Satellite operators need to change their business model.
A lot is written about the benefits and advancements of High Throughput Satellites (HTS) and the impact they will have on the satellite market. However, satellite operators will find it more difficult to sell megahertz (MHz) in a hub co-location model, as described here, and instead will sell megabits per second (Mbps) and in a managed service model due to the increased infrastructure requirements created by multi spot beam satellites.
This change not only affects satellite operators, but also causes dramatic changes throughout the whole value chain. Let’s consider what is driving this change.
A couple of years ago, I talked with a CTO from a satellite service provider (SP) and he said that the company could not build a business case to enable the core iDirect infrastructure on a soon-to-be launched HTS. I realized we had the same problem with a second SP and on the same satellite.
So what was going on?
It turns out both satellite SPs planned to use a new HTS with really focused and powerful beams. However, they needed to use eight spot beams rather than one wide beam in order to cover the same geographic service area. This meant that they needed to expand their iDirect infrastructure to handle 8X more outbound capability, which would be considerably more expensive. The issue is that the number of remote terminals in the network did not increase; the business case changed from 100 terminals on a single beam to 100 terminals on eight beams. So, the cost of the infrastructure was not viable to get the return on the satellite SPs’ investment.
Fortunately, iDirect solved the problem by working with the satellite operator to build the infrastructure and shared this with different SPs. Thus, the infrastructure costs were able to be shared across multiple business plans.
Today, many SPs still purchase MHz of spectrum from satellite operators. SPs build out their infrastructure of chasses and line cards on the ground to create solutions that most effectively utilize the MHz they have purchased. A typical network has one outbound and multiple associated TDMA inbounds. This enables SPs to offer Mbps IP services to their end customers.
Is it realistic for SPs to continue to build their own infrastructure with HTS?
Let’s consider a maritime SP with a small number of high-value customers throughout Europe. The SP has a core understanding of the geographic market demand from a regional and country-by-country basis. With wide beam Ku networks, you typically have fairly large room for error, as a beam could easily cover a continent, for example Telenor 1002, which covers Europe. An SP has a good idea of its customers’ connectivity requirements and demands over the duration of their service contracts.
Now, let’s consider Telenor’s new Ka satellite in the same orbital slot; you need multiple beams to cover Europe.
The reality is that lots of smaller spot beams are required in order to cover the same territory as Telenor 1002. In this situation it becomes difficult for that maritime SP to predict exactly where the demand may be in each of these beams as it may vary depending on where the vessels will travel. So to successfully support its customers the SP needs to access all of the spot beams and have the ability to flexibly manage the bandwidth in each as demand shifts.
If we go back to the scenario I described earlier, each of the SPs’ customers would need to build out their infrastructure to support large multi-beam networks to cover the same territory. While this business case may work for some customers, it would not be beneficial to those with low numbers of terminals per beam.
So what can the satellite operator do?
Satellite operators will no longer be able to depend on the SP customers to build their own infrastructure. The business case is more difficult with HTS, as there are more beams. To address this, satellite operators will be compelled to move down from a space focus business and start building ground infrastructure. Satellite operators building infrastructure means installing chasses, line cards (modulators /demodulators); it means they will sell Mbps with managed services, not MHz and co-lo. To make HTS work they will need to share this infrastructure with SPs.
In the context of iDirect, is the hub co-lo model an option?
Yes, in some cases satellite operators will allow this to be used, and SPs as well if they have enough terminals in each beam. But the managed service model will be attractive, especially if SPs can’t make the business case work for enabling multiple beams, probably due to low numbers of terminals in each beam.