(Editor’s note: This is the first article in a two-part series that examines the satellite broadband market in Europe. Part two of this feature will appear in the May 11 issue of Satellite News)

Satellite broadband continues to be a hot topic within the satellite industry. And while many observers are looking for U.S. companies to be the trendsetters in terms of how the market will evolve, particularly on the consumer side, the European satellite broadband providers are taking steps to exploit the growing market in their region.

For two companies, Hughes Network Systems Europe (HNSE) and Aramiska, picking up market share has meant a shift in the way they do business. For HNSE, it meant opening up a direct channel to potential customers and not relying on value-added resellers (VARs) to drive subscriber growth. For Aramiska, it meant a shift in the markets it is targeting and adjusting its sales goals.

HNSE

HNSE provides Direcway broadband satellite services throughout Europe. Traditionally, the company used a family of value-added service providers to sell the Direcway service, but throughout the last few months, HNSE has taken a more direct approach in trying to reach out to new customers to complement the activities of its VARs.

“In the first quarter this year, we launched a direct offer which is not intended to replace but intended to be complementary to our VAR channel and to fill in effectively the market coverage those areas which are not covered by our VAR partners,” Michael Darcy, CEO of HNSE told Satellite News.

The direct marketing campaign was launched in France with advertisements in different magazines, Darcy said. The offer, similar to Direcway ‘s North American campaign, is for 15 months of service starting at less than 100 euros ($129.30) per month. Installation is 200 euros ($258.70), he said.

The campaign will be rolled out to several European Union countries in 2005, beginning in Germany in the second quarter, he said.Darcy hopes the new cost structure, particularly lowering the upfront price, will drive adoption of satellite broadband.

“We know there is a market in Europe for this product and service at this price point, but it has been limited by this high [upfront cost], which traditionally has been around 1,000 euros ($1290),” he said. “We are reducing that quite significantly. We do believe that will lead to significant expansion of the market.”

In France, that lower price point could yield some significant opportunities for growth within the overall market for high-speed Internet connectivity, Darcy said

About 85 percent of the population in France has access to DSL service provided by France Telecom, and the company hopes to expand that to 96 percent, Darcy said. That seems like a high coverage, as it leaves an addressable market of 4 percent of the French population,” he said. “But France has a population of 60 million people, so 4 percent of that would be 2.4 million. With an addressable market of 2.4 million people, there is quite a lot of room for growth.”

One thing that will not help grow the satellite broadband market in Europe in the near future is HNS’ launching of the Spaceway-3 next-generation broadband satellite. Spaceway-3 employs onboard digital processing, packet switching and spot-beam technology to offer site-to-site connectivity at rates between 512 kilobits per second and two megabits per second (Mbps) for remote locations and up to 16 Mbps at larger locations.

These services are likely to be launched in the United States in 2006, but Darcy admits it is unlikely you will see these services in Europe for one to two years.

“At the moment, the company is very focused on launching the Spaceway service in North America,” Darcy said. “We have not made any firm decision on what happens beyond that. As I am responsible for the European business, I would very much like to bring Spaceway to Europe. I see that as a real option. At this point, it is something I would like to but something we have not made a firm commitment on.”

Aramiska

Aramiska offers high speed Internet access and broadband services to businesses via two-way satellite technology, mainly in Europe. Like HNSE, Aramiska has changed its business model in a bid to boost profits.

“What we have done in 2003 and 2004 is make sure the company is somehow profitable rather than growing through the roof but losing a lot of money,” Aramiska CEO Philippe Bodart told Satellite News. “So there has been a shift in focus in 2004.”

One of the targets is to become operational cash flow breakeven, Bodart said. To achieve that goal, Aramiska shifted its target customer base “from small enterprises in the middle of nowhere to more mature medium-sized companies keen on implementing [Internet Protocol (IP) virtual private networks, voice over IP] and similar types of services,” he said.

In addition to altering the type of customer it is targeting, Aramiska is seeing a shift in where the customers are coming from. “Around 65 percent of our installed based is still in the United Kingdom,” Bodart said. “However, 65 percent of our new business is coming out of the Spanish market, with only 20 percent of our new business coming from the United Kingdom. The French market, which is our third market, is stable. … We also have entered the Italian market recently, which shows similarities to the Spanish market.”

Bodart expects the company to reach the cash flow breakeven point this year, helped by strong revenue growth in recent years. Revenue grew 70 percent in 2004 after jumping 200 percent in 2003, he said.

Aramiska is expecting revenue growth between 25 and 30 percent in 2005, with average revenue per unit jumping from the 360 euro to 370 euro range ($466 to $479) to more than 400 euro ($517.40), Bodart said.

While HNSE is making a play for consumers in the satellite broadband market, Bodart said such a play is unlikely to work in Europe. “Economically, it is hard to justify,” he said. “You have to price service in the 20 to 30 euros ($26 to $39) range. It is hard to see how you can make money.”

So, what does work for satellite broadband operators in Europe? “What works for is focusing on middle-sized companies that have around 100 employees minimum and then up to a thousand,” Bodart said. “They have minimum revenues of 15 million to 20 million euros ($19.3 million to $25.8 million) and have multiple locations across a wider scope than just one country.”

Another market that is opening up is offering broadband services to multi-unit dwellings, where residents can share a broadband pipe, Bodart said.

The operator has learned a lot in its time in the market and Bodart admits that Aramiska now is firmly focused on remaining a strong niche player, rather than more lofty aims it may have had two or three years ago.

“In satellite broadband, you have to rest your case and say you are a niche player and will continue to be a niche player,” he said “You focus on certain customers and profitable customers as that is a luxury you have. That is something that I was not necessarily saying in 2002. There was still a chance of becoming a big niche player, but today this is a small industry in the telecoms. You have to focus on profitability.”

With the market for satellite broadband services likely to be a niche market, Bodart expects to see some consolidation take place in the market. “I think you will see fewer players in the market place than you do today,” he said. “I think the small ventures that you have seen in satellite broadband will also disappear in the next 12 months.”

–Mark Holmes

(Michael Darcy, Hughes Network Systems Europe, M.Darcy@eu.hns.com; Philippe Bodart, Aramiska, info@aramiska.net)