka-band customers will be not in migration so much as in simply initiating a market for satellite Internet services. DirecPC and DirecWay, Ku-band satellite-based systems owned by HNS, have attracted far fewer consumer subscribers than expected, and StarBand, their primary competitor, is bankrupt. There is a large potential market for satellite broadband, perhaps in the billions of dollars, but so far no service provider has been able to penetrate it. The high cost of satellite broadband service (up to $100 per month plus several hundred dollars for equipment and installation) coupled with complaints of substandard service have made it difficult for current service providers to attract consumers. As with the business market, service providers targeting consumers can bundle satellite broadband with other satellite consumer services such as DBS.

Ka-band technology promises to increase the number of users served per transponder as well offer higher throughput, thus reducing costs. Ka-band, however, is not a panacea for satellite broadband and the consumer market will still be difficult to penetrate. Service providers will have to carefully manage their prices and the number of customers served per satellite such that a balance is struck that will make service both attractive to consumers and profitable for providers. Even then, only a limited portion of the whole consumer broadband market can be captured by satellite service. Unlike the business market, the market for consumers exists only where terrestrial service is unavailable for two reasons: first, satellite broadband is more expensive than terrestrial broadband. Second, individual consumers cannot benefit from Ka-band services in the same way that multi- locational businesses can. Point-to-point connectivity, large file transfer, videoconferencing over IP, telecom service consolidation and bill consolidation will only be attractive to business customers.

Ka-band is less likely to be introduced by new Ka-band-dedicated ventures such as WildBlue and Astrolink, but rather by traditional satellite operators that lease capacity on geostationary satellites but do not sell their services directly to end users. The operators have the advantage in that they can introduce Ka-band incrementally, two or four transponders at a time. Service providers, on the other hand, rely on the success of a single service. This means a lot of risk and, consequently, little access to capital.

Timing is the most damning aspect of the Ka-band conundrum. Launch Ka-band too early, and an operator suffers from unused capacity. Launch it too late, the operator becomes a laggard in technology and breadth of service offering. But, then again, Ka-band demand will certainly not materialize until Ka-capacity is launched to serve it. Add to the soup the four- to five-year process from ordering a satellite to having it in operational orbit, and you get a market with huge potential that simply isn’t going anywhere.

Meanwhile, the existing Ka-band satellite broadband service providers are watching the investment community, wondering when they will receive money to launch their satellites. The satellite entrepreneurs are watching the existing providers, wondering when they will launch their service and demonstrate an effective, profitable Ka-band system, so that others can get into the market. The satellite manufacturers are watching their dwindling backlog, wondering when Ka-band demand will finally reinvigorate the market for new satellites, and the launch service providers are wondering when they can launch them. The government is watching the operators, wondering whether they will be a reliable source of Ka-band capacity so that the military need not build and operate its own Ka-band satellites. And the operators are all watching one another to see who will make the first move.

Juliette Salvati is program leader for satellite communications at Frost & Sullivan. She can be contacted by e-mail at [email protected].