The latest market figures confirm that broadband satellites or so-called high-throughput satellite systems are on the rise. While 31 high-throughput satellite systems have been launched over the last decade, 33 more will be launched between 2014 and 2016. As the total cumulative capital expenditures in high-throughput satellites climbs to $12 billion, an important question must be raised: How will these new systems impact the mindset of our industry?
From a technical standpoint, the multispot beam architecture supports large-scale frequency reuse to deliver more capacity and higher data rates to the end user. As a result, high-throughput satellite systems provide significantly more satellite capacity at a reduced cost per bit compared with regular satellites. Euroconsult projects that high-throughput satellite capacity supply will triple to 1,400 gigabits per second by 2016, which equates to over 450 regular C- and Ku-band satellites.
The large influx of this capacity to the market has created some concerns about the risk of oversupply in regions such as Latin America, the Middle East and Africa, and Asia Pacific. However, regional high-throughput supply has to be analyzed with caution as it does not mean that this capacity is available to a single end user at one location. In reality, the available supply at any given point generally is around 2 percent of the total supply available for the region, due to the narrow spot beam technology of high-throughput satellite systems.
These systems not only require a different view on capacity supply but also create a paradigm shift in the way satellite operators do business, address vertical markets and assess their performance.
Initial high-throughput satellite capacity usage was mainly limited to consumer broadband services in the United States. However, demand has recently started to take off in professional user segments such as trunking, cellular backhaul and enterprise networks. One of the most attractive features of high-throughput systems is that they do not necessarily compete with existing satellites, but often create new market demand. For example, in the cellular backhaul market, the reduced price per megabit per second of high-throughput satellite systems should make it more attractive for telecom operators to backhaul 3G and 4G data over satellite. Moreover, the cost savings enabled by these systems are anticipated to unlock the potential of in-flight passenger connectivity services over satellite for business aviation and commercial airlines.
In order to seize the high-throughput market opportunity, satellite operators have employed diverging investment strategies in terms of system type, coverage, frequency band and payload flexibility. Clearly, high-throughput satellite systems are not considered as a “one-size-fits-all” solution, but designed to meet the needs of specific vertical markets or anchor customers. Intelsat, for example, has closely collaborated with Panasonic Avionics to adjust the satellite design of the first two Epic satellites to the specific requirements of in-flight connectivity market, with a mix of wide and spot beams to cover high-traffic areas.
The introduction of high-throughput systems and the rollout of services have also led to an evolution in operators’ business models. While satellite operators have traditionally adopted the wholesale model for conventional C- and Ku-band business, a large number of operators have adopted a certain level of vertical integration in managing their high-throughput satellite systems. These operators intervene to a larger extent in the network management and selling megabits per second instead of raw bandwidth (megahertz) to the service provider or end user.
The changes in the satellite design, investment strategy and business model also require a shift in mindset for assessing operators’ business performance. The satellite finance community has been familiar with a business case for regular satellites characterized by rapidly increasing fill rates and relatively predictable cash flows over a satellite’s lifetime. The business plan for a high-throughput satellite system typically holds more market risk in return for a high revenue potential on capacity sales. Satellite operators can partly mitigate the market risk by preselling the entire high-throughput satellite payloads or multiple beams over the full satellite lifetime in acceptance of a significantly lower price per megabit per second.
Overall, high-throughput satellite capacity usage is expected to generate $33 billion in aggregate revenue between 2013 and 2022. Nonetheless, the extent to which an individual operator can capture a share of market revenue will highly depend on the fit of the selected high-throughput system architecture, distribution strategy and business model with the specific needs of the targeted vertical markets.
Nathan de Ruiter is a senior consultant at Euroconsult’s Satcom practice specializing in strategic planning, financial forecasting and market assessment. His email is firstname.lastname@example.org.