The DTH sector is doing well, however, the business has two potential long-term problems. These might be seen as bandwidth quantity and offering quality, and both can be addressed through the use of hybrid networks.

Availability of bandwidth is a constant concern as demand for more diverse and higher quality HD video constantly forces companies such as DirecTV and SES to add satellite capacity. While there is no reason to believe that they cannot continue to do so, the constant addition of capacity is expensive. Quality of offerings refers to the type of programming a DTH company can provide and how it provides it (broadcast or video on demand, standard definition broadcasting of HD video). Again, at the moment, they have managed to provide local stations to many areas and even have been able to simulate video on demand by caching popular programming on DVR hard drives.

In the short run, DTH companies are not seriously threatened by the superior technologies available to their terrestrial counterparts, but in the long run, the competitors could have a larger advantage.

What are these technologies? They go by different names according to the specific approach used, but at their most basic, it is the ability to discard the broadcast model for one that allows tailored programming for each user over greatly reduced bandwidth.

In regions where video is available from telcos, such as AT&T’s U-verse offering, the limitations of copper twisted-pair phone lines make a broadcast model impossible. There simply is not enough bandwidth to deliver the broad programming lineup that can be delivered by satellite, fiber-optic cable or cable company coax. The answer, implemented in an IP-based system, is IPTV. In IPTV, only the channel that is being watched is transmitted. Changing channels really involves sending the video server that functions as a headend, a request for a new channel which is then sent in place of the old channel.

A similar system, designed for cable TV systems, is called switched video and is available from companies such as Big Band networks. Although it does not use the same IP-based technology as IPTV, it accomplishes the same end, allowing cable companies to reduce the load on their networks (even moving only a portion of their programming to switched video saves a lot of bandwidth).

The problem for DTH providers is the same as the benefit for cable and telco companies — bandwidth. The strength of the satellite video distribution platform is that a single satellite can cover a continent with the same programming. This business model holds even when spot beams are used to provide local programming to specific areas.

This technology is not, however, capable of maintaining a different two-way dialog with every customer. This would call for the capabilities of a broadband satellite such as Hughes’ Spaceway 3, but such satellites do not have the capacity for this task. Video involves too much bandwidth, and there are too many viewers for this approach to compete with terrestrial solutions economically. As a result, terrestrial video providers can potentially offer more channels and, perhaps more important, unlimited amounts of video on demand. If video on demand becomes an important market differentiator (as I believe it will), and consumer’s preferences move away from a broadcast model, satellite-only distribution could be in trouble. Simply the more efficient use of bandwidth by terrestrial competitors could cause problems for DTH providers in the long run.

This is exactly the sort of problem that hybrid networks are meant to solve in other contexts. Satellite is still the most efficient way to broadcast programming to continental audiences, but if video on demand or volume of programming become issues, satellite broadcasters will need a terrestrial component. This portion of the network will provide the sort of interactivity the terrestrial providers already have. It need not replace satellites but it will provide an essential supplement to them.

In addition to allowing DTH providers to offer comparable video, a terrestrial broadband connection would allow them to provide the other two legs of a triple-play offering. Voice and data service would broaden the satellite video offering to match its competitors while maintaining the advantages of the satellite platform.

Once again, in consideration of satellite networks, it seems clear that hybrid networks are the path of the future.

Max Engel is and experienced satellite and telecom industry analyst and founder of The North Star Consultancy. He can be reached at maxengel@thenorthstarconsultancy.