By Theresa Foley

In the last three years, Internet service providers (ISPs) have developed into a promising new customer sector for satellite service providers. Large U.S. consumer ISPs like AOL, Msn.com and Juno are forging partnerships to incorporate satellite Internet access as a basic offering in their new broadband premium service packages. On the business and infrastructure side, multi-national ISP service providers like UUNet, Abovenet and PSINet have discovered that satellites are useful for backbone connections, although the big ISPs have not yet come to rely heavily on satellites.

While many encouraging signs indicate that satellites will have a larger role in ISP services, the actual dollars coming in are still small relative to the overall business of either satellite or Internet services. And among the mainstream ISP world, the question of how satellites fit into a particular company’s plan more often than not draws a response that goes something like, “What? Satellites? They don’t.”

“We use very limited satellite capacity,” says Doug Baj, a spokesman for PSINet, the Washington, DC-based company that provides IP-based communications services for businesses and claims to be the largest independent facilities-based business-to-business ISP in the world.

“Overwhelmingly, everything we do is on fiber, being owned by Metromedia Fiber Networks,”says Carol Nash, a spokeswoman for Abovenet.

AT&T spokeswoman Kate Rankin says, “Using satellites with our IP network is something we’re investigating, and do on rare occasions. We’re in the infancy stages here.”

Two of the three above-mentioned ISPs are among the biggest business Internet service providers in the world, according to Cahner’s In-Stat’s report, Big Business: Rankings and Profiles of the Top U.S. ISPs Serving the Enterprise, 1999. It ranks MCI Worldcom’s UUNet, PSINet, AT&T and Sprint as the top four ISP business players doing business in the United States by revenue (See Table 1). By the number of accounts, the ranking had Verio on top with AT&T, PSINet, UUNet, Qwest and Concentric following (See Table 2).

The global reach of ISPs like UUNet, which is owned by Worldcom, appears to make satellite technology an essential part of their networks. UUNet offers service in over 100 countries, with more than 2,000 points of presence, to more than 70,000 businesses in thousands of cities in North America, Europe and the Asia Pacific. Its multicasting service is called UUCast. However, most of the big ISPs prefer fiber wherever it is available.

A Market Entry Solution

PSINet has 800 points-of-presence and operates in North and South America, Europe and Asia. PSINet, like the other business Internet service providers, helps corporations manage Internet access and security, host their Web and databases, help conduct e-commerce, and provide other telecom networking services.

“We use satellite solutions for access into more remote areas that are lacking terrestrial or submarine cable bandwidth today,”says William W. Johnson, PSINet’s vice president of U.S. fiber deployment. PSINet is using satellites this year via one transponder on a Loral Orion satellite to reach into Latin America, where it has acquired ISPs in six countries: Mexico, Brazil, Argentina, Chile, Panama and Uruguay.

The Latin American ISPs had connections to the United States, but the bandwidth costs were “significant to their P&L (profit and loss) statement. To move these acquisitions to cash flow positive, one of the things we do is focus on bandwidth costs, and one way to reduce it is to put them on satellites,”Johnson says. However, that is only a stopgap measure until undersea fiber cable capacity is available into Latin America later in the year, and then the traffic will be moved from the satellites onto the fiber. In the other non-U.S. markets, fiber cables are used instead of satellites, he says. “We consider (satellites) a market entry solution, which is faster to deploy, and more portable than submarine cable.”

For PSINet’s network inside the United States, satellites have no current role. PSINet is a heavy investor in fiber systems, through its venture capital arm, PSINet Ventures. It has invested in satellite service provider Cidera.

Two other major ISPs with little apparent usage of satellites are Concentric and Abovenet. Neither company responded to requests for information about their use of satellites. Concentric merged with Nextlink Communications in June, creating another huge broadband networking company with a presence throughout the United States, Canada and Europe. The company will serve small, medium and Fortune 1,000 customers with voice and IP services. Concentric brought the business DSL services and shared Web hosting and data centers to the partnership, while Nextlink has an extensive fiber network.

Abovenet Communications, owned by Metromedia Fiber Network, says it is the architect of a global one-hop network, which has extensive peering relationships that give it a network with the largest aggregated bandwidth in the world. It has facilities in San Jose; Vienna, VA; and New York.

Verestar (formerly ATC Teleports Inc.) in Fairfax, VA, works with consumer and business ISPs, supplying access to the U.S. Internet backbone via satellite to tier one ISPs worldwide. Verestar is now carrying 2.5 gigabits per second of Internet-related traffic full time. In 1999, 58-60 percent of ATC’s business came from the Internet, voice and data sector, with most of that from the Internet.

“The large ISPs do understand satellites, especially in the international market,”says Kay Sears, Verestar’s vice president for Internet, voice and video. “The growth in Internet requirements from outside the United States has changed the role of satellites. In many of these markets, satellites are the simplest and fastest access to the U.S. backbone. Take for example PhilComsat. They just signed with us for the first DS-3 between Manila and Brewster, our Washington state gateway. Demand for direct satellite connectivity from Asia to the U.S. backbone is very strong. We had the connectivity and we could give it to them immediately,” she says.

“UUNet, as another example, is one of the leaders and has invested in extending its backbone network terrestrially to five of Verestar’s teleports. UUNet is ahead of the game, but several others have also made commitments to Verestar,” Sears says.

Difficult To Quantify

A useful tool for sorting the hype about satellite-Internet from reality is the annual report done by Roger Stanyard, the principal consultant at DTT Consulting, whose report, Internet via Satellite 2000, is candid, comprehensive and sometimes controversial.

The business ISPs treat their use of satellites with a sense of secrecy and have resisted divulging many specifics about exactly where and how they have installed satellite connections, according to Stanyard. Verio, for example, has purchased ISPs in Africa, and almost certainly is using satellite connections from there but would not confirm any details. UUNet has declined to give information on its Internet backbone provisions, citing security reasons, Stanyard says. “One of the worst kept secrets is that UUNet in the United Kingdom is using satellites to serve ISPs in Africa out of a site in Cambridge, but they are completely secretive about it. Part of the problem is you have to dig hard and deep (within these companies) to find some interest in satellites.”

The big business ISPs may eventually come round to satellites and begin to cut deals to incorporate satellite into their networks, but more work is required by the satellite providers before this will occur, Stanyard predicts: “ISPs don’t understand the business of satellite communications. It’s very tough to sell. However, the metrics are very good. A dish is only $2,000, and the ISPs should love it. It takes the local loop control out of the hands of the telephone companies.”

Sears, who deals with the ISP customers on a daily basis, says the attitude toward satellites has changed in the last year or two. “We don’t run up against doubting Thomas’s much anymore. I give Intelsat a lot of credit for proving that latency when using satellites is not an issue for the Internet,”says Sears.

ISP companies sometimes do still fear the price of satellite transmission will be too high, but when they are presented with actual quotes, they often are surprised. For Internet traffic transport, in many places, Sears says satellite is the most economic solution.

The DTT report found that ISP satellite link revenues skyrocketed from $210.4 million in 1999 to $746 million in 2000. Many of the concrete examples in the report describe ISPs like OzEmail in Australia, Banknet in Romania and Batelco in Bahrain that use satellites to connect into the Internet backbone either in Europe or the United States.

The ISPs sometimes have dishes on their premises and sometimes use terrestrial lines to connect to a nearby teleport for satellite access.

The number of ISP companies worldwide at the beginning of 2000 was 15,500, and of those, 1,763 were using satellite connections for backbone, Stanyard says. As for backbone services, he expects the number of ISPs using satellites to fall as fiber is laid and brought into service, but where the satellite links remain, the amount of bandwidth consumed will be higher.

“Most of the traffic now is links between ISPs and the backbone, but there are a whole host of services coming on–caching, news feeds, push services, multicasting–that are not included (in his numbers). The number of ISPs that use those will increase,”Stanyard says.

Satellites for content distribution to edges of the Net is the next phenomena that will hit the market. Stanyard says the amount of satellite capacity devoted to these services so far has been miniscule. He estimated that only $1.5 million had been spent on capacity for such services in the year preceding January 1999, and only $20 million in the year preceding January 2000. “It’s been a really low level of takeup, but the growth since then has been substantial, with a lot of deals being announced,” Stanyard says.

Specialists in this area include companies like Cidera Corp. and Orblynx. The companies are likely having difficulty getting early revenues going, Stanyard speculates, since they are finding that individual ISP sites will generate small monthly payments, such as $250, making it hard to get the initial investment back. Nor has Stanyard seen any large phone companies or carriers deciding to use the services.

The satellite content transport companies “have a marketing problem. You really have to wait for the broadband market to emerge, for push content services to start,” before these support services are going to be in high demand, he says. And while end users, especially in Europe, are still waiting for high-speed broadband connections to be rolled out, the use of satellites to deliver broadband content to remote ISPs will be limited.

Verestar also recognizes the streaming phenomenon as a big driver of future demand for its services to ISPs. It invested in a streaming production specialist, Streampipe.com, along with PSINet and Young and Rubicam as part of its strategy to provide more streaming services. David Liddle, ATC’s vice president for broadcasting and new media, says delivering Internet content for specialized overlay networks like IBeam’s and Cidera’s and for fiber network operators will result in Verestar doubling its broadcast revenues in the next three to five years. A huge number of streaming events are being generated and put onto the Internet. “Large broadband network providers, like Level 3, are realizing that satellite has to be part of it,” Liddle says.

In the meantime, satellite companies like SES Astra are making announcements of big deals to take up transponder capacity for such services. For example, SES has deals with both IBeam to offer its services in Europe, and with Internet access provider Europe Online for a sizable transponder deal to cover Europe. But Stanyard comments that the lease terms of these arrangements are undisclosed, meaning that very little revenue may be actually generated by them, and just because capacity has been agreed to “doesn’t mean anything is actually being carried on it.”

Who is ahead in the provision of satellite capacity to ISPs? Intelsat has been in the lead since the start and stays there, Stanyard says. Loral Orion, Satmex, Panamsat and New Skies also are dominant in the market. Virtually every satellite operator now has an IP (Internet Protocol) offering and platform, but the operators owning satellites with a North American footprint have the automatic competitive edge, he says. “They can single hop into the United States, and they can aggregate traffic, which gives them economies of scale.”

Reaching The Consumer

The other side of the coin is consumer Internet access, a business dominated in the United States by several providers, including AOL (America Online), with 23 million subscribers. Behind AOL are Earthlink, Juno and Msn.com. Hughes Network Systems (HNS) has succeeded in winning AOL as its partner and investor, and followed that with a deal to let Juno Online offer its DirecPC to its 3 million active subscribers.

Juno Online Services Inc. based in New York, the third largest ISP in the United States with 3.38 million active subscribers, signed a deal with HNS in July to offer its high- speed Internet access service, Juno Express, through the HNS broadband satellite system DirecPC. Juno began working in March to line up broadband partners across several different technology platforms, enabling it to offer premium high-speed service to its members. Like the other consumer ISPs, it is striking deals to get on as many broadband technology platforms as possible, with another Juno agreement with Covad for DSL, AT&T and Time Warner for cable and one with Metricom for wireless. In July, Juno announced it would provide satellite access through DirecPC, at speeds up to 400 kbps.

Hughes is an important strategic partner in Juno’s plans. Toby Bryce, Juno vice president for corporate development, says, “Satellites are a critical component to our strategy in the near term…it gives us a nationwide footprint from day one. AOL is the only other one who can claim that.” Today, most of Juno’s users get free service, but the company offers users the option to upgrade to billable dial-up service or broadband.

The satellite broadband service will be available later in 2000 but the companies have not yet announced exactly when. Under the partnership, Juno will bill the customers, be the retailer of the service and “own the customer.” Hughes provides the satellite service, and Juno pays a share of revenues to HNS. The price hadn’t been set by late summer, but Bryce says it would potentially be between the $40 to $60 per month usually charged for consumer broadband access. To start, the service will be satellite downlink and dial-up uplink, but Juno hopes that it will switch to an always-on service in 2001.

Bryce says Juno was the first ISP other than AOL with which Hughes has decided to work, which reflects the size of Juno’s base of registered users. Juno claims 3.38 million active subscribers, out of a total registered subscriber base of 11.05 million. It has 2,900 dial-up points of presence in the United States. “Broadband is a key focus to our business model,” Bryce says. “We are good at migrating customers to higher service levels.”

Juno’s national network is comprised of segments supplied by many other network owners. Bryce says Juno has not used satellite technology for caching and content distribution yet, but finds it an interesting technology that it might adopt.

AOL and Hughes announced their partnership in June 1999. At that time, AOL was to invest $1.5 billion in Hughes and the two were to form an alliance to develop and market uniquely integrated digital entertainment and Internet services. The plan was to accelerate sales of DirecPC and to develop interactive content jointly. Together, the DirecTV/AOLTV package was to be marketed to AOL members and DirecTV subscribers. The alliance also was to enhance Hughes’ development of its Ka-band satellite system, Spaceway. The $1.5 billion mainly was to go towards marketing the services over three years.

One year later, press releases said that AOL would launch AOLTV, an interactive TV service for mass market consumers this fall. TV viewers will use their existing signal and be able to choose from interactive features like e-mail, instant messaging and chat through a set-top box and keyboard. The cost for existing AOL members is about $15 a month in addition to the regular AOL monthly cost subscription fee, or $25 a month for non-AOL members. Later this year, a new platform for AOLTV will be made available via an AOLTV- DirecTV set-top box made by Hughes Network Systems that will combine AOLTV with digital TV programming from DirecTV.

Gilat-To-Home (GTH), recently renamed Starband, is partnered with Microsoft’s ISP Msn.com, which has more than 3 million subscribers. Dianne VanBeber, GTH vice president of marketing, says Msn.com is a premium ISP service with all-paid subscribers. To start, GTH has an exclusive deal with Msn.com, but once a specified quantity of Msn.com’s customers are fulfilled, GTH will strike deals with other ISPs. Msn.com will bring subscribers to GTH, while GTH serves as their national branded service.

For Echostar’s DISH subscribers, GTH will serve as the ISP, a new role for the company, VanBeber says. The GTH ISP service will serve more than 5,000 users.

A Growing Recognition

The ISP business continues to grow in size and sophistication, and while satellites may not be the first word to come to mind when the subject of ISP infrastructure arises, the satellite industry has made tremendous progress in the last three years in carving out its niche in the ISP services marketplace.v

Theresa Foley is Via Satellite’s Senior Contributing Editor.

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