SatCom Frontier is very pleased to present part two of our in-depth interview with Northern Sky Research (NSR) senior analysts Prashant Butani and Blaine Curcio. The topic is High Throughput Satellite (HTS) services – how fast the market will grow, where it will grow and the amazing applications it will empower.
You can find part one here. We welcome your comments or questions, and would be happy to forward them to Prashant and Blaine.
How do the government and commercial markets for HTS services differ?
[BC]: Whether looking at traditional FSS or HTS capacity, there are similar distinctions to be made between Gov/Mil and commercial applications. For example, Gov/Mil, as a rule of thumb, commands higher per-TPE/per-Gbps leasing revenues than equivalent commercial capacity would earn for satellite operators.
By 2023 we project that Gov/Mil will account for just 4% of HTS bandwidth demand (i.e. raw Gbps), yet will account for 18% of HTS leasing revenues. This is due to Gov/Mil again calling for a much higher per-Gbps leasing cost for Gov/Mil-related demand as compared to other, lower-revenue applications such as Consumer Broadband.
For example, Gov/Mil applications would likely have higher service level agreements (SLAs), which could dictate that if there is a power shutdown on part of a satellite, government applications would get priority over commercial applications for the limited power available. There are even more factors for Gov/Mil being more expensive within HTS, due to potentially shorter-term leases, spot market purchases, smaller capacity leases, etc.
Beyond this phenomenon, Gov/Mil also sees prices driven up by spot market purchases, which have a significant overall affect on the market price. Other aspects which tend to make Gov/Mil unique include regional portability, protected communications (i.e. contracts that include jam-proof provisions), and budgetary/other political factors that can make long-term capacity leasing more difficult.
The Gov/Mil market is higher margin and higher SLA compared to consumer broadband but comparable to key vertical segments such as the oil & gas or energy sector, which require higher SLAs as well.
[PB]: It must also be noted that governments across the world are starting to play an important role in providing HTS satellites. Examples include NBN in Australia and SGDC in Brazil. The core application is providing broadband access to citizens that lie outside the terrestrial broadband coverage areas.
However, the capabilities could easily be extended to carry data traffic to and from government offices and military bases across the country. HTS systems are relatively new and arguably even the commercial industry is yet to get their business models right outside of a few developed markets. For governments to consider investing tax payer money, there has to be either a ton of demand from the military or a strong push towards eGovernance enabling even the most remote population areas to have access to the Internet. The military has time and again shown its preference for dedicated capacity and, as a result, it will be consumer broadband access that will drive government investment into HTS systems.
Announced systems are proof that governments across the world are seeing the potential of HTS to connect rural and semi-urban populace with quality broadband that terrestrial systems may never be able to provide given the lack of economies of scale.
What new applications/services does HTS enable, or existing services enhance?
[BC]: HTS makes it significantly more cost-effective to offer consumer broadband access via satellite. This has historically been, and will continue to be, the “bread and butter” application for HTS in terms of filling payloads and paying the bills to keep the lights on. However, as noted above this is a high-volume, low-margin business.
Companies will not get rich providing consumer broadband, and indeed we’ve seen a number of companies shift from a business model based completely on consumer broadband to one that goes for higher-value applications such as mobility from both a GEO and MEO perspective.
HTS will also make it more cost-effective to bring to market applications such as in-flight connectivity (or general commercial mobility), as well as Enterprise Data. Basically, it makes any data-heavy application more realistic and potentially profitable to provide. We have thus far not seen any serious play made by an HTS provider beyond dedicated satellites in North America, but long-term, it is not impossible to envision this being brought to market as well.
We believe that HTS will make a serious run at the Gov/Mil customer base due to better cost efficiencies. This is because HTS supports current as well as more sensors on UAVs, higher resolution full-motion video and overall better situational awareness across the chain of command.
How does the HTS marketplace change as we step outside of North America and Europe where consumer broadband has been the focus?
[BC]: Stepping outside of North America, we see a vastly different HTS picture. When looking at demand for HTS among all applications over 60% of Gbps demand comes from North America and Western Europe. When we look at the picture without consumer broadband, only around 30% of Gbps demand comes from these regions. In short, higher-value applications will be a lot more spread out than consumer broadband demand, indicating that HTS will be a more global phenomenon than most people believe. This will be helped along by global systems, such as Intelsat EpicNG, which will provide services to both commercial and government applications throughout the world.
These “other applications” will contribute over 75% of revenue growth moving forward. Outside of North America and Western Europe, the general rule of thumb is that applications such as Enterprise Data (whether it be IP Trunking, 3G backhaul, or Enterprise VSAT), Commercial Mobility, and Gov/Mil, will all play a much larger role in the market, relative to Broadband Access. Simply put, we will see a more diverse HTS demand picture outside of these two regions.
For Gov/Mil specifically, the Middle East and Africa will likely demand HTS for ISR missions over the long term given the region’s volatility. In Asia Pacific, where there is a pivot strategy in place or a re-balance towards Asia, the large landmass, maritime and aeronautical spaces that needs to be constantly monitored and patrolled should lead to higher HTS demand as well.
[PB]: In terms of HTS supply, the picture of satellites being launched for markets outside of North America is very different. In NAM we are seeing more “closed” systems where operators like Hughes (now EchoStar) and ViaSat are integrated vertically in owning the satellite, ground equipment and service provisioning.
Outside, the systems are somewhat more open, be it older satellites like Thaicom’s or newer ones like Avanti, Yahsat and others. Another trend is that for markets like Asia, where HTS systems haven’t been as successful, operators are launching smaller payloads e.g. Eutelsat 172B, so as to test the waters for Enterprise data applications before investing in bigger satellites.
Governments, outside of North America, form a very small portion of the overall Gov/Mil demand for satellite bandwidth in general. HTS is no exception to this rule, where it is the US DoD on one side and the rest of the world on the other in terms of bandwidth demand.
Broadband, however, is a completely different ballgame where it is typically the combination of population and average disposable income that dictate success or failure of an HTS project. We expect systems like SGDC-1 and NBN to be replicated in those countries where population outside of the big cities has a growing need for connectivity to the Internet as well as the ability to pay for broadband, even if partly supported by subsidy.