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Satellite
Today Tuesday, June 12, 2001 By Fred Donovan ARLINGTON, Va. -- Satellite Internet providers will need to piggyback off the success of direct broadcast satellite (DBS) services if they ever expect to become a viable business, concluded a panel of analysts at the Satellite Internet Applications & Opportunities conference held here today. Citing the EchoStar Communications Corp. [DISH]/StarBand Communications model, these analysts stressed DBS has already deployed a widespread satellite infrastructure to consumers that satellite Internet hopefuls can tap. EchoStar currently resells StarBand satellite Internet service and offers it in a package with satellite TV service. One big drawback, however, is the price of satellite Internet service compared to its terrestrial alternatives - digital subscriber line (DSL) services and cable modems. Christopher Baugh, principal analyst with Cambridge, Mass.-based research firm Northern Sky Research, estimated that two-way satellite Internet service costs $70 per month for consumers. This is about $15 per month more than DSL, he noted. Jose del Rosario, a strategic analyst with Frost & Sullivan, agrees that satellite Internet prices are too high. He stressed pricing is a key factor for satellite-based Internet services to expand. And this expansion is the key for the entire satellite industry to move beyond its current role as a niche provider of communications services. "If Internet via satellite fails, satellites will remain a niche market," Rosario warned. He said DBS has been the driver in the satellite market, making up 50 percent of that market today. For satellite Internet services to succeed, service providers will need to team with DBS providers, as well as providers of VSAT services to corporations. Rosario stressed it will be an uphill battle for the satellite industry. He observed that all the broadband satellite capacity combined would fit on a single fiber-optic strand. So satellite-based Internet will have to find a different business model than direct competition with fiber optics, he added. Karekin Jelalian, an independent consultant who has done some recent work for The Strategis Group on broadband satellite issues, told the panel that providers of satellite Internet need to focus on areas not served by terrestrial alternatives. "Satellite broadband will primarily be a rural phenomenon," he observed. He agreed with the other panelists that partnering with DBS operators is the best way for satellite Internet providers to succeed. The DBS and satellite Internet markets overlap and DBS has "proven distribution channels." In return, satellite Internet providers could help DBS operators by slowing the decline in growth of subscribers and decreasing churn by making subscribers "stickier," he said. Jelalian said satellite Internet services should take off once the Ka- band systems come online; the current Ku-band offerings just don't have the capacity for widespread use. He predicted that by 2007 there would be four million satellite Internet subscribers in the United States. Phil McAlister, director of space and telecommunications industry analysis at Bethesda, Md.-based Futron Corp., boldly predicted there would be 35 million residential satellite broadband subscribers by 2010. He said the factors leading that growth would be the need for increased capacity among residential users and the saturation of other types of broadband services. He said that at some point, every new broadband subscriber would be a satellite- based subscriber. The Bottom Line It looks like the future of satellite Internet is riding on the fortunes of DBS. That's good in one sense because DBS has continued to do relatively well in these tough economic times, despite the lower estimates of growth at DirecTv. But if satellite Internet fails to bring its prices down to more competitive levels, it could falter and drag DBS down with it. Only time will tell. |
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