Russia’s satellite services market grossed just under $1.15 billion in 2013, up 12 percent compared to 2012, but only making up about 1 percent of the global satellite market (including satellite TV). The market could see more dramatic growth with satellite broadband, if the service became widely available to private users, which has not been the case in Russia so far.

Until recently, Russia had no spacecraft in service with Ka-band capability, which is a powerful way to provide satellite broadband. Instead, hybrid satellite broadband providers served the market with their combination of GPRS, phone lines or dedicated data lines to send data, and satellite to receive data. From 2000 through 2011, about 15 foreign providers and a few Russian ones offered hybrid satellite services in the country. Companies such as the Cyprus-based PlanetSky, SpaceGate and Spectrum Sat; Germany’s skyDSL and Hi-Stream; France’s OpenSky; Belize’s Sky-Fi; Lithuania’s SatGate; and Russia’s Raduga-Internet, were the key players.

One-Way Lane

“Hybrid Internet providers were at a disadvantage from the get-go, serving a low-income customer audience,” says Sergei Pekhterev, CEO of satellite broadband provider SetTelecom (AltegroSky brand). “As if that wasn’t bad enough, their business segment kept dwindling as transponder rental rates hiked 25 to 30 percent in 2007-2008, and more cities got WiMАХ broadband. In addition, affluent customers began switching to VSAT, a more user-friendly technology.”

Hybrid Internet providers had a good choice of spacecraft only in European Russia, covered by the Sirius, SES Astra and Eutelsat spacecraft families. In the Urals, Siberia and the Russian Far East, the only orbital asset were the Express satellites, run by the national operator Russian Space Communications Company (RSCC).

In the end, hybrid Internet providers started losing business. PlanetSky, SpectrumSat and Sky-Fi went out of business in 2010, Hi-Stream followed in 2011, and SatGate wound up its Russian business the same year. Raduga-Internet took on the subscribers of Sky-Fi, which used Intelsat 904 and Bonum-1 spacecraft, in the fall of 2010, and the subscribers of AxGate, another provider that went down which used Hellas Sat 2, in February 2011. The entire Russian clientele of Hi-Stream, which provided its services via Astra 2С, followed in September 2011.

In total, Raduga-Internet has signed on some 15,000 users from the foreign companies going out of business. The company was serving 70,000 active users when this market segment peaked in 2011, according to its CEO Denis Dianov, who estimated the Russian asymmetric satellite Internet market size at around 300,000 users at that time. From then on, it has been all downhill for this type of service.

The top three Russian cellular companies went ahead with their wireless broadband networks quite aggressively, first in 3G/UMTS, then in LTE. Cable broadband providers also continued to build up their coverage and subscriber audiences. And, simultaneously, Russia was experiencing a worsening satellite capacity crunch, so transponder rental rates kept hiking. In consequence, subscribers began leaving hybrid broadband.

According ComNews Research, a Russian market research agency, Raduga-Internet lost 25 percent of its hybrid broadband audience in 2013, while all the other players in the same segment lost 62 percent of their subscribers between them. There remained fewer than 46,000 hybrid broadband subscribers in Russia by the beginning of 2014. Eighty percent of the audience was served by Raduga-Internet, and the remaining 20 percent was split between HeliosNet, StarBlazer and GXSat. The Average Revenue Per User (ARPU) in this business is an average of $11.5 per month, but this excludes users’ upstream traffic costs, for example cellular technology such as GPRS. ComNews Research predicts there may be as few as 30,000 or so hybrid broadband users left in Russia by 2016.

 

Ghost Project

Speaking at the first meeting of the Space and Telecommunications Taskforce of the Presidential Commission for the Modernization and Technological Development of Russian Economy in July 2009, the then-CEO of the national corporation Russian Space Systems OJSC (RSS) Yury Urlichich came up with the idea to set up a federal government-sponsored two-way satellite broadband network in Russia with the capacity to cover 2 million users. Dubbed Russian Satellite System for High-Speed Access (RSS-VSD), the project required 19 billion rubles (approximately $603 million) in investment, according to an RSS estimate. The Russian Ministry of Communications and Mass Media, which had an eye on that project, eventually wrestled it away from Roskosmos (to which RSS reports). The project was then handed over to RSCC, and Igor Shchegolev, the Minister of Communications, quoted a new investment figure for the project: 17 billion rubles. After RSCC made its own calculations, the figure was upped to 20,125 billion rubles, but the planned number of spacecraft shrank to two from the three RSS had originally proposed. Realizing that the project didn’t make a solid business case, RSCC hurried out the door.

The project began drifting toward an incumbent — Rostelecom. In July 2011, the Russian government appointed RTComm.RU OJSC, a fully owned daughter of Rostelecom, the sole implementer for RSS-VSD. “RTComm boasts a long and successful track record in large-scale national projects, including the national priority project ‘Education,’ for which the company put upwards of 52,000 secondary schools online,” Valery Lokhin, CEO of RTComm.RU, said around that time. “RTComm is also sure to use the outputs produced for this project to date.”

In November 2011, RTComm landed a strategic technological partnership deal with Gilat Satellite Networks, which agreed to share its Ka-band satellite design and manufacturing expertise with the Russian operator and the national Radio Research Institute. RTComm soon contracted for Gilat to supply its first batch of equipment to keep the operator going until the manufacturing of the equipment could begin in Russia.

But those plans were not destined to come true. The new Minister of Communications of Russia who took office in May 2012, brought a new team with him, which had a different set of priorities. The RSS-VSD project was scrapped or “conserved,” according to the official statement.

 

Excuse My French

Russia owes its first Ka-band capability to Eutelsat of France. Eutelsat’s KA-SAT high throughput satellite, launched on a Russian Proton vehicle in December 2010, had four beams directed at Russia, covering Moscow, St. Petersburg and a city of Voronezh. RSCC leased all those beams from Eutelsat in February 2012, and the following summer began reselling the asset to four local dealers: Raduga-Internet, KA-Internet, StarBlazer and Satellite Technologies, a subsidiary of HeliosNet.

“It was amazing! A very small antenna about 70 cm in diameter, easy to assemble, a single wire in the home, easy satellite tracking, then you simply use the built-in beeper to switch the terminal on. It was the perfect product for the mass market,” said Vitaly Vashkevich, CEO of KA-Internet, recalling his first experience with KA-SAT service.

According to Evgeny Buidinov, RSCC deputy CEO for innovative development, the three beams leased on the KA-SAT can provide broadband service for at least 20,000 Russian subscribers. By July 2014, the four dealers had hooked nearly 5,000 Russians up to the KA-SAT. Buidinov added that 70 percent of the Russian KA-SAT audience was on the Moscow beam, generating more than of 32 Tb/month of traffic in the network. “Initially, we had an incoming traffic cap of 3 to 4 GB per month per terminal,” Buidinov says. “Then we changed our business matrix with the dealers, and increased the monthly traffic quota to 7.5 GB per terminal. And the Russian satellite broadband mass market was on its way.”

The four Russian KA-SAT dealers offer similar rates. AltegroSky offers a ViaSat subscriber terminal with a 75 cm antenna for 18,500 rubles (just over $500). Its subscription packages start at 990 rubles per month (almost $30) with a maximum downstream speed of 4 mbps and a maximum upstream speed of 2 mbps, subject to a daytime traffic cap of 2 GB per month. AltegroSky offers the most expensive package: unlimited traffic at 6 mbps maximum downstream, offered to private subscribers for 7,000 rubles ($195) per month.

 

Hands-on Experience

It was not RSCC’s choice to have its first Ka-band experience with a foreign spacecraft. Originally, the Russian operator had planned to gain that experience with its own satellite, Express-AM4. Built by Astrium (now Airbus Defence & Space) and launched on a Proton vehicle on 18 August 2011, the Express-AM4 missed its orbit when its Briz-M upper stage malfunctioned, and was pronounced irretrievably lost on Aug. 30 that same year. The Express-AM4 had two Ka-band transponders onboard along with 61 С-, Ku- and L-band transponders.

Shortly before the Express-AM4 failure, RSCC had built its first Ka-band hub in Dubna (a two-hour drive from Moscow), planning to set up a satellite broadband trial facility there after the launch. To replace the lost spacecraft, RSCC ordered a new identical craft, Express-AM4R, from Astrium in March 2012, also with two Ka-band transponders. But the Express-AM4R never got to its orbit either: the Proton vehicle it rode plummeted at the 540th second of its flight in May 2014.

RSCC did not get its long-awaited Ka-band until April 2014, when the Express-AM5 was launched. The spacecraft, manufactured by ISS-Reshetnev and MDA Corporation, successfully reached its geostationary orbit and went live at 140 degrees east. The Express-AM5 has 12 Ka-band transponders onboard, 10 of which cover Russia. The new Express-AM6, also built by Reshetnev and MDA Corporation, will add another 12. The Express-AM6 is slated for launch to 53 degrees east no earlier than the end of 2014.

But those two spacecraft got the Ka-band capability almost by accident. “The plan was for the Express-AM5 and Express-AM6 to carry heavy-duty C- and Ku-band platforms,” RSCC’s Buidinov admitted. “But later on, it turned out that both craft had plenty of surplus capacity in terms of both payload weight and power, so it was decided to add the Ka-band transponders.”

 

Short-term Plan

RSCC plans to launch its commercial broadband service via the Express-AM5 by the end of the year. According to Buidinov, RSCC will be trialing Ka-band satellite broadband via the new spacecraft during the summer, joining forces with Russian VSAT solutions provider Eastar, followed by a test-launch in September. United States-based Hughes supplied a Jupiter-class hub to RSCC for the project, to be deployed in Khabarovsk in the Russian Far East. This will be the third hub of its kind in the world, installed by Hughes: there is one in the U.S. supporting HughesNet, and there’s another in Mexico, built for Telefonica.

Every Ka-beam on the Express-AM5 has a coverage of 0.7 degrees by 0.7 degrees, which, according to AltegroSky’s Pekhterev, covers an area about 1,000 km long north to south, and 300 km west to east. The Ka beams will mainly cover densely populated townships along Russia’s southern border, which already have fiber optic backbones and wired broadband networks. Every beam has the capacity to serve about 15,000 subscribers, providing a throughput of 300 mbps.

“If we compare the power of the Ka-band coverage spots of the Express-AM5 and those of European or American spacecraft, we will see that the Express-AM5 spots are larger but have lower power, which means bigger antennas and more powerful transmitters will have to be used,” said Sergei Alymov, CEO of RuSat LLC. “In addition, that means a lower throughput capability. In the end, user equipment will cost significantly more.”

Valentin Anpilogov, Deputy CEO of Visat-Tel, disagreed. “Narrow beams are used where the population density is high, not for higher power. Europe has very high population density, that’s why the KA-SAT has beams as narrow as can be. It makes no sense to cover Russia with beams as narrow; it’s a sparsely populated country.”

RSCC will think about its pricing policy closer to the test launch of its satellite broadband network. Meanwhile, the word is that RSCC’s satellite rental rates will not be much different from its current rates on the KA-SAT: around $1,000 for 1 mbps of throughput capacity. Boris Lokshin, who heads the department of prospective system development at RSCC, added that the company plans to limit the number of its partnering distributors to four. The distributors will have to make certain commitments. For example, they will be required to buy at least 20 percent of capacity on each of the 10 Ka-band beams for three years. “It is not that easy to download 600 mbps in three years,” mused Sergei Pekhterev.

“Soon, the people, authorities and business entities of Siberia and the Far East will be able to appreciate the quality performance of Russian VSAT operators via the Express-AM5 asset,” Buidinov promised. He added that RSCC will continue to offer broadband service in Russia via the French KA-SAT craft even after broadband becomes commercially available via the Express-AM5.

 

Come Taste the Ka-band

In the meantime, the operator of Russia’s other orbital constellation, Gazprom Space Systems OJSC (GSS), moves forward with its own satellite broadband offering. GSS Deputy CEO Igor Kot noted that the Yamal-300K and Yamal-402 spacecraft, which the company put in commercial operation in early 2013, have the ideal coverage and power metrics for broadband and satellite TV in Russia. On the instructions of its key shareholder, Gazprom OJSC, GSS has set up public hotspots in dozens of small and large gas workers’ rotation communities, providing Wi-Fi, Asymmetric Digital Subscriber Line (ADSL), and Ethernet access.

The consumer market for satellite broadband is picking up in Russia, according Yulia Babkina, who heads the end-user service directorate at GSS. “The market is not that great yet, but it’s ripening,” she said. “Satellite technology will play a major part in the government’s drive to eliminate digital inequality. There are many places in Russia where communication is poor to this day, and prospects look bleak for terrestrial broadband technology. Satellite operators have the solutions ready, but the government has to provide a comfortable work environment for them.”

GSS’ broadband is strictly Ku-band at this point, at least until its new Yamal-601 craft gets launched to 49 degrees east some time in 2016. Along with the C- and Ku-band, the Yamal-601 will carry 26 Ka-band transponders aimed at Russia. Under a contract with GSS signed in January 2014, Thales Alenia Space will manufacture the new spacecraft.

Another Russian VSAT operator, RuSat, has mass-marketed its Ku-band satellite broadband service since January 2013. The service, branded KiteNet, is available via the Yamal-402 spacecraft. RuSat had initially launched its KiteNet package on the Raduga-Internet technology platform. After the partners fell out in January 2014, RuSat switched KiteNet to its own technical platform, breaking off its partnership with Raduga-Internet.

According to Oleg Vatulin, first deputy CEO of RuSat, some 5,400 users (75 percent of them private) had subscribed to KiteNet by August 2014, and about 500 new subscribers join every month. Most of the new connections are in some parts of Siberia and the Urals, as well as the Moscow metropolitan area. RuSat has taken over 200 partners aboard nationwide to promote KiteNet, and contracted 54 dealers with regional warehousing facilities.

One special thing about KiteNet is its low (by Russian standards) cost of the receiving equipment. Kits with a 75 cm antenna start at 8,000 rubles (approximately $220). The rates range from 1350 rubles ($37) per month for access at a maximum speed of 512 kbps downstream and 120 Mb of traffic to 27,000 rubles ($750) per month at a maximum speed of 16 mbps and 100 GB of traffic. KiteNet earns a monthly ARPU of 2,500 rubles ($70). “We aim to continue our high-paced business expansion, adding foreign satellites and the Ka-band capability,” Vatulin promised.

 

Future Perfect

Vatulin estimates the potential market for satellite broadband in Russia at 2 to 3 million users. But before those targets can be reached, the cost of the service will have to drop to a third or a quarter of the current figures, while the cost to subscriber must be brought close to the rates offered by terrestrial providers. “There exist a few factors holding the market back,” he said. “The primary ones are consumer solvency and satellite availability.” At this point, the Russian satellite broadband market numbers an estimated 300,000 users, earning a monthly ARPU of 1500 rubles ($42), according to Vatulin.

Raduga-Internet’s Dianov believes that Russia’s satellite broadband market could skyrocket if a serious player came along with sufficient resources. “Meanwhile — unless and until such a player turns up — the market is between 50,000 and 80,000 users with an ARPU of 2,000 rubles ($55) per month,” he says. “If someone could jump-start the market, the user audience could swell by a factor of a few dozen.”

Dianov thinks RSCC could drive the market, but complains: “They are too sluggish, and they view the Ka-band the old-school way. While they seem to like the Skylogic matrix, as far as I know they won’t invest in promoting or marketing it. They think in terms of selling bandwidth, not consumer service.”

Alexei Rubakov is the director of development at Orion Express, the Direct-to-Home (DTH) provider which also offers two-way broadband via the Horizons 2 satellite at 85 degrees east since April 2014. Rubakov believes that infrastructure alone is not enough for an operator to survive; there has to be a large subscriber base. “Orion Express with its DTH subscriber audience of over 1 million is equipped to provide satellite broadband service to its TV subscribers,” he said.

Pekhterev thinks Russia will see 120,000 to 250,000 new users of fixed satellite services in the next three years. Visat-Tel’s Valentin Anpilogov expects the Russian audience of satellite broadband to reach 500,000 within the same time-span.