By Theresa Foley

The once elite club of satellite companies is attracting new members as Internet, media and telecom firms try to capture some of the huge growth in the services side of satellites. The new entrants come with advanced technology and imaginative business plans. And their presence threatens to throw the satellite power structure off balance, since they typically bring along huge market capitalization values, relatively paltry revenue streams and scorchingly volatile stock prices, which can make the performance of steady- and-stable satellite operators pale in comparison.

How does one compare, for example, a company like Akamai, with its $22 billion market capitalization value and only $4 million in sales in 1999, with Panamsat, which had $810 million in sales but only an $8 billion market cap? Simple math is useless in determining how to pick the winners in the future satellite services businesses. Strategies and the way each company will grow its business become key.

Traditional satellite companies are focused on mega-projects costing hundreds of millions or billions of dollars, but these new players often find a way to get into the business with only a few tens of millions of dollars. If a few of them succeed, their stories could be a wake-up call for the mainstream satellite community to the argument that huge projects are not always the fastest or best way to grow. A new litmus test for value could end up being how capacity is used rather than the simple fact of owning infrastructure for services.

“The observation (that a satellite venture can start small and be a big player) is true, except the kinds of plans we have need to be well-funded fast because they are global,” says Ashok Thareja, CEO and chairman of Orblynx, one of the new firms. “We won’t need billions, but we will need hundreds of millions of dollars. We got out of the gate with $3-4 million in capital but to roll services out, we need more serious levels of funding.”

A few other trends are apparent. The new names often are part of the dot.com world, rather than the satellite, broadcast or PTT community that has held sway over the satellite business for the past 40 years. And they quickly can become big consumers of transponder capacity. For example Interpacket, which runs its traffic over at least 15 transponders, is constantly increasing its uptake of capacity.

Nearly a dozen of the promising new entrants to the satellite industry are profiled here, but a complete list is unquestionably longer. Our apologies to the entrepreneurs that Via Satellite and the author have yet to discover.

Ordering Capacity On The Web

If on-line bidding is good enough for Ebay, why not sell satellite capacity that way too?

Band X is a London-based entrepreneurial firm set up in July 1997 to broker international bandwidth over the Internet among more than 7,000 members. Band X spent its first few years trading terrestrial bandwidth, primarily fiber. Fiber sellers could post excess, unsold capacity on the Band X Web site and use the “virtual” trading floor to find a buyer to match. Satellite capacity has been added only in the last few months.

Richard Elliot, Band X founder, says satellite’s niche position promises to become a bigger part of the Band X mix: “Satellite will provide a large proportion of the world’s capacity for bandwidth. We are the leading market for capacity, and it’s only natural that we see satellite as part of it.”

A typical customer is an ISP seeking a circuit from a remote location into an Internet hub point like London or New York. A satellite capacity seller typically would post an offering that includes space segment, antenna services and backhaul.

Band X allows buyers and sellers of bandwidth to come together in relative anonymity to trade wholesale bandwidth on international routes. Currently, satellite and fiber capacity is listed together, but Band X soon plans to break the satellite element into a separate section to simplify matters for sellers and buyers, Elliott says. Satellite capacity often is far more complex to arrange than simply adding more Megabits of fiber capacity on an already established fiber route, he adds. “You have to involve import licenses, insurance, freight. It’s not easy technically.”

Band X is adding a new way to buy bandwidth online through anonymous, competitive bidding for capacity, rather than just matching the seller and buyer. At least three bids are needed to ensure that true competition is occurring, and Band X does work carefully with the customers to ensure the right participants for a particular tender are competing. A big satellite operator may have good reason to avoid selling to certain buyers if it will create problems with other customers. “It’s important for us to understand the satellite operators’ and capacity sellers’ sensitivities,” Elliot says. “Does a large satellite company risk doing business with a dodgy minute seller and risk antagonizing, for example, the Kenyan government? Or is it simpler to just deal with the big companies, big buyers?”

On The Edge

In fall 1999, dot.com investors fell in love with Akamai, a company that delivers high-bandwidth Internet content globally, as its stock became the one to have in a portfolio. Akamai (AKAM) went public at $26 on October 29 and reached $340 a share in the months following before leveling off around $240 early in the year.

Satellites are getting much mention in the Akamai buzz as a complement to the way their service is delivered. Akamai’s popularity is due to its position as a leader in the trend toward improving the Internet by finding better ways to move Web content to servers at the edge of the Net, closer to the end user. “Partnering with satellite companies will allow us to complement our existing network infrastructure with a high-bandwidth, multicast-enabled transport mechanism for Internet content,” says Margot Dahling, a business development manager in Akamai’s network strategy division. Satellites are one of several transmission means used in Akamai’s network of more than 2,100 Internet servers, which are located all over the globe. Akamai partners with satellite companies that want to be part of its infrastructure service. Partners include Loral Cyberstar, Cidera (formerly Skycache) and Edgix.

On the customer side, Akamai has a long list of Internet content providers, such as Yahoo, J.C. Penney and Marthastewart.com. Using satellites to move high-bandwidth content out to the edge of the Internet allows Akamai to bypass congested terrestrial networks.

Satellite’s multicasting capability fits closely with Akamai’s interest in simultaneously transmitting video streams to many locations. Another service provides “self-healing and disaster recovery” for a content provider so that a site does not go down when an unexpected event occurs, and this offering involves satellites as well.

For Internet-based events like Netaid, an on-line music event in October 1999, Akamai helped keep the Web content flowing despite surges from millions of people around the globe. For the Internet to serve the masses with high bandwidth content like live video and audio, such services will be essential.

Akamai, which has a special algorithm for managing Web traffic that was developed at MIT, is far from alone in its bid to improve content distribution, and many of its competitors also rely on satellites.

Serving Espresso

John Gans left the world of investment banking in 1997 to co-found Interpacket, a Santa Monica, CA, based company whose business is carrying IP services over satellite. Since then, Interpacket has doubled its usage of satellite transponders every few months, to the point where at the start of the year it was using 15 transponders. Company officials say they are profitable but won’t disclose figures. In February, Interpacket filed with the U.S. Securities and Exchange Commission to make an $84 million initial public stock offering.

“We’ve built a global network to provide high speed Internet access to ISPs and businesses anywhere in the world,” Gans says. Interpacket uses Panamsat, Loral, Satmex, Apstar and GE satellites that are accessed through five teleports, and have enough satellite beams for redundant coverage of the entire world. Fiber connects the hubs in some places. Interpacket’s satellite customers number more than 400 in 80 countries, with emphasis on the developing world in places like Chile, Peru, Nigeria and Pakistan. Interpacket’s leading product, for Internet backbone connectivity, is called Espresso.

Gans has great faith in the potential of IP over satellite services and says the company has no interest in carrying standard video broadcast or other more traditional satellite traffic. He says Interpacket is the market leader in providing IP-satellite segment to its market of offshore ISPs. Besides the backbone Internet service, Interpacket is strongly interested in the content aggregation trends and provides services like multicasting rich content such as streaming media to remote servers on the Web.

In late January, Interpacket raised $15 million in equity financing through an offering led by Pequot Private Equity. The other investors included Intel Corp., Access Technology Partners/Hambrecht and Quist and Baystar Capital. The money will be used to expand the network and for sales and marketing.

Putting Ids To The Test

Orblynx Inc. was spun off in 1999 by A&T Systems of Silver Spring, MD, to commercialize the Internet Distribution Service (IDS) platform that the company developed for Intelsat. Orblynx’s IDS2000 product, which came onto the market in late February, is a satellite-based content delivery system. Internet content is delivered over satellite in a multicast to caches in remote places.

Orblynx differs from other content distributors in its use of strategically-located remote warehouses that are used as extra caching depositories around the world. The content goes from its origination site to a main Orblynx warehouse cache, then to another Orblynx warehouse cache in the field, closer to its final destination at a customer premise. Many of Intelsat’s member-owners have large unmet demands for Internet access and the IDS package has been tailored to meet their needs.

Ashok Thareja is Orblynx’s CEO and chairman. John Stevenson, the former leader of Intelsat’s Internet business development group, left the satellite operator in December to join Orblynx as its chief technical officer.

Orblynx had raised about $53 million in financing by early 2000, Thareja says. A&T Systems retained 25 percent of the firm after the second round of venture capital, a $50 million commitment from venture capital firms Madison Dearborn and Spectrum Equity, and investment bank Morgan Stanley. Thareja said the money would carry Orblynx through its full initial global deployment of IDS2000.

To start, Orblynx is relying on leased capacity from Intelsat. A subsidiary company, Orblynx U.K., was established so that Orblynx could gain direct access to Intelsat, which is not yet permitted under FCC rules in the United States. Orblynx plans to deploy approximately 500 “kiosks,” the place where content is cached at the customer site, and 10 warehouses, the intermediate, regionally located caching points, by end 2000. Much of the initial deployment is based on C-band capacity and standard business premise receive-only VSATs at the kiosks. In this case, about 10 MHz of satellite capacity is needed per warehouse, meaning that Orblynx should be consuming about three to four transponders by year- end.

Orblynx will have both ISPs and content distributors as its customers. Stevenson says the benefits of using satellite-multicast to caches will be apparent to end users and those in the content delivery chain. End users will get faster access. The ISPs will save on backhaul bandwidth, but likely will choose to add more subscriber customers by using IDS as an overlay. For the content providers, the origin server will be protected from surges in requests since offshore sites will be fulfilled at the kiosk sites. The ISPs should be able to move into value-added services, while the content providers will be able to more gracefully offer “publish-and push” services for worldwide e-commerce and related information-rich applications.

Getting To The Edge

Edgix of New York is another startup founded by software and networking pioneers to offer high-speed delivery of content worldwide. The Satmex 5 satellite will be the delivery means for Edgemedia, Edgix’s service to carry content to the edges of the Internet. Coverage from Satmex 5 reaches North America, Latin America and the Caribbean.

Edgemedia was in beta testing early in the year and is aimed at delivering rich media content to ISPs and Fortune 100 clients. “We bring the most popular content to the edge of the Internet, within one router hop of the end user,” says Greg Smith, Edgix’ service development specialist. “Satellite communications is the most effective way to send any content desired by multiple people. In terrestrial multicasting, folks are doing unicasting to boxes, then re-unicasting.” He says terrestrial multicasting methods are not true multicasting, which can only be done by satellite.

Edgix received seed funding from Novell Ventures, part of Novell Corp., which invested an undisclosed amount into the venture in July and again in October 1999. That was followed by an alliance with Novell in October to make Edgix’s content delivery service available to Novell’s Internet caching customers. In January 2000, Edgix raised $15 million in venture capital from VC firms, Battery Ventures and Venrock Associates.

Edgix estimates that the content delivery solutions market will be valued at $400 million globally by 2002. The company also cites a 1999 Internet caching report by the Internet Research Group as estimating the caching market to reach $2.2 billion by 2003.

Investing In Broadband

Satellite investments have become a sizable part of the portfolio for Liberty Media, a holding company formed to invest in operating companies involved in the production, distribution and acquisition of entertainment and information. Liberty, which is controlled by cable mogul John Malone, invested heavily in satellite broadband projects starting in fall 1999. As of January, Liberty had committed to providing $900 million to satellite projects, according to Gary Howard, Liberty’s chief operating officer.

Carl Vogel, a well-known satellite industry figure who formerly held positions at Echostar and Primestar satellite TV companies, joined Liberty early in 2000 and was expected to have a central role in managing Liberty’s satellite interests. Liberty was shopping around for more satellite deals, Howard says.

The biggest commitment, $425 million, has gone to Astrolink, the Lockheed Martin-sponsored broadband satellite project. Liberty also has invested in ISky, along with Kleiner, Perkin, Caufield and Byers, an investment group that has backed several very successful Internet firms like Netscape and Amazon.com, and TV Guide, in which Liberty also has a large equity stake. A third Liberty satellite deal was the purchase of 90 percent of TCI Satellite (TSATA), a shell company leftover from the defunct Primestar DTH service that Malone now intends to use to get into satellite broadband services. Liberty also owns 10 percent of Galaxy Latin America.

“Given the heritage here, we like satellites,” says Howard. “It’s a good way to communicate on a mass basis.”

Howard foresees DBS consumers who are enamored of their satellite-delivered services wanting to add a second dish for high-speed data reception. “Satellite is tremendously efficient,” he says. And while the opportunity to reach homes is large, he says selling the data services to businesses globally is an even bigger opportunity.

Liberty’s overall strategy is to develop a portfolio of Internet and content assets, which had led it to look for ways to deliver broadband content, and thus the strong interest in satellites, Howard says. Two-way transmission through satellite is an attractive business opportunity, he adds. Typically, Liberty takes 10 to 33 percent stakes in standalone businesses, where it participates on the level of the board of directors but avoids any day-to-day operational role. Liberty, based near Denver, has only 36 employees and does not get deeply involved in managing the companies it backs.

Unlike some investors, Liberty has a long-term view and does not set strict requirements for a minimal, early return on investment (ROI). Short-term ROI requirements have worked against satellite projects with some investors, who want a payback faster than a slow-moving satellite project can deliver.

“We’re opportunistic. We want to deliver content and information into markets with a large critical mass,” Howard says.

Cashing In On Ka-Band

ISky plans to be in the business of delivering consumer access to the Internet in North America by the end of 2001 with a 41-spotbeam, Ka-band system covering the United States and Canada, and expects to be providing service in Latin America by mid-2002. ISky signed a contract in January with Space Systems/Loral for its first satellite. Previously known as Ka-Star, ISky was formed in the mid-1990s by David Drucker, a lawyer and early DBS investor who obtained the FCC licenses for two geostationary Ka-band slots, and Tom Moore, a cable expert who helped to standardize and reduce the cost of cable modems.

Based in Denver, ISky will model its consumer Internet access on DBS, pricing its hardware at a few hundred dollars and a monthly fee in the $40 range, according to Brad Greenwald, ISky’s vice president of marketing and business development. The service will be different from the satellite-Internet access offered by others like AOL-DirecTV and Gilat, because it will be two-way over satellite and at faster speeds (1.5 Mbps).

ISky needs $750 million to pay for its first two satellites, which will cover North and Latin America, plus initial start up costs. Greenwald says $250 million had been raised by January, including a $50 million equity package from Kleiner Perkins Caufield and Byers, TV Guide and Liberty Media. The other $200 million that ISky claims to have raised is from unidentified equity and debt, Greenwald says. Donaldson Lufkin and Jenrette and Morgan Stanley have been retained to raise the other $500 million required in the next 18 months.

Hitting The Spot

By 2002, Netsat28 plans to join ISky in competing for North American satellite-Internet access customers, also using a Ka-band satellite from Loral. Netsat28’s communications payload is being designed and built by EMS Technologies of Norcross, GA, the venture’s majority owner pending FCC approval. EMS will own 90 percent of Netsat28 and company founder Tom Glynn, president of Netsat28, will own the remaining 10 percent. Former Comsat CEO Bruce Crockett serves as Netsat 28’s chairman.

Glynn says EMS has $300 million a year in revenue and could afford to finance some of the $250-million broadband satellite itself while raising other funding from other partners.

Glynn holds patents on a multi-beam, high-capacity satellite design and an “optically-coupled communications system” that will be basis of Netsat28’s broadband satellite. Launch is planned in May 2002. Glynn says the satellite will have two types of beams, with 16 wide beams covering the United States and 42 high-gain beams that are optimized to cover the main population centers. “It’s a way to optimize where the beams are to the last mile. We are focused on reaching households with greater than $75,000 annual income,” he says. Demographic studies are being used to design the beams to focus on the places where those affluent families reside.

The target customers are consumers and small, home offices. Bigger businesses are also prospective users but not the primary customer. Netsat28 has two options to sell services, either by wholesaling to ISPs or by setting up direct sales as a retail service provider.

Each of the 40 spotbeams will have one gigabit capacity in each direction, providing the total satellite with far more capacity than competitors, Glynn claims. Data rates to users are bandwidth on demand with up to 40 Mbps downlink and up to 2 Mbps uplink. Netsat28 intends to price its services in the same range as terrestrial competitors digital cable and ADSL, he says, which will keep the price below $110 a month for much higher speeds of service than competitors will have. Glynn believes Netsat28 also can get the cost of user equipment down by using industry standard protocols developed for the Astra system, and taking advantage of low-cost parts from high-volume production lines from the outset.

To take the concept global, Netsat28 would carry out another proposed satellite system called Megasat, which is a 10-satellite geostationary system registered at the ITU through the Mexican government.

Broadband VSATS

Esat Inc. of Fountain View, CA, is a small start-up company that aims to provide satellite-delivered broadband services to businesses, focusing on customized solutions that rely on VSATs from other vendors. The main products are a global satellite Internet gateway for Internet service going one-way through satellite and returning through landlines, and Nexstream, a two-way satellite VSAT product for Internet. A third service will focus on disaster recovery, also called “business continuity,” using satellites. Like several of the other satellite entrants, Esat was losing money at end 1999, according to its filings at the SEC.

Esat started as a network integration company, but turned its attention to satellites about a year ago and now is exclusively a satellite-based service, says Jim Mack, Esat’s chief technology officer. “We saw a huge market potential for satellites because of their geographic reach and flexibility,” Mack said. Esat differentiates itself by its willingness to customize networks for its customers. “We pride ourselves on our ability to help our customers achieve their particular objectives,” he said.

The company was still waiting in late January for its first big contracts, but says it has done beta tests with the San Bernandino Sheriff’s Department and other government entities and schools. It also signed a strategic alliance in January with Devnet, a U.S. property management company with commercial property where Esat wants to install satellite dishes for network access.

Offering The Internet To Asia

In Asia, Pacific Century Cyberworks (PCC) made headlines in fall 1999, when it announced that the new company, backed by satellite-TV entrepreneur-billionaire Richard Li, would launch a satellite-based Internet access service for Asian customers. The company said it would spend $1.5 billion on two satellites to be launched within three to four years. Pacific Century plans to offer Internet-access services modeled after Excite@Home, a U.S. cable-modem based Web service. Well before the satellites are launched, PCC will begin by offering Internet services through cable systems. Now, however, PCC seems to have turned its attention to cutting deals with other Internet service companies to build an Internet business in Asia.

Li and his company are well known in Asia due to his role in founding Star TV, the DTH service that was sold to News Corp. in 1993-95. Li, chairman and CEO of the Pacific Century Group, the parent of PCC, also is among the richest individuals in the world.

PCC, with a $21 billion stock market value, is publicly traded and has received accolades from many of the analysts at the major banks in Asia for its Internet-broadband strategy, even though the plan has yet to be implemented, and parts of it remain somewhat unclear.

The Final Frontier

Satellites have been around for many decades but they continue to provide opportunities for entrepreneurs and visionaries. The satellite industry indeed appears to have displaced NASA and other national space agencies as the jumping off point into the final frontier, where explorers and pioneers can create new fortunes given a propensity for risk, bold thinking and a modest amount of resources.

Theresa Foley is Via Satellite’s senior contributing editor.

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