The satellite broadband market, while not showing significant adoption in either the enterprise or the consumer/SoHo (small office/home office) space, is showing signs of life and incremental growth, and the window of opportunity for future growth remains open.

In its latest report, “Broadband Satellite Markets, 4^th Edition,” independent market research firm Northern Sky Research notes that at first glance, the broadband satellite sector appeared to suffer through a difficult year in 2004 due to the delay in the iPSTAR satellite launch coupled with delays to market from WildBlue and Telesat and other industry events. But the firm notes that the industry did see some incremental growth and is poised to continue to grow to a projected $4 billion in revenues by 2009.

All Eyes On WildBlue

For the consumer/SoHo market for broadband satellite services, defined as more or less single site purchases, the focus right now squarely sits on WildBlue as existing services have failed to live up to their potential.

“North America is the biggest [consumer/SoHo] market with Direcway and StarBand leading the way,” Patrick French, senior analyst at Northern Sky Research and report author, told Satellite News. He was a bit hesitant to affix the label “leader” to either company, though, as neither company has helped the broadband satellite services market live up to its expectations of a few years ago. “Now most people are looking to the emergence of WildBlue, probably in the second quarter of this year, to being offering services.”

And although WildBlue has yet to launch its services commercially, its presence is already being felt in the marketplace.

“You’ve already seen WildBlue coming to the market with its basic level of service for about $50, which is pushing StarBand and Direcway to [lower] their prices,” French said. But he added that price, one of two key components to drive growth in the consumer/SoHo market, needs to come down a little more if WildBlue or its competitors hope to drive adoption. “You need pricing closer to DSL pricing, which on average in the United States, is around $30 to $40 per month.” French said that a limit on downloads, like those that exist for StarBand or Direcway need to disappear.

“The other main issue,” French said, “especially for the consumer market which we consider to have the most potential, is tying satellite broadband with satellite TV. It’s very much Northern Sky’s opinion that to be able to develop a truly large-scale market…[pricing is not] as important as tying [the broadband service] with satellite TV as a double play. The thing to remember at the end of the day is it’s all about providing a service that people want to buy.”

EchoStar Bundling First?

But the double play option of satellite TV and satellite broadband is something that will emerge following the launch of WildBlue. And French said that it likely will be EchoStar, operator of the Dish Network direct-to-home satellite television service, that will lead the way in terms of offering some sort of bundled package of satellite TV and broadband.

“We also are aware that EchoStar and a number of others are really watching closely to see what the uptake is of WildBlue,” French said. “We know that the whole industry is watching WildBlue and if they show any signs of success, I think you will see at least EchoStar and maybe even DirecTV make a more serious move in the area to develop a truly bundled service which doesn’t exist yet.”

His prediction that EchoStar will make the more serious first move toward offering a bundled satellite TV/broadband play is based on how DirecTV has gradually backed away from using its Spaceway satellites for broadband services.

“With DirecTV taking and commandeering the Spaceway satellites for video services, it looks like their play in consumer might be more DSL,” French said noting that DirecTV initially said a little over a year ago it was going to use the Spaceway satellites for broadband, then six months later, those spacecraft would be used as a combination of broadband and video, and now the company is saying the Spaceway birds will be used for video only. “Who knows if [DirecTV officials] will change their mind again,” he said.

EchoStar, on the other hand, “is going to get serious about this market as soon as they see what happens with WildBlue,” French added. “The real question is will they partner strongly with WildBlue or will they go it on their own? With the Ka-band capacity they have, they could go satellite broadband, all video or some combination of the two and market directly to their consumer base and completely ignore WildBlue. No one knows yet what is going to happen.”

Northern Sky Research is forecasting that there will be between 400,000 and 500,000 consumer/SoHo sites in North America by 2009, with “a large chunk” of the sites belonging to SoHo users. Those figures are up from estimate of about 270,000 to 275,000 sites as of the end of 2004.

“At first impression, that does not look like a huge growth over a period of five years,” French said. “But what you have to remember is most likely what will happen in that period is you will see a migration. You will probably see Starband and Direcway clients, especially if a bundled satellite TV/broadband service is offered, migrating away from those to the bundled service. And then you will see the other service building up its subscriber from essentially zero today to several hundred thousand in the next few years.” After 2009, French said the consumer/SoHo market has the potential for stronger growth.

The Enterprise Sector

While the consumer/SoHo market appears to have more challenges in place to succeed, the enterprise market seems to be moving forward.

“Northern Sky Research is seeing strong but incremental growth in [the enterprise] sector,” French noted. “The trends driving growth vary from different places around the world.”

In North America, Western Europe and other developed areas, “the movement to satellite enterprise networking services in the SME (small/medium enterprise) sector is driving a good portion of the growth there,” French said. “That does not mean that services for large enterprises are going away.”

And pricing can be thanked for that increased penetration in the SME sector.

“The gradual decline in service price which is led by more efficient use of transponder capacity and drops in ground equipment [pricing] is allowing for these services to penetrate the SME sector,” French said. “Where Northern Sky estimates at least in North America, we see SME accounting for maybe 15 percent of the market now, we expect that to grow to between 30 and 35 percent by 2009. And the pie will be getting bigger and the SME part of it will be getting bigger, which implies the SME sector is growing at a more rapid rate than the large enterprise sector.”

“Other parts of the world, if you look at more developing markets, you tend to see a split,” French said. “For example, in Latin America, it splits up between initiatives being pushed by various government entities and corporate/enterprise networking. When I say enterprise, I don’t necessarily mean only corporations. It can be a governmental body that buys a corporate network. Or, in Latin America, you will see government initiatives–a perfect example is e-Mexico, which is pushing services to provide bridges to the digital divide, to provide internet access to schools” acting as drivers.

“In Asia,” French added, “you are seeing similar things. In China, you are seeing movement toward more of a services market whereas in the past the enterprises tended to buy their own hubs and do their own network. You are seeing more decisions to just purchase a service from a service provider. You also are seeing an educational uptake in China.”

Integrated Services

One key aspect of the enterprise market that needs to be understood in order to drive adoption and maintain growth in the enterprise side of the satellite broadband market, at least from one company’s perspective, is the ability to seamlessly communicate with terrestrial networks.

Peter Carides, who was recently named president and CEO of Tachyon Networks Inc., told Satellite News that satellite services should not be setting its sites on getting enterprises to move their corporate networks to exclusively satellite.

“I don’t think we should even dream of getting the entire network of a particular organization,” Carides said. “There is far too much fiber and far too many options available in developed countries and CIOs would be irresponsible to not take advantage of [that terrestrial infrastructure]. What we will look to do is to give clients a very seamless kind of integration to areas of the world where they don’t have coverage from terrestrial-based services and they need high-end enterprise-grade applications to run.”

–Gregory Twachtman (Patrick French, Northern Sky Research, [email protected]; Christine Keck, The SheaHedges Group for Tachyon, 703/287-7822) For more information on the “Broadband Satellite Markets, 4^th Edition” report please visit Northern Sky Research on the Web at http://www.northernskyresearch.com.