Satellite survivors spreading broadband’s benefits

by sue marek
February 4, 2002

As digital subscriber line, cable modem and fixed wireless face technological and cost hurdles, lagging satellite broadband services finally are getting a chance to play catch-up. But analysts expect the real blastoff to accompany the launch of Ka-Band services.

The current economic downturn is wreaking havoc on some of the more ambitious and high-profile broadband satellite projects, but that certainly doesn’t mean the entire industry is doomed. Instead, many analysts expect this market to experience significant growth, particularly as other broadband technologies–digital subscriber line, cable modem and fixed wireless–face technological and cost hurdles that likely will limit, or at least slow, their deployment. While these competitive technologies focus on resolving their dilemmas, satellite broadband will have the time to play catch-up, something the industry is counting on to help it establish a foothold in the broadband arena.

According to Northern Sky Research, the consumer satellite broadband market will see limited growth during the next year. The services likely will take off soon thereafter, however, especially once Ka-Band services are available. The research firm estimates the revenue for consumer broadband services will be $2.95 billion in 2006, up from $210 million in 2002.

Currently, two companies lead the U.S. satellite broadband push–both of which offer Ku-Band two-way geosynchronous satellite service.
Hughes Network Systems Inc., which unveiled its DirecWay broadband satellite system last June, counts about 100,000 subscribers. The company sells its service to PC owners via such national retailers as Best Buy Co., Circuit City and Office Depot. The DirecWay hardware retails for about $400 and the monthly service fee is about $60 to $70.

Hughes Network’s competitor StarBand Communications Inc. also offers two-way satellite broadband service. The firm, which is funded by EchoStar Communications Corp., Israel’s Gilat Satellite Networks Ltd. and Microsoft, sells its service to consumers via EchoStar’s Dish Network partners and retailers. StarBand’s hardware retails for about $499, installation costs about $199 and the monthly fee starts at about $70. As of the end of 2001, StarBand had about 40,000 subscribers.

Both companies have an advantage over other broadband satellite offerings because they can bundle their Internet services with TV programming. Hughes Network Systems can sell DirecWay in conjunction with DirecTV; likewise, EchoStar can bundle its StarBand service with its Dish service. But bundled service isn’t the only advantage–so is name recognition. Consumers are accustomed to satellite TV and recognize the brand names.

If these companies can take their current millions of satellite television subscribers and migrate them to broadband, they already will have tapped a substantial portion of the broadband market. “DirecTV has over 10 million customers with an [average revenue per user] of $50 per month,” says Arunas Slekys, vice president of Hughes Network Systems. “We plan to take that population and migrate it to broadband Internet as well.”

These two competitors may soon be commingled, however. Late last year EchoStar made a $25.8 billion bid for rival Hughes Electronics, a unit of General Motors and the owner of DirecTV and DirecWay. Federal regulatory authorities are reviewing the proposed merger. A decision is expected later this year.

While a $400 to $500 price tag for customer equipment may seem pricey compared with DSL and cable modem equipment, these prices actually are low compared with traditional very small aperture terminals, which typically cost upward of $1,000. David Trachtenberg, president and chief marketing officer for StarBand, credits partner Gilat Satellite Networks for helping develop an inexpensive VSAT and helping “consumerize” the service. “We based our system on existing technology and partnered with Gilat to provide low-cost VSATs to the market,” Trachtenberg says.

Along with the costly hardware comes an extensive installation process. StarBand’s Web site tells potential customers to expect the installation process to take as long as four hours. Trachtenberg says that while the installation time may be lengthy, StarBand installers typically are successful on the first visit, something few DSL installers can match. Trachtenberg also says that four hours usually is the maximum time it takes for installation. “If a customer is comfortable with their PC and if they install the software themselves, we can do installations in about two and a half hours,” Trachtenberg says.

Although few industry observers foresee a time when these dishes will be self-installable, Slekys believes future technological changes will make the process easier and less time-consuming. “We can certainly make the dish smaller and the terminal easier to configure,” Slekys says. “To really crack the mass market, we have to do better at making the product easier to install.”

Despite the installation difficulties, both StarBand and DirecWay have experienced some success with their initial offerings and analysts expect their businesses to grow.

According to Scott Chase, CEO of the Strategis Group, companies such as DirecWay and StarBand are likely to succeed because they use existing satellite infrastructure and therefore are less costly to launch. “I think there is definitely room in the marketplace for satellite broadband-delivered solutions,” Chase says. “The ability of satellite to solve the last-mile problem is unchallenged.”

Analysts expect satellite’s last-mile connectivity advantage will be enhanced even further once the current broadband satellite systems migrate to Ka-Band spectrum. According to Christopher Baugh, principal analyst with Northern Sky, “Future Ka-Band services have the potential to ignite growth by offering a faster performing service at a lower price point and bandwidth on par with terrestrial offerings.”

But Ka-Band satellite services aren’t likely to be available until sometime next year. Two prominent players in the Ka-Band space race are Hughes Network Systems’ SpaceWay and WildBlue Communications Inc., both of which plan to use geosynchronous satellites. In addition, Teledesic LLC, which has backing from Microsoft chairman Bill Gates and wireless veteran Craig McCaw, plans to use low-earth orbit satellites in Ka-Band spectrum.

According to Hughes, SpaceWay initially will consist of two GEO satellites plus an in-orbit spare. Ka-Band satellites combined with spot-beam technology provide faster uplink and downlink rates because there is direct connectivity between the dish and satellite without routing traffic through a hub like today’s Ku-Band satellites. Slekys says the SpaceWay system will not only provide more capacity but also will be able to handle about 20 times more traffic than today’s Ku-Band systems.

Slekys describes SpaceWay as a more sophisticated iteration of today’s consumer-oriented DirecWay service. But he says that when SpaceWay launches early next year, the company initially will market the newer, faster service to the enterprise market. “With SpaceWay we will focus on the enterprise and business market,” Slekys says. “We see the consumer business being met with the Ku-Band satellites. But eventually it will be a hybrid of both.”

Like SpaceWay, WildBlue Communications plans to deliver data using Ka-Band spectrum. The company, which also received funding from EchoStar, will launch its first satellite in 2003 and is leasing capacity on the TeleSat ANIK F2 satellite. WildBlue says it plans to charge customers a monthly fee that is comparable to current DSL and cable-modem offerings, but is less than existing Ku-Band offerings.

Many promising developments are under way in the satellite broadband arena, yet even the top executives admit challenges still lie ahead. Slekys says Hughes Network Systems needs to get the word out about these services and make sure people understand the advantages of broadband.

And being the first in the market is not an easy job. StarBand’s Trachtenberg says one critical element is making sure the company is always improving the customer experience. “Being a pioneer is always a challenge,” Trachtenberg says. [WIM]

Northern Sky Research estimates the revenue for consumer broadband services will be $2.95 billion in 2006, up from $210 million in 2002