Satellite provides broadband fillip

June/July 2002

With the arrival to Europe of two-way broadband satellite provision, the region’s incumbent DSL and cable-based operators are about to pay for their shortsighted broadband procrastination. Yet, this dependent on one important question: ‘Can the satellite operators deliver what they promise?’

If you are bored with reading about the stop-start progress of ADSL in the UK and Europe there’s finally a reason to be cheerful: satellite operators are launching attractive, workable satellite broadband services that mean no more waiting for a local exchange to be upgraded. Companies such as Aramiska, BTopenworld, Bridge Broadband, Tiscali and Alcatel have either launched or are imminently launching products that match ADSL in terms of speed and flexibility and surpass it in terms of availability.

The typical product offers speeds ranging from 512Kbps to 2Mbps on the downlink and a 128Kbps uplink, with the opportunity to integrate the connection with a Local Area Network (LAN). Prices for the service are generally higher than for ADSL: BTopenworld, for example, is charging £59.99 per month for a 500Kbps downlink to a single PC, compared to £29.99 per month for a similar connection over ADSL.

Another drawback is the installation charge. It costs £899 to buy and install the satellite dish through BTopenworld’s cheapest plan, while ADSL can be self-installed at no cost. However, if ADSL is not an option - which it is not for many rural users - satellite is the only way of getting a reasonably-priced broadband solution.

It cannot be denied that satellite has been a long time coming - considering the potential market. Although cable and ADSL have also taken a long time to take hold, they have at least been in rollout stage for a number of years. By contrast, satellite broadband came up with the goods a mere six months or so ago. Part of the reason for this is to do with advances in technology, both in the ground-segment antennas and hubs and in the space-segment satellites.

Pioneer

One of the first operators to have a go at satellite Internet was Hughes with its DirecPC product. This service is still operating in North America, where residential customers can buy it alongside a satellite TV package. The crucial drawback to this service however - as it was presented a few years ago - is that the customer needed a phone link for the return channel, requiring a traditional dial-up service from an ISP alongside the satellite service. Installation charges were also pretty steep.

Now, with innovations such as Broadband Interactive (BBI) System Architecture from SES Astra, both the downlink and the uplink can be handled by the customer’s antenna. Yet, the technology is still in its infancy, according to Gerard Dosogne of Alcatel offshoot SkyBridge Satellite. ‘The ground segment wasn’t performing in the past and even today we’re still at the beginning. In 12 to 18 months we’ll bring improvements,’ he says.

Technology improvements also mean the cost of deploying satellite broadband has dropped in price. Modulation in the hardware in the space segment has brought savings for the satellite operators, which they have passed on to the service providers. ‘It is now economic to do broadband over a satellite network,’ says Philippe Bodart, chief executive officer of satellite service provider Aramiska. ‘Investments in equipment and integration are now scalable and deployable. Satellite space capacity has come down in price recently.’

Improvements

Capacity in the space segment is slowly improving, with 20-30GHz KA-band satellites replacing 11-17GHz Ku-band, meaning more data-intensive applications can be handled at a lower cost. But the relatively limited capacity of the existing technology means it will take a particular business model to achieve success, believes Martin Evans, consulting director for analyst firm Ovum.

‘The second generation is only possible with low numbers of high-paying users. The step-change to KA-band will take more users. It’s a parallel argument with 2.5G and 3G mobile networks: Like 2.5G, satellite broadband will handle nearly all the services but not all,’ he says.

However, Dosogne of SkyBridge thinks it would be economic suicide to wait until satellites have been upgraded. ‘There are several designs on the table regarding the efficiency of satellite,’ he explains. ‘We’re pursuing multi-beam using KA-band, for example. But there are two possibilities: wait for the solution before we go to market or be proactive with what we have now. We believe we have a good service to present to telcos. Once the product is launched, then we have a clear idea of demand. The shift to performance satellites will take time and Alcatel is fully committed,’ he adds.

There is investment going into satellite, but operators are wary, and for good reason. One of the biggest satellite projects in recent years was Iridium, a scheme to provide satellite telephone and data services developed by a Motorola-led consortium. The plan was scuppered by the popularity of terrestrial cellular networks and Iridium filed for bankruptcy in 1999, eventually destroying all 66 of its satellites.
Evans of Ovum says the industry has to forget these failures and be aggressive if it is going to make headway. ‘We’re receding in terms of investment in technology. The third generation should be with us. But until someone puts up a huge amount of KA-band the opportunity is lost.’

Viable

What most agree is that the present business proposition is at least workable, especially when aimed at the small to medium business market. ‘The up-front cost is not very high,’ says Evans. ‘More customers means more transponders [on the satellite, improving capacity]. If well managed, satellite broadband is a good proposition.’ Plus, satellite is the only option for some. ‘If you’re in a small village how else are you going to get broadband?’ asks Evans.

Christian Stetter, vice president of sales and marketing at satellite operator Gilat, believes there is enough custom to sustain satellite both from those unable to get ADSL or cable and from those who can. ‘There’s steady growth in the market – it’s gradually opening up. It’s more attractive than ADSL to some because it is available in three to four weeks. The flat-fee pricing has come in, which will push the market. BT can’t provide ADSL everywhere and we’re in the perfect position to capitalise.’

Dosogne of SkyBridge agrees, although he does not want to cannibalise the ADSL market. ‘The number of users out of reach of ADSL is sufficiently large to provide a good business model,’ he says. ‘But Alcatel is one of the largest providers of DSL equipment in the world, so we don’t want to curtail that market. However, a lot of telcos reduced their deployment of ADSL because of money, so we’re offering an additional way to connect.’

One man’s meat…

Dosogne thinks that the crash in technology stocks of a couple of years ago – which depressed investment in ADSL and cable – may have been good for satellite, although, he says, it is hard to tell. ‘A few years ago BT was announcing that 70 to 80 per cent of people in the UK would purchase ADSL. Now their highest figure is 50 per cent and that clearly gives more households for satellite. When we launched SkyBridge everyone was optimistic about satellite and it was clear only 70 per cent would be reachable by ADSL. So, if you’re asking if it’s better to have 30 per cent of a buoyant market or 50 percent of a depressed market, it’s hard to say.’

Satellite services have dropped in price enough to make them viable for small businesses, but they may still be too expensive for those comparing the prices to ADSL, thinks Evans of Ovum. ‘The products have to be priced aggressively. The tariff structure has to be similar to ADSL. The service providers can get away with perhaps 10 to 15 per cent on top.’

Hard sell

Evans thinks the best way to sell to the target market of rural users is to get local resellers to do the legwork. ‘A direct sales force won’t work. The problem marketing to rural areas is that people don’t walk past your shop. You need to find the right partner to do the work on the ground,’ he explains.

This is a tactic that Aramiska is using. ‘We have a direct sales force of 20 people but we’re starting to deal with resellers. It’s a new initiative since March,’ says Bodart of Aramiska. The firm is aiming mainly at small to medium-sized firms, rather than very small businesses. ‘They tend to be service businesses such as accountants, lawyers and IT providers,’ says Bodart. ‘The use of the Internet in smaller firms isn’t as developed.’

Aramiska acts as a traditional ISP to its customers, providing the equipment, connection, integration with a LAN and a guarantee of uptime. SkyBridge, on the other hand, has a different view of what can be offered. ‘Businesses are increasingly interested in satellite because of what it can do,’ says Dosogne.

He continues: ‘For example, multicasting can send files or video to remote sites simultaneously [rather than duplicating the file or video stream before sending it on]. It makes it more cost-efficient. The terminals cost about $2,000, but for that you get high-capacity two-way applications. Local organisations are becoming interested in providing satellite to schools and hospitals in areas not connected to ADSL. We recently saw the first county council costing for this sort of service. People are starting to understand,’ says Dosogne.

The motivation for residential users to adopt satellite is less clear. There are residential services around, but again, they are not competitive with ADSL or cable in terms of price, plus they require the installation of a satellite antenna. Yet, residential services are thriving elsewhere. In North America, the DirecDuo service from Hughes combines residential satellite broadband with TV services, turning the set-top box into a home hub.
Stetter of Gilat thinks this is a good idea for Europe, if customers are willing to upgrade their dish. ‘If you want to combine TV with data you need to have a two-way antenna and that means a new, larger dish. Satellite Video-on-demand is already possible and someone like Sky could do this. We’re in ongoing discussions with Sky about this kind of deal.’

Dosogne of Gilat partner SkyBridge agrees. ‘The final user may well be residential because the equipment is cheap and bundling with TV is a possibility. SES Astra, one of our partners, is one of the largest providers of TV services over satellite in Europe, so we expect to offer a company such as Sky the ability to bundle.’

Thus, while it may have been a long time coming, it finally looks as though there may be a viable alternative to incumbent controlled ADSL and cable modem-based broadband services. For Europe, this is good news. For too long now Europe’s dominant broadband operators have been under little price and market pressure - there were simply no alternatives. However, with the arrival of a credible alternative - with its own distinct advantages - these operators will have receive a wake-up call: either improve your broadband services and make them available to more customers or lose the most important new market in years.