“It’s a new dawn, it’s a new day, it’s a new life” … for satellite. Over the last five or so years, there has been a downward trend of satellite capacity pricing. This was largely fueled by the proliferation of more powerful High Throughput Satellites (HTS), a technological advent that has buoyed hopes of satellite edging its way into the mainstream market. But HTS hasn’t been the only thing driving prices down, and when considering the bigger picture, one that is punctuated at present by COVID-19, it’s clear that the price squeeze is here to stay. A return to satellite’s previous pricing standards isn’t going to happen — the market has completely changed, and this is it.
The status quo: HTS disruption continues. Successive generations of HTS systems have enabled manufacturers to drastically increase the volume of capacity per satellite, with asymmetrically lower increases in CapEx per satellite for operators. This means that HTS systems coming to market post-2021 will be up to 10 times more efficient in terms of CapEx dollars per unit of capacity than HTS systems launched and ordered just a decade ago. It also means they will be up to 100 times more efficient than traditional widebeam satellites.
Looking beyond HTS to the macro industry level, there is widespread oversupply. Adding to the large-scale rollouts of HTS capacity, there is also the strong net additions of traditional widebeam satellites. This has outpaced net growth demand in numerous regions, and while the 2019-2020 period offers some pricing stabilization, according to Euroconsult, the pricing pressure will return with the launch of Very HTS (VHTS) systems and other Non-Geostationary Orbit (NGSO) constellations. With the rise of Viasat-3 and the Low Earth Orbit (LEO) constellations of SpaceX, Telesat, and now-bankrupt OneWeb, we could expect a new period of capacity pricing disruption beginning in the 2021-2022 timeframe. Unless, of course, the COVID-19 pandemic pumps the brakes.
Delays could very likely impact these scenarios. With view of the virus-impacted landscape, Euroconsult sees next-generation Geostationary Earth Orbit (GEO) and NGSO satellite systems being delayed due, in part, to lockdown orders. This will likely delay the next large “reset” lower for capacity pricing.
But there is also the virus-related impact to mobility markets and potential bankruptcies. Notably, In-Flight Connectivity (IFC) and cruise have been deeply impacted. In order to help Very Small Aperture Terminal (VSAT) service providers and other end users survive in this environment, satellite operators are having to make contractual concessions, which will likely lead to softer bandwidth pricing conditions.
Euroconsult also sees potential bankruptcies of service providers resulting in bandwidth likely being returned to the market. Such a scenario would accentuate supply and demand imbalances, leading again to softer bandwidth pricing conditions.
Prices have fallen for video, like broadband applications. But also evident is growing divergence between pricing levels for each application, explains Brent Prokosh, senior affiliate consultant at Euroconsult.
“The drop has been significantly more pronounced for broadband-oriented applications, including consumer connectivity, mobile backhaul, trunking, IFC, and maritime connectivity. Operators have been able to somewhat defend against pricing erosion for video distribution, due, in part, to a relative scarcity of high-quality Ku-band capacity at key orbital hotspots, and the ‘lock-in’ effects or costs associated with having to re-point thousands to millions of antennas, when switching satellites to pursue lower pricing,” says Prokosh.
On the other side of the coin, though, pay-TV platforms are pressuring satellite operators for lower capacity pricing on the back of low to negative growth seen in many regions. This is due to shifting consumption patterns as non-linear viewing increases, as well as intensified competition associated with a growing number of Over-the-Top (OTT) platforms.
“On the broadband applications side, growing end user and service provider adoption of lower cost and more abundant HTS capacity is the most significant driver of the more aggressive pricing declines observed in the segment,” Prokosh adds.
There is also a trend of satellite operators trading higher priced capacity for greater peace of mind. Here, large-volume pre-launch commitments are winning over the operators willing to accept lower pricing levels in exchange for long-term, high-volume commitments. This is to mitigate against the market risks associated with having to sell massive capacity volumes in smaller increments.
“This dynamic has effectively pushed average capacity pricing levels sharply lower,” says Prokosh. “An extreme example is when Hughes, in 2019, leased about 50,000 Mbps of capacity aboard its upcoming Jupiter-3 satellite to Canadian satellite ISP Xplornet, at an estimated cost of well under $50 per Mbps per month over 15 years.”
How Low Can Prices Go?
When combining this dynamic together with the on-going pricing disruption of successive generations of HTS, the Hughes example may not seem so extreme any longer. With the scheduled 2021 launch of Viasat-3, it is estimated that the base cost will be just $5 per Mbps per month, when accounting for satellite, launch and ground segment CAPEX. In comparison, Viasat-2, which launched in 2017, has a cost base roughly three times higher than Viasat-3. While this cost base figure doesn’t necessarily reflect the actual pricing levels that an operator will choose, it indirectly acts as a proxy for a pricing floor that keeps dropping over time.
“Given our analysis and benchmarks of CAPEX efficiency of HTS systems, we can certainly see pricing levels trending towards and below $100 per megabits per second per month over the coming decade, and this is even for smaller volumes and shorter contracts,” adds Prokosh.
The Hughes deal signaled the unlocking of a massive floor price towards consumer broadband application, says Gagan Agrawal, senior analyst at Northern Sky Research (NSR). This pricing used to be more than $100 per megabits per second, per month. With cruise and backhaul bandwidth prices falling in the past two to three years, the numbers seem to go down consistently, with exceptions, adds Agrawal.
“For GEO HTS, sub $200 per megabits per second, per month pricing will be a reality by 2025 across various applications,” says Agrawal, adding that as we enter a new decade, we are going to see more managed services.
“We will see more managed services, or integrated service models develop, which will result in the un-commoditizing of bandwidth and stabilizing of pricing. Supply pressure seems imminent towards a lot of verticals, though inherent technology efficiencies will kick in, and operators will be able to source capacity on a per-megahertz basis at 20% to 40% of the cost they would have paid five years ago,” says Agrawal.
The Impact of LEO
Once realized and successfully launched, several of the planned LEO constellations have claimed to be able to offer attractive cost-effective capacity, which would add more weight to the current pricing pressures. It is expected for these networks to reach similar cost bases to that of Viasat-3.
However, these LEO satellites have shorter lifespans of five to 10 years, as opposed to the 15 years typical of GEO satellites. The LEO constellations’ shorter lifespans undoubtedly place a strain on financial viability — replacement CapEx is needed in the early ramp-up years. But at the same time, this provides constellation operators the opportunity to upgrade their satellites more frequently, each time potentially ushering in greater efficiency enabled by rapid technological innovation, which would deepen the falling cost curve. This dynamic could become an incentive for capacity buyers to enter shorter contracts to capitalize on falling costs.
“If these constellations come to fruition as promised, the impacts on capacity pricing will be more global, as opposed to the more regional or localized impacts of recent HTS system deployments,” says Prokosh. “The global or near-global availability of deep pools of incremental capacity in any given location, supported by the combination of LEO constellations and VHTS systems, will likely push the situation even further towards a commoditization scenario. Some operators are trying to combat this through differentiation, notably by investing in new flexibility-oriented payload technologies.”
This global aspect could also lead to pricing uniformity across regions. When considering the global availability of LEO constellations together with the rapid growth in satellite broadband adoption among mobility service providers and end users, capacity buyers are likely to seek contracted global pools of capacity that can be dynamically allocated to serve shifting geographic requirements.
LEO has its pros — but is not without cons. While ubiquitous coverage has its advantages, another pro of LEO is in improved latency. But LEO constellations also have cons toward usable capacity over land, difficulty to get landing rights in various countries, and distribution models. Due to these factors, NSR does not think LEO pricing will be lower than that of GEO HTS satellites.
“LEO constellations would add to pressure to the downward pricing trend because they’d contribute to the widespread oversupply. If all the above constellations were to realize successfully, that would certainly bring a lot of supply pressure by end 2021, which could have a plunging effect on pricing, especially backhaul and mobility,” explains Gagan Agrawal, NSR senior analyst.
The reality is that the LEO space is still a large unknown, says Andrew Ruszkowski, vice president of O3b mPOWER Commercial Lead.
“LEO providers have certainly been touting commodity pricing, and this is establishing expectations in the market that could ultimately be unhealthy for the entire ecosystem. However, in the long run, that pressure could also serve as a catalyst for certain operators to begin to refocus on providing service differentiation that moves them away from commoditization and price-based competition,” says Ruszkowski.
What About MEO?
This move should land operators at the doorway to differentiated value for their customers, explains Ruszkowski, adding that he believes the industry to be at an inflection point, where it is becoming increasingly possible to break the downward pricing cycle by delivering value through differentiated services, rather than simply offering the lowest price point. SES, he says, has already done the technology legwork, and made the right investments in multi-orbit constellations and ground technology. The operator is now looking forward to seeing its constellation of Medium-Earth Orbit (MEO) satellites compound these advantages, resulting in coverage for users in remote, underserved markets.
“With O3b mPOWER, we’re already able to price around value. We’ve done this by investing in a robust multi-orbit strategy that includes both GEO and MEO constellations, as well as Open Networking Automation Platform (ONAP) software intelligence and edge computing, new antennas and other technology on the ground. The result is a comprehensive managed communications system that directly addresses our customers’ throughput, performance, scale and flexibility requirements, while allowing SES to differentiate, compete and enter new markets,” says Ruszkowski.
A trend impacting this inflection is the influx of new technologies being developed to enhance newer orbits such as MEO. When viewing these technologies holistically, for example, network management systems, terminals and direct cloud connectivity, and the range of capabilities they bring, they begin to open up new markets, says Ruszkowski, noting that this was the case with operating SES’s MEO fleet.
“This has the potential to allow us to extract ourselves from generic price pressures that are impacting fixed architecture GEO satellite systems. The satellite market at large has taken notice of this, which is one reason we’re seeing such strong investments in both ground and sky infrastructure,” says Ruszkowski. “At SES, we already stand apart from competitors with a multi-orbit constellation that combines our GEO and O3b MEO satellites, and we’re doubling down on this advantage with our O3b mPOWER solution, set to be fully operational by 2022.”
Satellite’s Role in 5G
Pricing and delays in transmitting data over a satellite link have long plagued the industry. While current pricing pressures will help dissolve the satellite-is-too-expensive stigma, the successfully realized LEO networks will help tend to the industry’s other black eye: latency. The end result may be satellite earning additional appeal, given the rise of the 5G era. But what more needs to happen for satellite to play a significant part in the global 5G ecosystem? And what is this role going to be?
Euroconsult’s Prokosh sees the low latency from LEO and MEO networks together with lower cost capacity driving the adoption of satellite as a backhaul solution in the 5G ecosystem.
“This would improve the value proposition of satellite for rural or remote network extensions compared to terrestrial alternatives. Satellite backhaul adoption among Mobile Network Operators (MNO) is already growing, supported by currently active HTS systems. Therefore, it seems likely that this will accelerate as the costs and capabilities of next-generation satellite capacity improve over coming years,” says Prokosh.
For SES’s Ruszkowski, the focus in on being carrier-grade. There’s no question that satellite solutions must be carrier-grade in order to become a viable and successful part of the 5G ecosystem, he says. The ability to deliver throughput to a 5G system, based on the same metrics as traditional fiber with low latency and high availability, has to be there along with the industry standards to make it a seamless connection.
NSR’s Agrawal also points to the importance of standards: “Adoption of similar 5G networking standards across telecom and satellite ecosystems is a must, as well as figuring out the right applications to determine a satellite play with 5G,” says Agrawal.
“When we look at the level of flexibility, reach and coverage that is inherently possible with satellite, which is far greater than fiber, it becomes obvious that satellite is destined to play a fundamental role in accelerating the rollout of 5G around the world,” says SES’s Ruszkowski. VS