By Theresa Foley

Caching and multicasting weren’t even in the dictionary a few years ago. Today they are next in line to become the big revenue generators for satellite service providers.

Now that satellite operators have gotten a firm foothold in the provision of intercontinental links to Internet service providers (ISPs), new services are being demonstrated that promise to take hold in the next 12 months, further reshaping the satellite data business.

Recent reports released by Irwin Communications and DTT Consulting have indicated that caching and multicasting services support the Internet community by making the Web operate more efficiently. Both also are of great interest to the huge private networking community that borrows Internet-related technology to fuel its expansion.

In caching, the most popular Web pages are to local servers, where they are stored and can be accessed by users who enter the Web through that particular portal. The user does not have to navigate the Internet network to retrieve the data, but can get the content from the server, which saves time and reduces congestion on the Internet. Multicasting is the broadcasting of data, rather than video, in a single satellite transmission that can reach an infinite number of dishes aimed at the satellite.

Neither report quantifies the development of caching or multicasting services in a absolute terms, since both applications are just moving beyond demonstration into early usage. These new applications have only begun to produce the first trickle of revenues, but service providers and analysts see that trickle turning into a torrent, possibly by next year, as the media stream riding the Internet changes. Information-rich sources and real-time video services are climbing in popularity, bumping up the demand for bandwidth all along the distribution line.

"Skycache is representative of where caching is headed," says Adam Toll, Irwin Communications’ director of research and principal author of the study Internet Delivery Via Satellite. The entrepreneurial firm Skycache was formed in 1997 to use satellites for Internet cache distribution and is currently developing a streaming audio/ video service as well. "At the end of 1998, Skycache had about 50 ISPs in the United States as customers, using a 4-megabit cache stream over GE 3," he says. "In early 1999, the company expanded into Europe with a similar feed on GE 1E, and they are planning to upgrade both feeds to 45 megabits by the end of the summer. We believe they have upwards of 120 customers currently, which includes more than 20 European ISPs.

"We are probably looking at a killer application, especially for satellites," if ISPs continue to respond strongly and streaming media services are launched successfully by Skycache and others, Toll says.

Roger Stanyard, author of DTT’s report, Internet Via Satellite 99, is more cautious. He believes satellite cache transmissions sound great but the actual performance is less impressive, "because it is an add-on to existing terrestrially based caching techniques."

The two above-mentioned reports agree on several points, including the observation that Internet traffic patterns are bound to shift regionally, thus having less emphasis on accessing U.S. Web sites, and that Internet Protocol (IP) has emerged as a key factor. Internet Protocol is set of rules that allow an unknown number of computers of different types exchange information over the Internet. And IP, as it turns out, is affecting more than just Internet-related services. Irwin Communications says IP-based networks are being adopted by business television and VSAT customers, who are becoming consumers of broadband services along with the Internet community. IP-based services are being developed for business networks by companies such as Hughes, with its DirecPC product. Companies such as GM, Kmart and Re/Max are using IP-based VSAT networks for a variety of corporate communications applications.

Demand for Internet services into the home also will impact the fixed satellite services (FSS) business. Satellite operators expect to see healthy demand for data streaming to cable headends to support the introduction of new cable Internet services such as @home and Roadrunner, once the cable industry starts rolling out these services in larger numbers. The cable operators who have been delivering video over satellite might need substantially more capacity to deliver Internet content updates to their subscribers.

Projects are under way that would allow broadcasters such as CNN-which already uses satellites for program distribution-to mix Internet data into their broadcast feeds so that it can be stored at the cable headend for access by cable modem users, according to Toll. "By pushing data to the outer edges of the Internet, this type of streaming allows users to access rich-media content directly from their local service provider, avoiding the congestion typically encountered when accessing content elsewhere on the Internet," he says.

Robert Bednarek, chief technology officer for Panamsat Corp., says the distinction between broadcast and data will disappear as broadcasting goes digital and data adopts full motion video. "Telecom will have a broadcast component," he predicts.

Meanwhile, every few weeks, another new satellite/Internet service is announced by the leading operators in the business, including Intelsat, Loral Orion and Panamsat, and telecom carriers such as Teleglobe, Telenor, Worldcom, EUNet, Global One, Impsat and Interpacket.

Intelsat, for example, began trials of an Internet distribution system multicasting/caching service in April with the participation of its customers-British Telecom, Comsat, Embratel, France Telecom, KPN International, Telecom Authority of Cypress/Cytanet, Telecom Egypt/IDSC, Teleglobe and Telia. Intelsat will transmit popular Internet Web pages to a central warehouse for retransmission to "kiosks" around the world, where users can connect by local means for faster download.

Loral Orion’s plan to expand into the Asian market has been impacted by the May failure of a Delta 3 rocket that carried the Orion 3 satellite. The company will continue to use Mabuhay, a satellite partially owned by Loral, and will then further expand into the region in the next 18 months using new satellite capacity. As another part of its global expansion, the company will break into the Latin American market using Loral and other regional satellites in the coming months and in the fall after the Orion 2 satellite launch.

Orion will announce several new Internet services this summer. Orion’s Worldcast Premier, a dedicated ISP link service, will evolve into two service levels. One involves the delivery of data "feeds" such as "the best of the Web" to ISP sites, and the second the narrowcasting of special data of interest to particular ISPs or regions, according to Neil Bauer, Loral Data Services group vice president.

SES Astra

Societe Europeenne des Satellites’ (SES) strategy to develop broadband services on existing satellites differs in several ways from other industry leaders. First, SES has been focused to date on the European market, although that is changing with the acquisition of a large stake in Asiasat and plans to partner with a U.S. operator later this year. Second, SES will operate a commercial Ka-band payload following the June launch of Astra 1H, which will enable SES’ 18-month old Astranet service to employ a Ka-band return path for its multimedia users. SES customers may lease either a transponder for their Internet-related usage and run the network themselves or use the SES brand-name platform Astranet, which provides them network support.

Romain Bausch, director general of SES, says SES multimedia traffic has gone from a half transponder dedicated to Astranet in January 1998 to 2.5 transponders this spring following a contract from Europe On Line for two transponders for Internet services. Europe On Line will sell the satellite service to ISPs, who then can offer a satellite connection to the Internet in addition to terrestrial access methods.

Perhaps because it has taken twice as long as anticipated to begin generating demand and revenue, many in the industry believe Astranet has not been a huge success. "We thought the build-up of traffic would take place six months to eight months after contracting," Bausch admits, but instead almost 18 months were needed. By the end of March, however, SES Multimedia was headed in the right direction with 30 customers using its Astranet platform.

Not only did SES have to convince service providers that both satellites and SES were the way to go, it had to wait for the service providers to convince the users. Then SES met resistance from potential clients, like bankers, who were enthusiastic about the service’s capabilities but disappointed by SES’ answer to their question of whether they could use the network for offices in Asia and Latin America. Bausch says business users are demanding global coverage for many of their applications.

The satellite industry will get its first real taste of two-way Ka-band services in first quarter 2000, when SES puts its Astra Return Channel Service (ARCS) into operation.

Bausch says tens of thousands of dishes will use ARCS practically from the start, since SES is negotiating with multiple service providers who could be customers, and each has 10,000 or so users. He predicts 100,000 users within two to three years.

SES is pursuing the business network market first, but eventually plans to take multimedia services to the consumer level via service providers. But this transition won’t be possible until terminal prices drop to 500 Euros (approximately $533.50), down from the 2,000 Euros (approximately $2,134) price that will be the starting point, a price that terminal suppliers Nortel and Philips have committed to in advance. Terminal prototypes are due in early August. The 60 cm dish will receive in Ku-band at 38 Mbps and transmit in Ka-band at 150 kbps.

In the long term, SES hopes for 20 percent to 30 percent of the global broadband satellite market. SES has filed for 21 orbital slots for Ka-band satellites, and Bausch says the company will require at least four to six of those. Some of the slots likely will be impossible to coordinate and use by SES, and thus might be available to other filers. In the meantime, the exact plans for putting Ka-band payloads into more slots are not firm. As SES replaces its existing satellites, more Ka-band payloads for service enhancement will be added. But Bausch says bent pipe satellites can perform most of the applications. "The need to invest in onboard processing is not urgent," he adds.

On the other hand, he does see the need for geostationary broadband satellites to be augmented by low earth orbit constellations, and he says to watch for SES to take a role in one of the LEO ventures.

Orion/Cyberstar

Loral Orion expects to see its Internet service revenues grow to 40 percent of its business this year with 300 megabits to 400 megabits of capacity devoted to the service. Those figures are twice the 1998 level, Bauer says. Orion has concentrated on serving European ISPs with backbone connections into the United States but has planned two new satellites going up in the next year and a half to expand into Latin America and Asia. Nonstop revenue growth will be made possible by the new satellites, Bauer says. Orion’s plan to expand into the Asian market will be delayed by the May failure of a Delta 3 rocket that carried the Orion 3 satellite, but the company still plans to break into the Latin American market with its Orion 2 satellite, due for launch this fall.

Loral also hopes to create revenue-sharing arrangements, perhaps in the form of advertising or e-commerce, with some of the hot new Internet-related companies that may be customers or partners in some new services. Along those lines, in late April, Loral Data Services joined with Neoplanet Inc., an Internet software company, to develop custom navigation tools for accessing broadband services. Loral introduced a free "customizable" desktop enterprise portal also known as an "on-ramp to the Internet" in May that would help business users of the Internet access pre-program sites and services related to their needs. The free software was posted on Cyberstar’s Web site in May.

Bauer’s boss, Loral Space and Communications CEO Bernard Schwartz, believes the data services business is one of the keys to getting Loral into the black in 2000 if he can correctly position his divisions to win customers. Toward that end, Loral has combined Orion and its broadband services venture, Cyberstar, into the data services company that Bauer was assigned to head earlier this year. Operational responsibility for the Orion satellites was handed over to sister company, Loral Skynet, leaving the Data Services group to focus on its customers. Orion and Cyberstar, with a total staff of about 350, will continue to be run as separate entities for the foreseeable future. Cyberstar will try to develop IP-based products and services to sell to business clients, primarily in the United States for the time being. Orion will focus on the international ISPs and will also offer IP services to multinational clients needing to reach worldwide destinations.

Orion’s data services business brought in about $40 million in 1998 revenues, but lost about $13 million, Schwartz said in February. This year, he forecast $70 million for Orion Data Services, the point at which the operation should break even. But the Orion 3 loss will impact those figures, according to Wall Street analysts. With Cyberstar included, data revenues for Loral should be $100 million this year, Schwartz predicts. The company has invested in Cyberstar for two years at an annual rate of $32 million but won’t receive first revenues until 1999. He hopes to see Cyberstar generating $150 million to $200 million in revenues by 2000.\

Hughes/Panamsat

With its decision to put $1.4 billion of its own money into its Spaceway Ka-band system, Hughes appears to have finally reconciled how it will tackle the broadband business by giving its multiple satellite operating units all a piece of the action. Hughes Network Systems, by virtue of its position in the VSAT business, has been handed responsibility for Spaceway and the development of business terminals and services for its multimedia offering. DirecTV will cross-promote the service to consumers, and Panamsat will retain its focus on Internet infrastructure services.

At Panamsat, CEO Fred Landman stepped aside in April to be replaced by COO Douglas Kahn, an executive from the information technology sector who had been with the company only a few months. The change was interpreted by some as tied to Panamsat’s growing Internet-related business. Panamsat’s traffic mix of 80/20 broadcast-to-data is expected to shift to 70/30.

"Right now, three to four percent of our revenue and bandwidth is Internet-related," says Bednarek. "We expect at least a doubling of Internet-related revenue year after year." In 1998, Panamsat revenues totalled $767 million.

Panamsat sells Internet services either as straight capacity leasing, or as services that combine space segment and support. Spotbytes, an ISP backbone connection service, is the most popular of the services. The company also serves as an ISP in some regions to help support private network/Internet services.

Multicasting has yet to produce noticeable changes in revenues, Bednarek says. Panamsat demonstrated its multicasting services-both for file transfer and video streaming-at the National Association of Broadcasters conference in Las Vegas in April. Bednarek says the appetite for putting motion video over the Internet is just being whetted, citing efforts by lingerie retailer Victoria’s Secret and Internet software provider, Real Networks, to run video over the Internet.

"It’s not a 1999 revenue story," Bednarek says. "I don’t think the issue is convincing people of [multicasting’s] utility. We’ll spend this year introducing the technology. The issue is how to integrate it into the existing Internet ground network. In 2000, we will see this use becoming very active."

Panamsat also hopes to make technical changes to reroute Internet traffic in a more efficient manner. Today, "Internet traffic that does not need to go through the United States does anyway. It chews up bandwidth," Bednarek says. If the links are set up correctly, a decision can be made on the ground to route the traffic more directly, lowering the cost of inter-country Internet connections, he says.

Bednarek predicts Panamsat will be forming more strategic relationships with vendors, customers and service providers as it expands its Internet business presence, but not to go as far as Orion in seeking to share advertising or e-commerce revenues. A partner might provide content, while Panamsat supplies bandwidth.

Intelsat

Intelsat earned approximately 10 percent of its $1 billion 1998 revenues from Internet services, according to Conny Kullman, Intelsat’s CEO. Kullman forecasts 15 percent to 20 percent of Intelsat’s revenue this year will come from the Internet.

Intelsat watched its Internet business take off after convening an Internet Summit two years ago. At that time, there was a widespread misconception that the latency in geostationary satellites would impact Internet applications. Internet leaders attended, and the myths were debunked, to a large extent. Intelsat, by focusing on this issue and by dedicating resources in its technical laboratory and in its sales and marketing division to disproving it, has been at the forefront of proving latency to be a non-issue. Kullman says Intelsat’s labs try to bridge the expertise gaps between the different engineering communities involved: satellite, computer and Internet.

The ability of Intelsat to thrive in the broadband business over the long term is highly dependent on a successful restructuring into a private entity. Intelsat hopes to win approval of its owners this fall to go private, followed by implementation by 2001. Kullman says Intelsat will not require the $10 billion to $16 billion investment of projects like Teledesic for its broadband satellite system, but will instead spend $3 billion to $4 billion. Intelsat is assembling a business case for a new broadband satellite system, for which it will seek board approval in June, followed by issuance of a request for hardware proposals by year end. That money can only be obtained after the restructuring, with political support from major Intelsat owners such as Comsat in the United States.

The operators continue to track the Internet market on a daily basis, shifting their strategies to match the constantly changing landscape of the new information world. "It’s very difficult for the network planners to figure out where the hot spots are going to be," Kullman says. Satellite operators such as Intelsat will need global footprints, a reliability track record and numerous service options to come out on top, he says.

But Toll says that while technology is important, the real challenge is to develop services for the Internet market that leverage the inherent strengths of satellite communications systems in response to rapidly evolving market needs. "Once you’re in the Internet world, it’s not the steady-on satellite business we all know. The quickest and most innovative ones will be the most successful," he says.

Theresa Foley is Via Satellite’s Senior Contributing Writer

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