VSAT “Bandwidth Arms Race” Begins

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The long-hoped-for “bandwidth arms race” featuring a competition to provide as much throughput capacity as possible to business and consumer users of satellite communications terminals is now under way with the advent of new Ka-band satellites in North America and Europe.

The hardware manufacturers and service providers most active in what is known as the VSAT — very small aperture terminal — industry are already coming off strong growth in the past two years, industry officials said.

Hughes Network Systems of the United States, Gilat Satellite Networks of Israel, iDirect Technologies of the United States, Newtec of Belgium — and others — all expect to profit from what may be a tipping point on the satellite side.

With the advent of multiple spot-beam satellites featuring heavy reuse of frequencies and the ever-lower cost of both the consumer hardware and its installation, these companies are looking to markets that are much larger than the historical VSAT business.

The focus has been on Ka-band satellites, but Thailand-based Shin Satellite Public Co. Ltd.’s Ipstar project has made inroads in Australia in Ku-band thanks to the Australian government’s rural-broadband initiative. Shin expects to secure commercial access for Ipstar in Malaysia, the Philippines, South Korea and Indonesia this year. Shin does, however, continue to report difficulty entering the Indian market.

In Europe, satellite-fleet operator SES reports orders for more than 200,000 of its Astra2Connect Ku-band two-way broadband terminals, with hardware made by Newtec and deliveries scheduled over the next three years.

In addition to being able to retail the consumer-premises equipment for less than 300 euros ($472), SES Astra’s commercial director, Alexander Oudendijk, said the vast majority of users can install the equipment themselves. SES expects that Astra2Connect eventually will move from Ku- to Ka-band, which is less crowded with other users and has proven itself in the United States and Canada with customer acceptance of the Ka-band capacity available from the Anik-F2 and WildBlue-1 satellites.

Denver-based WildBlue has recently reopened once-closed satellite beams after working with its terminal provider, ViaSat Corp. of Carlsbad, Calif., to squeeze more capacity from the existing system. But WildBlue Chief Executive David Leonard said the company will need additional capacity soon and likely will order another satellite.

The most recent sign that Ka-band had arrived was the joint announcement from ViaSat and satellite-fleet operator Eutelsat of Paris that each would order an all-Ka-band satellite for the North American and European markets, respectively, with both using ViaSat gear.

Eutelsat’s Ka-Sat satellite, under construction by Astrium Satellites, is expected to offer 70 gigabits per second of throughput. ViaSat’s ViaSat-1 spacecraft, being built by Space Systems/Loral of Palo Alto, Calif., will have a gross capacity of more than 100 gigabits per second.

Who will do better? “The company believes, and we concur, that the industry is entering a bandwidth arms race,” said industry consultancy Comsys of Britain in its annual VSAT Report.

By comparison, Hughes Network Systems’ Spaceway-3 satellite and its 10 gigabits per second of gross throughput appears modest. But Spaceway-3, which entered commercial service only in April after seven months of in-orbit testing, is still the highest-capacity satellite operating over North America.

Germantown, Md.-based Hughes plans gradually to replace its existing Ku-band satellite capacity with Spaceway-3 capacity over a period of several years, with new HughesNet broadband customers being placed onto Spaceway-3 with Ka-band-compatible terminals and rooftop antennas.

Hughes officials are optimistic enough about Spaceway-3 and Ka-band that they are planning an equity or debt offering to raise $300 million to purchase one of the two Spaceway satellites used by U.S. satellite-television provider DirecTV Group, or to build its own next-generation Spaceway spacecraft.

Beyond the Ka-band opportunity, the VSAT industry in the past two years has continued its growth among government and corporate markets, spurred in part by continued high demand from governments for networks to connect rural areas to the telecommunications grid.

Petah Tikva, Israel-based Gilat said its fastest-growing market areas in 2007 were Russia, Eastern Europe and Africa. Business more than doubled in Europe and Russia, and increased by 86 percent in Africa, Gilat Chief Executive Amiram Levinberg told investors in reporting the company’s 2007 financial results.

The growth of iDirect Technologies of Herndon, Va., in the traditional VSAT market was confirmed by the Comsys VSAT Report, which found that the company had a 9.1 percent share of the market for networks of terminals delivered using the TDMA — time division multiple access — technology, behind Hughes, Gilat and ViaSat.

Comsys said the enterprise VSAT market grew by 30 percent in 2006 compared to 2005, with 364,000 units shipped worldwide. Hardware revenue was up 16 percent, to $722 million, with service revenue increasing 13 percent, to $1.9 billion.

iDirect Chief Executive Mary Cotton said the company expects 2008 revenue to increase by 10 percent or more per year in the next couple of years, with military customers in the United States and elsewhere providing a large share of the growth.

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