NEW YORK-Although some satellite companies, like Globalstar L.P. and Iridium, have stumbled badly while chasing mobile telephony, provision of broadband communications remains a meaningful business opportunity for these extraterrestrial carriers, even in the United States.
The inability of land-based wireline and wireless connectivity alternatives to keep pace with demand for high-speed, bandwidth-on-demand data communications bodes well for the satellite sector, concluded Merrill Lynch & Co. Inc. in its “Global Satellite Marketplace 2001” analysis. The report’s release coincided with the investment bank’s conference earlier this month entitled “2001: A Space Odyssey Pipe Dream Becomes Reality.” Marc E. Nabi, director of Merrill Lynch’s satellite communications research team, was lead author of the report and chairman of the meeting.
“As terrestrial broadband services such as cable modems, DSL (digital subscriber line) and wireless LMDS (local multipoint distribution services) demonstrate market success, they confirm the enormity of the potential markets that satellites can serve,” the report said.
“Satellites should play a major role in the future of broadband. … Satellite broadband systems should bring the benefits of high-speed access to users in rural and remote areas that have no other access to high-speed telecom facilities, such as cable-modems or DSL.”
Within the next several years, several companies hope to make their commercial debut: the Hughes Electronics Corp. Spaceway system; Liberty Media’s Astrolink, targeting multinational corporations; Alcatel Alsthom’s SkyBridge, a high-speed wireless local loop; the Internet in the Sky proposed by the ICO Global-Teledesic combination.
“In the meantime, companies such as Loral (Space Communications Ltd.) have made use of their existing Ku-band fixed satellite services business as a way to participated in the Internet’s growth, with plans to launch dedicated broadband systems as demand develops,” the Merrill Lynch analysis said.
Of the approximately 100 million American households, just 1.5 million are expected to have DSL connections and another 2.5 million to have cable TV modems by the end of 2001, said David Finkelstein, senior vice president of marketing and business development for SkyBridge L.P.
SkyBridge announced Feb. 13 that L-3 Communications has taken an equity stake, the amount of which it did not disclose. As part of that agreement, L-3 also will supply SkyBridge with terminals for home and business customers.
By the middle of this year, the company hopes its application for spectrum in the United States will receive Federal Communications Commission approval, Finkelstein said. By the end of 2004, SkyBridge expects to have low-earth-orbit satellites in place to begin serving North American consumers for about $30 per month.
“Many people hear LEO and think Iridium. Iridium came into the market in 1999, 15 years into the deployment of cellular. It was a substitution product and charged $3 per minute when people were paying 20 cents a minute for cellular. … Iridium showed that users won’t pay any price for access just because they have no alternatives,” Finkelstein said at the Merrill Lynch conference.
“DSL and cable TV deployment has gone slower than expected, and we will be coming to market about five years into DSL deployment. … About 25 (percent) to 30 percent of the U.S. population won’t (ever) have DSL, cable or fixed wireless.”
Merrill Lynch projects that worldwide satellite broadband data revenues will reach about $2.5 billion by the end of 2003 and $18 billion by the end 2007. Consumers will account for the lion’s share of this revenue stream in the early years, while business customers likely will surpass them after 2008.
The number of people around the world accessing the Internet over a variety of connections likely will increase to 1.4 billion by the end of 2009, compared to 200 million at the end of 1999, Merrill Lynch expects. The United States will account for 30 percent of the 2009 total. However, the investment bank also expects that the domestic market will experience a sharp increase in the number of devices per household and business that are connected to the Internet. Faxes, photocopiers and television set-top boxes are examples of electronics equipment that will increasingly join the personal computer in connecting to the World Wide Web.
“According to a study by Booz-Allen & Hamilton, the majority of network users (59 percent) spend about an hour per day on the Internet. As demand for bandwidth increases, the terrestrial system’s capacity is becoming overloaded,” the Merrill Lynch report said.
“Broadband data satellite systems should be able to address the near real-time needs and the current asymmetrical nature of Internet data transmission. We believe well-developed systems will be viable alternatives to the wireline networks … (and) there are few terrestrial companies that will be able to match the footprint, scale and operating efficiencies found in these next-generation satellite systems.”
The potential business opportunity for satellite provision of broadband communications also has drawn public expressions of interest form Cisco Systems and EchoStar Communications Corp., the latter a pure-play direct broadcast satellite company, said Bernard L. Schwartz, chairman and chief executive officer of Loral.
“There is a huge potential for communications and information services, providing a natural extension of terrestrial networks, covering the last mile and broadcasting video and data efficiently from one point to multiple points,” he said at the Merrill Lynch conference.
“We have concluded that Loral is best positioned in broadband to consumer through our satellite technology and hardware and provision of value-added transport services. … We will leave to others the multibillion-dollar investment needed for consumer service.”
Late last year, Loral announced it would write off its entire $1.3 billion investment in Globalstar, a LEO satellite network set up to offer mobile voice and data services.
“If we go forward with Globalstar, it will be with partners, not alone. Our partners are evaluating their options. Whatever the ultimate disposition, there is substantial value in Globalstar’s assets,” Schwartz said.
Globalstar options under consideration include providing service to airlines and providing the Department of Defense an alternative to Iridium, he added.
