Will LEO Kickstart the Asian Broadband Market?
Asia is the biggest market in terms of satellite broadband demand, but what does this mean for the industry? Within the context of pricing and LEO players taking on both global and regional GEO operators, how is satellite meeting this demand?
In terms of demand, Asia leads the way in satellite broadband. It's purely a numbers game and Asia certainly has the numbers — as long as they refer to population and households, that is. If referring to U.S. dollar figures, then it's a different story, one that has the United States as the protagonist. According to a Northern Sky Research (NSR) market forecast, North America is driving revenues in terms of subscribers. Despite Asia having a much larger population, it really boils down to economics and, comparatively, disposable income levels in Asia are not as high as that of the United States.
It's simply a follow-the-money principle, but this really needs to change if satellite wants to go mainstream.
"Hopefully it will be changed over time when price points come down so that the majority of Asians can afford it," says Jose Del Rosario, research director of NSR Manila.
When considering the price point, the magic number that unlocks the barrier holding back satellite changes country to country. Satellite needs to match fiber, and both need to be at a much lower price.
"In the United States, it's $60, which is still high, however, people are willing to pay that premium. Comparatively, in the Philippines, for example, a fiber connection costs around $50 a month. But looking at the mass markets, the price will have to go down to around $10 to $15 – and this will still be challenging," says Del Rosario.
Bringing Down the Costs
Supply and demand marry beautifully only when the price is right. Unfortunately, though, the great predicament lingers. Broadband access directly contributes to Gross Domestic Product (GDP) growth, leading to socio-economic development and prosperity. Such growth is most needed in emerging markets, which are often characterized by undeserved communities and regions void of terrestrial infrastructure. The connectivity answer for these broadband-hungry nations is satellite. But at the same time, these markets are also characterized by lower disposable income levels. With price points that are not affordable for these would-be satellite users, the solution is buried by a catch-22 scenario.
If these communities had broadband access, they could, in turn, begin to afford the price point, as a higher disposable income would be on the back of all the good stuff that broadband access brings. But before they have the broadband access, they simply can’t afford the current price points and economic opportunity remains capped. It's the old paradoxical impasse that still plagues emerging markets as well as the satellite industry's mainstream entry.
"The key is to bring down the cost and, so far, the satellite industry has not been so successful in achieving this, at least in terms of the broadband market," says Del Rosario.
The Private Sector’s Challenge
Can we turn to government initiatives as the solution? Looking to Australia the answer would be yes. In terms of government-led initiatives, the ideal example is Australia with its National Broadband Network through which the government has provided a lot of pocket funds to give people in the middle of the country, who are not terrestrially covered, broadband access. However, Australia is but one country, notes Del Rosario.
"There are government-led digital divide programs in other countries but there is a question of continuity. Historically speaking, when we compare the private sector's involvement in the broadband access market with the government, nine times out of 10 it's the private sector that works. Government spending works for a while but sometimes it's not sustainable. If there is a change in government, then sometimes the program gets dropped. It's not very consistent, nor long term. We applaud Australia; as a stable country with stable politics, we hope the progress will continue. However, within the region as a whole, if we rely on digital divide programs that are government led, then it is likely that we will continue to see this pattern of inconsistency," says Del Rosario.
Digital divide universal service obligation clauses have been written by governments for two decades now. But the digital divide in poorer countries hasn't narrowed, in fact, it's actually worsened. Then there are the universal service funds, another instrument that works but only when used properly and consistently.
"These are taxes collected by governments from telcos. The idea is that the tax can go toward services, such as broadband access, but not all governments are spending this money. A country such as Australia, for example, is spending 100 percent of it, but there are others spending zero. This means, in short, that yes, governments are needed but even so, the solution remains on the shoulders of the private sector," says Del Rosario.
But this is business and satellite is capex-orientated. Considering the enormous costs associated with building and flying a satellite, just how much can the industry cut prices? Satellite manufactures and launchers, satellite operators, equipment manufacturers and service providers — where in the value chain does this squeeze take place? The price point on the space segment may come down, however, on the ground segment, the antennas are still very expensive, says Del Rosario. And as more sophisticated antennas and equipment are needed, the costs remain high.
"Of course, if satellite hits the high subscriber volumes, then the pricing challenge could be overcome," says Del Rosario. "But it just doesn't have the high volumes."
Until this question of pricing is solved, satellite will remain knocking on the door of the mass market, and calls for connectivity from the unconnected will continue to go unanswered. Again, it's that ugly catch 22 that lingers on the threshold like an unrelenting troll.
LEO and the Broadband Market
Understanding this price barrier, what can we really expect from Low Earth Orbit (LEO) satellites then? Throughout 2017, the industry heard much talk about broadband and the impact that LEO would have. The topic remains hot in 2018, with eyes on OneWeb, LeoSat and even Elon Musk, all with plans to connect the world. The benefits of LEO – lower latency, less power needed, and lower manufacturing costs due to their much smaller size — have significance. However, operable LEO constellations require hundreds of small satellites and gateways. As these satellites have to move very quickly, they require sophisticated tracking antennas and these user terminals come with a hefty price.
“If these constellations are manufactured efficiently and launched on time, if the ground terminals are priced at $150-300 per unit, if they get market access to the countries they’re targeting, and if they drastically reduce the price to the consumer, say to $10-15, then the impact will be huge. But there are a lot of ‘ifs’ riding on this. Getting all this right, then yes, they will hit Asia’s mainstream market, and that is huge,” explains Del Rosario.
With this feat under the belt, would Geosynchronous Earth Orbit (GEO) satellites then be under threat by LEO? For Thaicom, the answer is no. LEO constellations would add more capacity globally due to their blanket coverage, enabling operators to capture demand from suitable verticals and new applications, says Patompob (Nile) Suwansiri, CCO at Thaicom. These include In-Flight Connectivity (IFC) and maritime services, as well as Internet of Things (IOT) and 5G where LEO constellations will unlock new use cases.
“Many believe the new LEO and Medium Earth Orbit (MEO) constellations will render GEO obsolete. But, in fact, typical GEO latency is good enough and can support many applications even in the future 5G ecosystem, for example. We believe in the coexistence of future constellations, depending on the markets you plan to serve and the solutions you plan to bring to market. LEO, MEO and GEO have different strengths and weaknesses that complement each other and cater to different markets and applications,” says Suwansiri.
Asia-Based versus Global Operators
Considering that the LEO and MEO playing field is dominated by global operators due to the immense capital investment required, the next question is how traditional Asia-based operators will compete against global players. The key is region-specific experience, notes Suwansiri.
“When Thaicom launched IPSTAR … back in 2005, we embarked on a mission to connect unserved and underserved regions in Asia Pacific to broadband internet. This makes us a very experienced player when it comes to the deployment and marketing of broadband services. Our existing presence in more than 10 countries in Asia Pacific, in combination with our in-depth experience in the local markets, is a sound value proposition,” says Suwansiri.
Significant effort needs to go into the acquisition of landing rights and into establishing partnerships, and this will be challenging for the global LEO and MEO players.
“At the end of the day, what is required is a hyperlocal understanding of the markets where you want to deploy your services, and to study the needs of the local communities there. This is a key success factor,” he says.
For global player ABS, the success factor in meeting Asia’s broadband demand is finding the right solution for the consumer, as it differs from enterprise to enterprise and between sectors. ABS, with its GEO fleet, notes that LEO and MEO satellite players are also addressing the broadband segment to provide solutions to the consumer market; however, ABS has established a winning approach.
“Many countries in Asia have 50 to 60 percent of the population living in the rural areas. We strongly believe there is robust demand for broadband connectivity. At the same time, there has been growth in government-sponsored projects designed to improve and expand broadband into rural areas through satellite services. ABS has developed its next-generation Internet-on-Demand (IOD) solution to drive the broadband access initiative,” says Jim Simpson, CEO of ABS.
“Our approach is to address the demand now and, at the same time, review and adapt to the changing dynamics. We have redesigned our consumer broadband solution to address the emerging trend and we have seen a strong interest in this service. We have been addressing the challenges in the interoperability of terrestrial and satellite equipment for 5G through our expertise gained in this area, as we are accommodating 2G, 3G and 4G,” explains Simpson.
While ABS operates a fleet of six GEO satellites that cover 93 percent of the world, the company is looking at the new constellations and the impact they would have on its business, says Simpson, adding that it’s important to do so as a global competitor, even though LEO operators will likely serve different markets.
“The GEO operators will continue to play a role in broadcast and high availability demand segments while the LEO operators will be addressing different verticals. We are excited with the development in the satellite industry and look forward to seeing the progress of the non-GEO operators,” says Simpson.
Broadband vs Broadcast
As Asia is the biggest broadband market in terms of demand, two questions arise: What is driving demand? And how does broadband compare with broadcast?
Summarizing the demand drivers, Simpson lists enhanced mobile broadband, IOT, and supporting high-reliability, low-latency networks. The rise of smart phones and devices, digital platforms, i-clouds and Over the Top (OTT) services have also had a profound effect on the demand for broadband access.
With the advent of 5G, ABS is preparing for 10 Gbps connectivity and latency of less than five milliseconds, which will dramatically increase the demand for mobile connectivity.
“Current estimates are a 10- to 100-fold increase in the number of 5G-connected devices over the number of 4G devices,” says Simpson.
Government projects to provide infrastructure and basic internet access to enable a better quality of life are also driving demand.
The transformation of IOT is evolving quickly, turning the world into an always-connected always-on environment. Many remote monitoring devices require a periodic transfer of data to the control center. ABS has developed a solution to cater for this application.
“We’re preparing for 5G’s virtualized, radio technology-agnostic core, enabling 20 billion IOT connections by 2020, which will drive smart buildings and smart cities,” says Simpson.
Supporting high-reliability, low-latency networks includes accommodating driverless cars coordinating over the network, enable augmented reality and virtual reality, and expanding the horizons of remote surgery as well as other applications that can fulfill their promise only on a network with such ultra-low latency, such as 5G’s five-millisecond threshold, adds Simpson.
Suwansiri echoes the impact of mobility markets and 5G, adding that the changing consumer behavior of anywhere, anytime, any device video consumption over IP will considerably boost broadband demand as well. This will be powered by a mix of LEO, MEO and GEO constellations, depending on the application and required service quality, adds Thaicom’s CCO.
In conventional terms, the broadcast market still has an edge over broadband in Asia, notes Suwansiri. However, the distinction between broadband and broadcast is increasingly superseded by new patterns of consumer behavior that are driving digital transformation in Asian societies.
“The trend is unstoppable. In our time of non-linear media consumption and the growing popularity of OTT, IP has become the name of the game and broadband is in the driver’s seat,” explains Suwansiri.
ABS has a good mix of broadband and broadcast business, but broadband will continue to be an essential part. However, it is critical that the industry re-invents the way it conducts broadband business, says Simpson. This includes focusing on satellite’s strong point, which is incorporating the technology as a delivery mechanism for broadcast-like services, broadband access everywhere, higher user mobility, massive IOT, lifeline communications, ultra-reliable communications and broadband access in dense areas, adds Simpson. VS