HTS: Gauging the Impact
Now that satellite operators have some experience operating HTS systems, the time is right to review applications that best lend themselves to HTS services, the impact HTS systems are having on the overall market, and the actual financial performance of HTS systems against pre-launch projections.
High Throughput Satellites (HTS) have made the successful transition from concept to reality, but what started as a trickle of satellites has very quickly become a stampede of bandwidth. Virtually every satellite operator around the globe has either placed an HTS platform in orbit or is developing an HTS project. Now that satellite operators have some experience with HTS systems, the time is right to review applications that best lend themselves to HTS services, the impact HTS systems are having on the overall market, and the actual financial performance of HTS systems against pre-launch projections.
Keven Lippert, EVP of satellite systems at ViaSat, outlines several growth areas for HTS services. “Our anchor business is delivering high quality broadband services to consumers. The success of our consumer services is the cornerstone for the business areas that we continue to expand into. We anticipate growth in in-flight Internet services to commercial airlines and also in the Department of Defense (DOD) market," he states.
Dave Rehbehn, VP of Hughes’ international division, lists several important vertical markets for HTS services that are expected to grow in the future as well. "Everyone wants Internet access,” he says. “We have rolled out over 1 million HughesNet subscribers in North America and that subscriber base fuels growth into other areas. The aero market shows terrific promise for HTS services. We think the development of flat panel antennas will open up the market even more," he says.
Launched in January 2016, Intelsat 29e is the first of Intelsat’s next-generation, high throughput Intelsat EpicNG series to successfully launch and enter service. The high throughput Intelsat EpicNG satellites include C-, Ku-, and in some cases, Ka-band capacity. The satellites also carry the most advanced digital payload available to Fixed or Mobile Satellite Service (FSS/MSS) operators, according to manufacturer Boeing. The digital payload allows Intelsat to provide security and flexibility, enabling customers to seamlessly access and shift capacity to match their usage needs in a particular region or timeframe.
Thierry Guillemin, Intelsat's chief technology officer, talks of “growing the pie” thanks to new capabilities. "The new HTS platforms will increase the demand for satellite services. Our forecasts show that future HTS capacity will enable $3+ billion of new data applications in the future," he says, adding that mobility leads as the top growth area, with the aero market being the largest. “Maritime is another area that will see significant growth,” he says. “This includes the commercial maritime, cruise, and fishing market segments. Enterprise data networks and wireless networks will also begin to leverage HTS services, Internet of Things/M2M and of course governments, with their unique needs, will also drive growth for HTS services."
"The International Telecommunications Union (ITU) estimates that there are 4 billion people without access to the Internet," Rehbehn states, "but there are lots of areas where people can't afford a satellite dish of their own. By adding a cellular base station or Wi-Fi hotspot to an HTS antenna you can provide a 'community VSAT' that dramatically lowers the overall cost per subscriber."
Lippert notes that Wi-Fi services bundled with HTS services could be a huge growth market around the world. "Many people in developing countries don't have computers at home," he explains. "They use tablets or smartphones instead. These devices are already Wi-Fi enabled. For the same cost to deliver service to a home in the United States, we could supply the same service to a whole village in a developing nation."
The Gartner Group estimates that the total Internet of Things (IoT) market will grow to 50 billion connected devices by 2020, but opinions were mixed whether the IoT market will be a significant growth area for HTS services.
“A good portion of the IoT market is well addressed by other satellite technologies,” Rehbehn says. "Most IoT applications are better serviced by L-band and S-band solutions. We don't see HTS as a huge advantage in this market but the evolution of technology, including flat panel antennas, may change this picture."
"The IoT market is relatively new," Lippert explains. "There are some applications where HTS services will have an impact, such as connected cars, but we don't see HTS services having a significant impact on the overall market".
Guillemin notes that the IoT market is expected to be a growth area for satellite but explains that satellite’s involvement can be hampered by bandwidth limitations. For satellite to fully participate in these sectors, ground technology is needed to make it easier and more cost effective for end-users to access HTS and unlock the full potential. Intelsat is making investments in ground and antenna technology — notably with Kymeta and Phasor — and expects FSS to play a much larger role in the IoT market going forward, which, according to NSR, is expected to grow at a Compound Annual Growth Rate (CAGR) of 7 percent until 2021.
Guillemin points to connected cars as an example where traditional wide beam and HTS services could have a significant impact on the IoT market. Intelsat, working together with Toyota and Kymeta earlier this year, enabled a test vehicle to drive across country from Seattle to Miami to Washington, D.C., making many other stops along the way and receiving high definition video the entire trip. In addition to providing in-vehicle entertainment, broadband connectivity could allow auto manufacturers to upgrade software over the satellite link, cut costs of maintenance, and increase the security of vehicles.
Blaine Curcio, senior analyst for NSR, doesn't see the IoT market as having very good potential for HTS. "Most IoT applications require low data throughputs, which is the not the value proposition that HTS offers. HTS isn’t much of a match for the majority of IoT applications. HTS services could potentially impact the IoT market, but not as they are being delivered today. That said, a smart HTS satellite, specifically designed for IoT applications, could potentially connect 10 to 100 million devices via HTS, which is significant."
Much has been made of the advanced capabilities of HTS over the last few years, but now that they are in orbit, how have these technological marvels performed against projections? Have these mega-satellites lived up to their lofty hype? With so many HTS systems in the pipeline, is there a glut of capacity looming in the future?
"It is important to understand that not all HTS are the same," Lippert explains. "When we look at our satellites, they are designed for specific service levels and designed for specific markets. We are not aiming at pure capacity."
Lippert believes the term HTS is a bit of a misnomer. He notes that some new satellites are being labeled as high throughput even though they offer just a fraction of the bandwidth of ViaSat 1. ViaSat contends that simply adding capacity doesn't automatically qualify a satellite as high throughput.
Lippert explains the relationship between cost per bit and market size, noting that expensive bandwidth limits the overall market size. A lower the cost per bit allows satellite services to compete cost-effectively with other telecommunication technologies, thereby increasing the total addressable market.
Is there an oversupply of HTS services? No. From our perspective, there is a shortage of affordable capacity and too much expensive bandwidth.
– Keven Lippert, ViaSat
"If the cost of bandwidth is high, there are a limited number of applications you can sell and your market share is shrinking, and vice versa,” Lippert explains.
He highlights ViaSat's commercial success in the HTS market, noting a residential subscriber base of nearly 700,000, as well as contracts with three commercial airlines and more than 500 aircraft.
"We don't view ourselves as a satellite company. Most of the value that we will create for our company over the next 10 to 20 years won't come from stealing customers from other satellite companies, but from terrestrial and wireless carriers. We aren’t aiming to be the best satellite company. We are aiming to be the best broadband company,” Lippert concluded.
"HughesNet revenues have exceeded projections and all parts of Hughes are performing well," says Rehbehn. "We are very happy with how the business is performing. The business has been so successful that a number of beams are now full and we need to bring on additional capacity."
Rehbehn does not see an oversupply of HTS capacity in the future. He notes that there could be a short-term problem, perhaps for one to three years, but overall, Hughes does not see a danger of too much capacity in the HTS market. Rehbehn does point out the potential for diminished capabilities for classic teleport operators to play in the future as more HTS capacity comes on line.
"The HTS systems that are coming online are different than traditional FSS satellite capacity. HTS operators have a very different mode of doing business. It's all about managing megabits and Internet subscribers. This is a very different business than selling megahertz," Rehbehn says. "It will take a while for new HTS operators to ramp up the skillset needed to manage large numbers of subscribers. HTS operators need to figure out how to bring those services to market. Distribution channels must be developed. Operational support systems, and business support systems also need to be developed to handle the load. Hughes' success has been built on valuable lessons learned over the years. There is a learning curve that you must go through.”
HTS services are clearly different than FSS services. So, how will this change the market dynamic and what is the outlook for growth?
"We look for HTS demand to grow at 20 percent per year on a global basis," explains Curcio. "If satellite operators can make their services applicable to as many people as they can, it improves the business case. HTS services are bringing a sharper focus on the price per bit."
Curcio notes that HTS are built on a different model. For a 40 to 60 percent increase in CAPEX operators receive a two to tenfold improvement in throughput. Satellite operators are rebalancing their business models by placing a massive amount of capacity into new satellites, which reduces the cost per bit. The lower pricing allows end users to consider HTS services for applications that previously were too expensive to be served on FSS satellites.
"Could there be an oversupply issue in the future? Yes, there is a bit of oversupply risk.” Curcio continues. “If multiple HTS operators converge on a particular region, it could result in oversupply — for example, over the Northern Atlantic between the United States and Europe. This is an extremely important sector for the commercial aero market, but multiple operators are targeting this traffic corridor. There is definitely a risk of intrusive oversupply."
Curcio believes the advent of HTS services will likely create some vertical consolidation of the satellite market. With so much bandwidth being put into orbit, there needs to be creative ways to sell it all. Curcio points out that ViaSat bought WildBlue and picked up a distribution network as part of the deal. Curcio feels that this sort of deal could happen in the aero market and thinks that the satellite market will continue to see roll-ups as one service provider buys another, condensing vertical markets. "With HTS services, satellite is becoming more applicable to the 21st century demand profile for telecom. HTS is also causing a recalibration of capacity and how we sell it," Curcio concludes.
The Business Case for HTS Around the World
HTS have certainly changed the competitive landscape. As new HTS payloads go into orbit, how will this affect traditional FSS operators? "We consider satellites to be HTS if they employ frequency reuse, which allows two to 10 times or more the throughput of a traditional satellite," explains Blaine Curcio, senior analyst with NSR. "HTS programs have tended to fall into three broad areas, however these lines are starting to blur to some extent: broadband-oriented satellites, such as ViaSat and Hughes; mobility-oriented satellites, like Inmarsat GX; and data-oriented satellites, like Intelsat EpicNG, Yahsat, and Avanti's Hylas series. Each of these HTS systems has a slightly different business model, forcing you to look at each through a different lens."
Curcio believes that HTS programs are going to take customers from traditional FSS programs, ultimately leading to price erosion. But he was quick to point out that simply launching an HTS system does not guarantee its success.
Curcio outlined a handful of regions where HTS programs could cause market conflict with FSS service providers. Brazil was one example, with approximately 50 Gbps of HTS capacity on the government payload SGDC 1. Programs like this may cannibalize new demand for FSS services.
"Asia is another region where there could be turmoil in the competitive landscape," Curcio adds. "There are eight to 10, or more, commercial regional players, along with quite a few governmental programs that are direct competitors in their market segments."
Curcio highlights Thaicom, which breaks out revenue into HTS and non-HTS segments. Half of Thaicom's revenue comes from HTS services and capacity leasing. Curcio noted that Thaicom has historically been the only real HTS player in the Asia-Pacific region. Another market entrant in this region could have a big impact, not only on Thaicom, but also the other satellite operators in the region.
National satellite programs can have a large impact on the competitive landscape as well. China has made it very easy for emerging countries to finance their own space program, and nationalistically inspired “Pride-Sats” are not always profit driven.
"They can certainly have a negative impact on for-profit satellite operators as they eat up a chunk out of demand. Lots of markets are closing themselves off to varying extents, which limits market penetration for new HTS platforms," Curcio concludes. VS