Providers of high-speed Internet services via satellite are mulling over strategies for capturing more of the market from their highly successful direct subscriber line (DSL) and cable competitors.

Although no one disputes the growing consumer hunger for broadband Internet, analysts agree that the satellite industry faces an uphill battle.

According to figures presented at a June 12 satellite Internet conference in Arlington, Va., of the total broadband Internet customers in the world today, the cable industry serves 38 percent, DSL serves 35 percent, and satellite providers only six percent.

Stephen Blum, president of Tellus Venture Associates, said at the conference that price is the most obvious obstacle to capturing a larger market share.

For satellite services, the up-front costs alone for installing CPE (consumer premise equipment) can routinely run from $600 to $700, he said.

"This is at a time when DSL and cable are giving the modems away," he said.

Furthermore, the monthly subscription rate for satellite services remains in the $60 to $80 range, while the price point for DSL and cable service is $40-45, he said.

Dick Bakker, vice president of SpaceBridge Semiconductor, agreed that CPE cost is a major hindrance.

"On the wireless side, the CPE costs are much higher. We can't compete," he said. Current efforts, current problems

"Right now there are two services in the U.S. that are trying to launch consumer, two-way Internet service via satellite - Starband and DirectPC," said Blum. "Both of them are having a tough time."

Starband currently has about 33,000 subscribers, but a third of those are beta-testers, Blum estimated. He said data from beta testers is "useful information, but it doesn't tell you much about market demand."

The number of subscribers per satellite transponder is the critical metric for gauging success, according to Blum. Starband is currently serving approximately 8,500 subscribers per transponder, but need 20,000 per transponder in order to be successful, he said.

Furthermore, "even at 20,000 subscribers [per transponder], the business plan is still a little optimistic," he said.

DirectPC is faced with similar problems. They now have 11,000 two-way subscribers, Blum said - a number that does not bode well for company's original goal of 200,000 subscribers by the end of the year.

"They're going to have to [reduce their expectations]," Blum said, "because I'm telling you right now, they're not going to hit 200,000 subscribers with this service." DirectPC is aiming for 15,000 subscribers per transponder, he said.

However, even if these companies are able to maximize transponder usage, there is a catch.

"As people get faster and better access, they use more of it," Blum said. "When I went from dialup modem to DSL service in my office, it was like the window had been opened and the Sun was coming in. I was on all the time." Thus, demand could easily outpace capacity if providers aren't careful.

"Streaming media kills the satellite Internet service model, if you're talking about simply substituting satellite service for a DSL or a cable modem line," Blum explained.

For a 220 kbps video stream, he estimated that only 200 users can be served on a single transponder. "And [EchoStar and DirectPC] need 15,000 to 20,000.

"The business models of these two services don't make sense on their own," Blum said.

Possible strategies

Bakker believes satellite providers will not get their "fair share" of the Internet market until they agree upon a "standardized air interface protocol, attuned to the nuances of satellites, that is open enough to enable service providers to launch services, and allow for interchangeability between them."

A similar standardization effort enabled the current success of cable providers, Bakker said. Since 1995, cable grew from obscurity to parity with DSL, in part "by coalescing around a common standard." That standard was DOCSIS (Data-Over-Cable Service Interface Specification).

"As a vendor, I don't like [interchangeability]," he admitted. "No vendor wants to be swapped out. But if the satellite vendors don't bite the bullet ... they'll never get more than a marginal portion of the telecommunications industry."

Focus on the home?

Bakker thinks the home market should not be the primary focus for satellite Internet providers targeting the U.S.

"Right now satellite capacity is somewhat of a premium, and that's why EchoStar and the others need to have 20,000 per transponder. But they're not going to get it from 14-year old boys downloading videos and music," he said.

Jim Stratigos, vice president of EchoStar Data Networks, feels differently.

"The demand for broadband is there, and I disagree with [Mr. Bakker] in that the demand in the U.S. is ... in the home first.

This opportunity arises primarily from the fact that 55 percent of all homes in the U.S. do not currently have access to any broadband service providers, he said.

Blum finished his remarks on a hopeful note, reminding the audience that satellites are "absolutely unmatched" in their ability to handle broadcast graphics, deploy quickly, and reach large numbers of users with a single stream of data.

- Jefferson Morris (jeff_morris@AviationNow.com)