Issue #2  -  January 18-24, 2002

Analysis

Forecast for Broadband Satellite Services - Part One

Roger Rusch

Introduction

The personal computer revolution started in the early 1980s. During the 1990s there was dramatic growth in wireless communications, the Internet, broadcasting services, cables, and satellites. The number of cellular users worldwide climbed from 10 million to over 400 million. During the same period the number of Internet users grew from 1.5 million to 250 million. Direct to Home (DTH) broadcasting of television started in the United States in 1994 and grew to 14.8 million by the end of the 2000. The ocean floors and railroad lines were webbed by thousands of miles of fiber optic cables carrying terabits per second of data. Hundreds of geostationary and low Earth orbit satellites were ordered and launched.

It was a boom time for telecommunications. Nearly 200 billion dollars were being invested each year in telecommunications infrastructure. We became accustomed to extraordinary growth of high technology gadgets. The next logical growth area was high-speed data communications.

However, at the end of 2000, investment in the telecommunications industry slowed dramatically. Some pessimistic observers concluded that there was a broadband bust, but they had unrealistic expectations.

The broadband revolution is happening now, but it is just beginning. Many analysts expect telecommunications growth will resume in 2002. There are firmly established and fundamental factors that will drive the need for broadband satellite services in the future.

1. Terrestrial broadband services are established and growing rapidly. Cable modems, DSL installations, and other services were serving about 10 million subscribers at the end of 2001. Ground based communications almost always precede satellite solutions.
    
2. Many people will not be accessed by terrestrial services. Broadband is costly to install in rural or thin route areas. Fiber optic cables are not likely to be installed to every ranch or farmhouse. In the US more than six million homes are beyond the reach of cable television. Most businesses are not served by cable television. DSL solutions are not effective over long distances.
    
3. Vast libraries of digital content have been created from film archives. Not only are old movies and television programs available, but also scientific, medical, energy / oil, vast databases, and other business records have been created.
    
4. The Internet is enormously popular. Many users would love to obtain faster access, if the price is affordable.
    
5. Huge hard drives are available for highly affordable prices. CD burners are widely used and a new generation of DVD recorders will soon follow. These are vast storage devices waiting to be filled.

Satellites will have an important place in the new order as they have in the past. We must remember that establishing a new satellite service takes time. We have observed that most successful satellite services start gradually and build steadily. Not only do satellite services have a smaller market share than terrestrial solutions, but also they tend to grow slower. Business plans must take this characteristic into consideration.

Broadband Demand Estimates

There is a reasonable prediction that there is a large un-served demand for high speed Internet access. Although only 600,000 VSATs were sold in the first 20 years new broadband systems are expecting more than ten of millions of users within ten years or so.

First we should bound the size of the prospective market. In other words, how many paying subscribers can we expect? One of the best ways to determine the success of a new business is to examine a closely related industry. We expect that the VSAT business will transform itself in the next few years into the broadband services business. We have some data to track growth in that industry. If this growth trend continues, the number of broadband users could be as small as 1.3 million or as large as 10 million in 2010. We expect that the growth rate will pick up because the cost of user terminals and service rates are dropping, and the demand for high speed Internet-access is growing.

Furthermore, DirecPC® and DIRECWAY(TM) have been selling high-speed Internet-access terminals for several years. The following chart (Figure 1) compares the historical growth of satellite data services with projected broadband terminal sales.

Figure 1. Growth and Projections of Satellite Data Services

TelAstra thinks that it is reasonable to predict growth at 35% per year based on past experience. Even 35% may be high when we look at the historical growth rates for other new services. Some analysts are predicting higher growth rates, but explosive growth is uncommon. We have seen the impact of such zeal in the demand for Mobile Satellite Service. There was great disappointment and punitive financial losses.

Another way to estimate demand is to study demographic trends. We have examined the number of Internet users throughout the world to assess the number of broadband service subscribers. We have studied broadband subscriber growth factors [1] since early 1997. The following calculation (Figure 2) reflects a revised demand appraisal. We have reduced the projected number of broadband satellite terminals for several reasons:

Not every Internet user will pay for the transmission service. In many cases several Internet users share the same account. We estimate that 50% of Internet users would eventually (by 2010) become paying Internet subscribers.

Not every subscriber will be willing to pay the added cost for high speed Internet access. As long as users can obtain dial up data rates (56Kbps) many will elect to save money. We estimate that only 1/3 of Internet subscribers would be willing to pay a premium for high-speed service.

We couple this information with reasonable growth rates and conclude that a realistic number of subscribers for broadband satellite service ranges from 1.3 million to 10 million paying subscribers worldwide in the year 2010. This is an enormous range because the uncertainty is great.

Figure 2. Estimate of Broadband Satellite Subscribers

Uncertainties

The success of broadband satellite will depend on many factors. The price for service and user terminals must be affordable. The quality must be excellent. Service must be dependable and reliable. Many simple mistakes could cause major difficulties.

Another question for the designers is how much bandwidth should they provide? Today, the peak data rate per subscriber is small compared to the data rate potential. Only a small fraction of users are on-line at any time and those that are on line are inactive most of the time. We all expect usage rates to increase, but how much?

We will address these questions later.

In the mean time, it should be clear that broadband satellite service has enormous potential. In a few years we will be surprised that anyone had doubts in 2001.

Reference

[1] Investing in Broadband Fixed Satellite Services, (Financial and Business Evaluation of New MultiMedia Satellite Systems - 4th Edition), privately published by TelAstra, Inc. October 2001.

Roger Rusch is the president of TelAstra, Inc. You can contact him at RogerRusch@aol.com.

End of Part One. Continue to Part Two.

» top «
 

Home  |  Industry  |  Internet & Broadband  |  People |  Events

Subscribe  |  Unsubscribe  |  Browse or Search Archives  |  Advertise on SKYBroadband

Please send Press Releases, Product Releases, Financial News
and articles of interest to info@skybroadband.info

© 2003 by SKYBroadband. All Rights Reserved.