By Futron Corp.’s Space and Telecommunications Division

When the Federal Communications Commission (FCC) issued its first Ka-band licenses in 1997, it hoped to spur the introduction of satellite broadband access that could compete with cable and DSL. For the satellite industry, Ka-band was a “killer app” in the battle against terrestrial providers. In 2001, however, the Internet bubble burst. The telecom market slowed to a crawl. And, the prodigious amounts of financial capital, so freely available in the late 1990s, evaporated.

While some licensees pushed back plans by requesting milestone extensions where possible, others abandoned their plans altogether. Overseas, Ka-band payloads have been in operation on Eutelsat, SES Astra, and Koreasat satellites, but not in the United States. That situation could change soon. In 2003, launch of the first North American Ka-band payloads should occur aboard EchoStar 9, Telstar 8 and Telesat’s Anik F2 (which will serve as WildBlue’s service platform). The most ambitious of them all – Hughes Network Systems’ SpaceWay – launches next year. Ka-band finally will get to prove its mettle.

Unfortunately, the competitive environment has radically altered in the past six years. Since 1997, terrestrial broadband providers have accumulated nearly 16 million subscribers, roughly 15 percent of U.S. households (see graph). By the time pack-leaders SpaceWay and WildBlue are able to overcome learning curves and hit the market with fully tested, deployable and hassle-free consumer services, it will be 2005 and the penetration of terrestrial alternatives will be over 30 percent.

Additionally, DSL and cable providers are upgrading their infrastructure and geographic reach at a furious pace. The deployment is occurring so rapidly that by 2005 the number of homes that cannot get any terrestrial broadband access will shrink to only 5 percent of total households, down from 25 percent in 2001. This dwindling addressable market reflects the eight years between licensing and market entry – a long time in any consumer market.

What Should Satellite Providers Do?

A realistic approach is needed to make the most of the remaining broadband market opportunity. Achieving subscriber growth by taking away cable and DSL customers is unrealistic. Instead, the short-term focus should be on winning as much of the unserved market as possible, and then retaining that customer base.

Price is a key discriminator, even for homes with no broadband alternatives. Ka-band can help make satellite access prices competitive by lowering monthly bills and modem/terminal costs. However, by packaging broadband with direct-to-home (DTH) services, satellite providers can lower the “perceived cost” to potential customers who will pay a convenience-premium for a bundle of services.

Partnership Opportunities

Another customer acquisition strategy satellite providers already are familiar with is co-branding – leveraging the stronger brand consciousness of names like Microsoft, Yahoo!, Earthlink, AOL and others to win new customers.

And, while small office/ home office users may be marginally less price sensitive, securing distribution and resellers that are “small-business friendly” (Office Depot and Staples) will be key.

Further, quality of service is no longer optional. Modern subscribers expect always on, “plug and play” broadband. Satellite providers also must ensure robust upload speeds. The proliferation of corporate intranets, digital photo and multimedia file sharing, and the number of small businesses that maintain their own Web sites, have generated a unique need for upstream bandwidth.

Lastly, North American satellite providers can look to serve emerging markets in South and Central America by using the same CONUS (continental U.S.) payloads. Markets such as Chile, Brazil, Mexico, Argentina and Venezuela still are in the early growth phase of broadband uptake. This gives satellite providers time to take advantage of the window of opportunity in Latin America and compete on a level-playing field.