By Jason Bates

VSAT systems have established themselves as a technology ideally suited to corporate networking, enabling a new tier of users to take advantage of the enhanced flexibility the platforms offer. But the industry has had to respond to a growing competitive threat from terrestrial services, which are expanding their offerings and geographic reach. VSAT operators that best respond to the changing marketplace will be able to not only survive but also prosper by taking advantage of new opportunities that will develop in this market.

VSATs numbers have been growing steadily, according to a February report from Frost & Sullivan. The industry is benefiting from traditional applications, such as corporate networks, point-of-sale and Internet access as well as from new applications and new target markets such as rural telephony, telemedicine and disaster recovery networks, according to "World VSAT Markets." But this growth appears to be limited according to industry executives, and the future for many traditional VSAT companies most likely lies with embracing terrestrial providers and forming hybrid network offerings, says Max Engel, satellite analyst with Frost & Sullivan. "It used to be that satellite was special, and the industry still has occasional problems in regard to thinking it is special and different and unique and alone in its ability to provide broad area networks," Engel says. "It’s not special anymore. It has a certain set of very useful characteristics, and those characteristics make it a powerful tool where appropriate, but if you look at the old VSAT model, say what Hughes did five years ago, it was very much a matter of ‘we will take care of everything’. You have VSATs, so you won’t need to touch a terrestrial network. That’s not really a good way to do things anymore. Terrestrial generally has more capacity and is cheaper in many applications. So why spend more to do what you can do cheaply and easily on the ground? There is a lot more of that on the ground than there used to be."

Many VSAT providers already have realized this reality and embrace it, says Jorge Vespoli, vice president of global sales and marketing for San Diego-based ViaSat Inc. "Why would you call [hybrid networks] the future? It’s been happening for a while, especially in North America," he says. "We’ve been doing it on an ad-hoc basis. We don’t like to brag about terrestrial solutions, because it goes against our philosophy, but we embrace it when it makes sense. In the market sectors that we focus on, we provide managed [virtual private networks] that use satellite as the core technology. Sometimes we use DSL or others terrestrial technology because there is no satellite or no direct view to a satellite, and we want to offer a fully integrated solution. If satellite is only 1 percent of the system and terrestrial is 99 percent, that’s bad, but if it’s the other way around, that’s good. In our efforts, terrestrial is generally the exception, not the rule."

Embracing hybrid networks does not mean the end of VSATs, Engel says. It simply means that operators will have to adjust their expectations about their amount of involvement in the private networks. "Hybrid networks are incredibly powerful, because they let all the players work to their strong suit. Hybrid does not mean satellite loses. It means satellite occupies smaller niches in a broader firmament. It’s not at all clear that this means less dollars. It might mean more dollars and more satellites, but we are moving toward a satellite role being more broadly spread and less a complete solution."

Embracing Hybrid Solutions

In March, Hughes unveiled its new Hughesnet brand, replacing its Direcway brand. The new brand is intended to unify the company’s range of broadband solutions and services, going beyond Direcway’s traditional "broadband by satellite" offering for the enterprise, government, small business and consumer segments. The new offering allows Hughes to provide services using both satellite and terrestrial links, depending on customer preference. "We are a managed network service provider," says Mike Cook, senior vice president of sales and marketing for the company’s North American division. "We use the appropriate platform to meet the needs of our customers."

Complete rollout of Hughesnet services will take place throughout 2006 and the newly-named Hughesnet division will start off with about 275,000 U.S. customers. Likewise, the company’s Spaceway platform remains on schedule to begin operations in early 2007.

The most appealing aspect of using a VSAT provider such as Hughes is the single point of contact and network management, Cook says. "It is easy to get sites deployed and/or moved around," he says. "It’s a fact of life that sites move around all the time. Stores open and close with some frequency. … Our stance is that DSL is a fact of life and cost effective in certain environments, but today there is no reason why we still can’t offer our customers the same quality of service."

While Hughes will remain independent with its hybrid offering, other VSAT providers are looking to outside partnerships to extend their reach. Gilat Satellite Networks Ltd. may have made the biggest deal to date with a June announcement that it will link up with Cisco. Gilat’s Skyedge system was selected by Cisco as the platform to support Cisco’s new VSAT Network Module, which provides a broadband satellite network service for data and voice that integrates directly into a Cisco router so it can be configured to automatically take over if the location’s primary connection fails. This interoperability enables VSAT service providers who operate the Skyedge system to become members of Cisco’s global network of Certified Hub Operators, which allows service providers to collaborate with Cisco and help new and existing Cisco customers deploy a range of broadband satellite networking solutions.

"We think this is good news for the satellite services industry in general," Tal Meirzon, Gilat’s vice president of marketing and business development, says. "This is the first time that Cisco has satellite communications as part of their offering. This adds additional addressable markets for satellite communications. For Gilat specifically, its enables Gilat Skyedge hub operators to have an additional revenue stream. About 1 million of those routers already are deployed, so there is definitely a nice captive addressable market."

In order for customers to receive satellite service via the Cisco router, they need to have a contract with a VSAT service provider. Gilat subsidiary Spacenet has launched Connexstar CI broadband services designed specifically for the Cisco VSAT Network Module. Spacenet will provide services in the United States, while Satlynx will be the first to manage the offering in Europe, the Middle East and Northern Africa.

The prime target market for the new offering is the business continuity and backup, emergency and disaster recovery arena, Jeff Carl, Spacenet’s director of marketing, says. "We think this will really light a fire under people looking for VSAT backup networks," Carl said. "Cisco is the 800-pound gorilla of the network world, and they are bringing out a VSAT product. We see not just a great product, but now we have Cisco’s sales force and resellers telling people about the virtues of VSAT for backup. Spacenet could knock on a door for years and not get noticed, but when Cisco walks in, people will talk to us. We think once you put in a VSAT for a backup the customers will see it is useful for a lot more than that."

Tim Street, an analyst with Frost & Sullivan, believes the deal gives Gilat a leg up in the race to bring satellite services to a wider audience that does not yet know what satellite has to offer. "I think it’s a great partnership that should definitely result in growth as VSAT is used as a backup and in recovery situations. Having an integrated solution will make a difference. One of the main challenges in penetrating a market is many customers are not looking at satellite and the big challenge is getting it within the scope of what the IT manager will consider. This partnership will bring that into view and help the managers consider VSAT into their solution."

ViaSat also is working forming a partnership with a terrestrial technology provider to offer a combined solution, but the company is not yet ready to announce a deal, Vespoli says. "The ability to embrace a hybrid solution, gives you the ability to win more deals," he says. "… We’re in the situation where you have to embrace a hybrid solution."

The move toward hybrid networks also will be a boon for iDirect Technologies, which offers "the unifying technology that brings this together," says Dave Bettinger, chief technology officer for iDirect, which provides turnkey communications equipment for networks that uses Internet Protocol (IP) technology. "Idirect didn’t have to develop 10 different technology that brings things together. We went out and built an IP product for satellite and all the other services came to us. Everything is headed toward a simple IP platform."

All Satellite Network Still In Demand

In terms of growth for traditional VSAT providers, the curve for hybrid networks is moving up, while the curve for networks that are primarily operated over satellite is expected to be holding steady or even declining, but Vespoli is among several executives who do not believe that embracing hybrid offerings means the end of VSAT-only networks. "There are still opportunities for 100 percent satellite" virtual private networks, he says. "In many cases, you still have requirements that only a satellite can provide effectively, such as restoral services, multicasting and general content push. There are areas where the broadcast nature of satellite is the differentiator. The centralized, homogenous and ubiquitous network still has significant value. The problem is that people have the expectation of the functionality of a satellite for the price of the cheapest terrestrial offering. That creates a challenge for satellite."

The demand for satellite also remains strong in regions around the globe where terrestrial infrastructure cannot meet communication demands. Hughes has about 160 major enterprise customers, representing hundreds of thousands of sites, in North America, with the majority using all satellite links, says Cook. "VSAT has survived and continues to thrive in various market segments, with growth rates depending on where we are in product development and performance cycle, and where the market is," he says. "Clearly we’ve got products today that are much more powerful in terms of performance than the products we had two or three years ago. Our current enterprise grade platform is capable of delivering up to T1 speeds in upload and multiple megabits in download. It’s a very powerful platform, and we have the capability to give enterprise customers the bandwidth and performance they are looking for. At the same time, we have become very sophisticated with data compression and acceleration techniques, and when you look at the performance of VSAT versus DSL for Web browsing or Web-based applications, there is no discernable difference in refresh time. These techniques have helped us overcome the impact of latency."

According to Frost & Sullivan, opportunities that will remain strong for VSAT providers in developed regions of the world include digital signage, business TV networks and business continuity and disaster recovery applications. Within less develop regions of the planet, cellular backhaul and rural telephony will still provide business opportunities.

"The perception that VSAT is dying is not backed up by the numbers," Engel says. "If you thought VSAT was going the way of the dodo, it may actually be experiencing something of a rebirth. If you want to send out digital video content to stores you don’t need two-way, so set up a one-way VSAT for the video distribution network and the electronic communications network is terrestrial. It is worth your while to do video distribution network as satellite. … There will always be people that want satellite only," Engel says. "It’s fabulous for broadcast. You send content once and it’s received all over the place. For a one-way network, satellite is unsurpassed."

Bettinger also does not see the expansion of hybrid networks as the end of VSAT. "Where we’re heading is bringing better bandwidth efficiency," he says. "Satellite still gets crushed on cost, but the lower [we can drive our] cost, the lower the cost of transport for our customers. Satellite IP is not going to lead the world in determining which direction IP goes. It has to be the other way around. The big service providers have other connections and they can extend all of those services across satellite to anywhere. That’s the vision of where we’re headed. … The large global providers still can’t touch 15 percent of their enterprises because of connectivity issues. That’s where satellite will play."