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Satellite Internet Access is Going to be Disrupted

Something very big is happening in the Internet access business, beyond the much-publicized move to gigabit networks by a growing range of providers in the U.S. market. In fact, the full impact of the shift to gigabit access speeds has repercussions beyond the actual number of consumers that elect to buy it.

As CenturyLink executives have noted many times, gigabit marketing drives adoption of 20-Mbps, 40-Mbps and 80-Mbps access services. In other words, gigabit Internet access drives most consumers to consider upgrading to faster speeds, even when they opt not to buy a full gigabit service.

In the global satellite business, something similar is happening. Over the last few years, new high throughput satellites operating in the Ka bands  have been launched, and continue to be launched, offering aggregate throughput much higher than for Ku-band satellites. The actual amount of additional bandwidth varies, but can range as high as two orders of magnitude over the present generation of satellites.

But there is more afoot. Up to this point, most consumer satellite service platforms have used the geosynchronous orbit. That has clear advantages in terms of ability to support low-cost consumer terminals.

The drawbacks include high latency.

But many new proposed satellite constellations are  operating, or are in preparation, including OneWeb, LeoSat and SpaceX, to name a few. Those new ventures plan to use low earth orbit.

The two clear advantages for such an approach are much lower latency and much higher bandwidth.

O3b already is in operation, using a fleet of 12 medium earth orbit satellites in medium earth orbit, again providing latency and bandwidth advantages over a geostationary approach.

But even geostationary platforms now benefit from use of the Ka band frequencies and ower earth station costs.

Satellite entrepreneurs such as Kacific now are aiming to disrupt the traditional value-price relationship for satellite communications, using new technology as much as two orders of magnitude better than prior platforms.

In the past, price points of older satellite bandwidth caused decision makers in island countries of the Pacific and Southeast Asia to rule out satellite as an economically viable way to enable connectivity in their country, focusing on cable to power fixed and mobile internet networks, notes Cyril Annarella, Kacific executive director.

But new high-throughput satellites are changing the economics of the access business because they “allow data connections at a much lower cost per bit than older generations satellites,” says Cyril Annarella, Kacific executive director.

High throughput satellites provide as much as two orders of magnitude more throughput than earlier generation satellites, significantly reducing cost per bit profiles.

ViaSat-1 and EchoStar XVII (Jupiter-1) provide more than 100 Gbps of capacity, which is more than 100 times the capacity offered by a conventional Ku-band satellite, for example.

When it was launched in October 2011 ViaSat-1 had more capacity (140 Gbps) than all other commercial communications satellites over North America combined, to illustrate the capacity advances.

Kacific is building on several technology advances, in additon to availability of HTS. The Ka-band spectrum inherently “carries more information,” says Annarella, much as millimeter wave frequencies or even 2.5 GHz frequencies can carry more information than signals of equivalent bandwidth at 800 MHz.

Also, the success of HTS-based services in the United States,  such as Viasat and Hughes networks Jupiter, has driven the cost of user terminals well below US$500, enabling an interesting mass market value proposition that older generations of satellite services were never able to achieve, Annarella says.

In many markets, including Indonesia, the Philippines, Papua New Guinea and the Island nations of the Pacific, satellite might be the only affordable way to bridge the digital divide, Annarella argues.

Kacific believes there is a mass market for Internet broadband if the price to bring internet at the point-of-consumption can be brought sufficiently low. In most of its target markets, the existing choice  is mobile access at speeds no faster than 2 Mbps.

Kacific plans to provide more than that, especially using anchor sites at government buildings or schools as community access points.

In its target countries, Kacific is “currently the only possible proposition that completely addresses the requirements of universal access plans defined by the regulators,” says Annarella.

Kacific was founded mid-2013 by a group of experienced entrepreneurs with space, finance and IT background, he says.

The first phase of the project logically involved convincing potential customers of service viability and affordability, defining technical specifications and raising capital.

“This phase is now closing, and the second step of the project, finishing late 2017, will see the construction and launch of Kacific first satellite K1a, for a commercial service opening in the first quarter of  2018.

But it would not be unreasonable to argue that it is the new LEO constellations which will play a role similar to gigabit fixed network access in stimulating demand for Internet access at higher speeds.

Space Exploration Technologies (Space X), for example,  has asked the Federal Communications Commission for permission to create and launch a new  low earth orbit satellite constellation of thousands of satellites that would be able to provide Internet access at unprecedented speeds anywhere on the globe.

The LEO constellations now proposed would provide a key challenge to fixed or mobile facilities in the Internet service provider business, at least in terms of coverage. In principle, every inch of the earth’s surface would be covered.

The unknown issue is the business model. It isn’t clear what the retail pricing would be, or how much market share any LEO constellation might be able to obtain.

Orbiting the earth at just an altitude of around 750 miles, the new constellation would orbit at lower than conventional communications satellites at 22,000 miles.

That has huge implications for bandwidth and latency, potentially enabling bandwidth between 50 Mbps and gigabits for any specific end user, a huge and qualitative advance over what has been possible in the past.

If everything goes right, LeoSat could begin launching its new satellite constellation in December 2018, offering bandwidth to any single user site at speeds from 50 Mbps on the low end to a high of 1.2 Gbps.

LeoSat, which plans to launch a new constellation of 80 or more low earth orbit satellites to provide high-throughput Internet access covering every square inch of the earth, thinks its wholesale business model and high bandwidth makes it a potential partner for virtually every other satellite capacity supplier or retailer, aside from the core markets it has identified.

For starters, LeoSat is focusing exclusively on wholesale capacity for business customers, not the consumer business and not business segment retail.

“We wouldn’t compete with anybody in the current milieu,” says Fotheringham. “Our lowest service tier begins where traditional satellite ends.”

The lowest tier of service offers 50 Mbps to 100 Mbps of Internet connectivity. The middle range offers 100 Mbps to 500 Mbps while the top tier supports 500 Mbps up to 1.2 Gbps.

“We do what they cannot,” Fotheringham says of the comparison with legacy satellite services. So he believes LeoSat will have “many chances to align with incumbents who are delivery partners.”

Strictly focused on business-to-business customers, LeoSat’s primary focus will be delivering “ industrial-grade communications to major organizations,” both commercial and government, says Fotheringham.

At the same time, by using a mesh network, LeoSat will avoid a key stranded assets problem that has plagued most prior constellations using the low earth orbit.

The point is that something very new, and potentially very big, is happening in the satellite Internet access business, and it parallels what is happening in the fixed network business, namely disruptive increases in delivered bandwidth.

What Drives Fixed Network Revenue Growth? It Depends.

Service provider strategy has been getting more diverse since the 1980s, when it would still have been possible to argue that tier-one service provider strategy in nearly every market was the same. Since then, strategies have diverged.

Since the 1980s, service providers have taken different stances on mobile, international expansion, embrace of over the top services, digital media, financial services, information technology services for enterprise customers, entertainment video and consumer apps.

Fixed network service provider strategy remains as challenging as ever, as illustrated by product trends.

At the end of 2014, the largest U.S. cable TV operators had about 52 million high speed access accounts in service, according to Leichtman Research Group.

At the end of 2014, those same firms had some 49 million linear video customers. In other words, the major legacy product now has been surpassed by the “newer” high speed access product.

Likewise, at the end of 2014, the largest U.S. telcos had about 35.4 million high speed access accounts in service.

At the end of 2013, all U.S. telco retail consumer voice accounts in service, by all providers, had dropped to 36 million.

Using roughly the same methodology as used by Leichtman Research, the top U.S. telcos might have served about 30 million voice lines, or about one in four U.S. households.

As in the case of cable TV, the major legacy produce–voice–has been surpassed by the newer high speed access product.

For cable TV operators, revenue growth now is lead by business services, secondarily by high speed access. For fixed network telcos, revenue growth is more complicated.

In some cases, revenue growth is lead by video entertainment. In other cases, high speed access drives revenue growth. In yet other cases, business services are the leading growth category.

Among the areas of biggest upside for many service providers are enterprise and business services.

In its first quarter of 2015, Comcast Internet access revenues grew 10.7 percent while business services grew 21.4 percent.

Year over year, Comcast gained 407,000 high speed Internet access customers and 77,000 voice customers and lost 8,000 video customers.

In other words, not only does the “new” Internet access business represent more customers, it also is the fastest-growing consumer service. Video subscribers actually are shrinking. But it is business services that sport the highest growth rates.

At CenturyLink, a similar trend might be noted. CenturyLink is in many ways a hybrid company, including a healthy base of rural telephone access assets, several access networks in metro areas of the western United States and then long haul and enterprise assets originally part of Qwest Communications.

CenturyLink is not alone. Windstream and Frontier Communications are some combination of rural telephone assets and business-focused assets.

One might argue that, in all three cases, revenue growth is driven, on a net basis, by the enterprise and small-to-medium business operations.

At CenturyLink, strategic services sold to enterprises are growing, the legacy access business dwindling. Total business segment revenues in the first quarter of 2015 were about $2.7 billion, while consumer segment revenues were $1.5 billion.

At Windstream, total revenues were $1.4 billion in the first quarter of 2015. Consumer  broadband service revenues in the first quarter were $123 million. Overall consumer service revenues in the first quarter were $312 million.

Enterprise and small business service revenues were $741 million in the first quarter, representing fully 53 percent of total revenues. Add in carrier service revenues of $177 million and the business segment represented 66 percent of total revenue.

At Frontier Communications, first quarter 2015 revenue amounted to  $1,371 million. Total residential revenue was $617 million, while total business revenue was $616 million. So business revenues represented about half of total revenue.

At CenturyLink and Windstream, entertainment video likely will be a high-growth product, coming from a low base. It isn’t so clear whether video entertainment will do the same at Frontier Communications, which has been relying on satellite video, and experienced a net loss of 7,700 video customers in the first quarter, including 3,500 satellite video customers.

Windstream just launched its “Kinetic” IPTV service, so growth is almost certain. At CenturyLink, consumer segment revenue growth is lead by high speed access and television services.

The point is that fixed network revenue growth strategies now are distinct, at various firms. Sometimes the key revenue drivers are the business segment. In other cases it is high speed access or entertainment video, and sometimes all three are important.

Eventually, all three sources will dwindle. What comes next is key. So far, there is no clear answer, other than that the Internet of Things might hold the key.

When You Accumulate Anomalies, Get Ready for a Paradigm Shift: That’s Coming for Telcos, Cable

Thomas Kuhn, in his foundational book The Structure of Scientific Revolutions might teach you to look for anomalies in business, not just science. The theory is simple enough: under normal circumstances, knowledge grows incrementally.

When an established paradigm is about to break, people keep running into anomalies–facts that don’t fit the existing paradigm.

We are at the beginning of just such a period, in terms of the dominant retail paradigm for any access provider in the U.S. market, and many other markets. For more than a decade, the triple play has been the key retail strategy in the fixed network access market.

There are several reasons for that reality. Single-purpose networks (the old telephone network, the old cable TV network and others) had a different business model than today’s multi-purpose networks.

In the past, one service, delivered on a purpose-built network, worked when there essentially was no competition, allowing take rates as high as 80 percent to 95 percent.

In an era characterized by multiple-purpose networks that can deliver any popular service (voice, video, data, messaging), no service provider can expect to get penetration rates as high as in the past.

To use a couple of obvious examples, telcos never again will have 90 percent voice share, or cable TV providers 85 percent video share. In a two-provider market, each of those contestants might expect to get about half of whatever market remains.

In other words, each might get as much as 40 percent voice share, and as much as 35 percent video share (assuming satellite gets reasonable share).

Those figures also show the extreme danger of stranded assets: if a network is built to pass 100 percent of homes, but only 40 percent to 50 percent are buyers, half the investment produces zero revenue.

The triple play bundle developed because selling three services to a smaller number of customers still produces as much revenue as selling one service to most homes can generate. Service providers also figured out that bundled service customers do not churn as much.

In recent days, many fixed network Internet service providers (including Google Fiber) have argued that video entertainment is essential to make the fixed network investment work.

Even if Google Fiber does not sell voice, it relies on high speed access and video to make the business case work. Telco and cable TV rely on the triple play.

There are anomalies, however. Netflix and many other streaming video services might indicate the market is at an important inflection point.

And that matters because it threatens to undermine the value of the linear video component of the triple play. That is potentially hugely disruptive.

All ISPs relying on a video-plus-Internet access retail package would face revenue issues if streaming gains traction faster.

Fewer and fewer consumers actually rely on fixed network voice, many continuing to buy largely because doing so allows purchase of other desired services (video and Internet access) at better prices.

And consider what could happen once fifth generation mobile networks go commercial, offering every end user at least a gigabit of Internet bandwidth, and as much as 10 Gbps.

At that point, voice would face huge competition from mobile, video would face over the top streaming and high speed access also would face substitution from mobile high speed data.

That would undermine the economics of the triple play.

The huge issue is what fixed network service providers would do to cope.

In the wake of the Comcast decision not to bid for Time Warner Cable, some suggest Comcast itself must prepare its own over the top streaming service, as it cannot grow through acquiring more fixed network customers and assets.

That also would be hedge against an eventual diminution of the linear video revenue stream. Verizon and AT&T have very different views about the future for linear video. Verizon thinks OTT will destroy the linear business faster, while AT&T thinks the decline will be more gradual. But both can conceive of a future where the strategic product is high speed access.

Those are big anomalies: all three constituent parts of the triple play bundle, are under threat. So the next decade is going to even more thrilling, from a service provider perspective, than the last decade.

New Era of Abundance Approaches: Consumer Bandwidth 1 Gbps to 10 Gbps

In one sense, Google Fiber was a breakthrough, offering a symmetrical gigabit service for $70 a month. But scale matters in telecom.

So, in a flash, and despite all skepticism, the U.S. high speed Internet access business is about to enter a period of abundance.

Comcast is upgrading virtually its entire customer base–21 million homes–to gigabit speeds by the end of 2015, with 18 million homes able to buy service at 2 Gbps, also by the end of 2015. That is 21 million U.S. homes.

So a relative trickle of neighborhood level investments now will be massively disrupted, in one move, by the biggest supplier of high speed access in the United States.

Other Internet service providers will have to respond, even if they elect to upgrade at lower levels. But that is not all.

Consider what already is envisioned for fifth generation mobile networks:

  • bandwidth of up to 10 Gbps per device or per user

  • latency of one millisecond

  • seamless ability to use any available access network

  • bandwidth 1,000 times greater than 4G

Some might gasp at predictions the coming fifth generation mobile network standard (5G) will feature bandwidths up to 1,000 times greater than today’s mobile networks.

But that three orders of magnitude leap–by perhaps 2020–is coming. And consider the irony: if 2 Gbps is the fixed network standard, for the first time ever, mobile network bandwidth will be five times greater.

That has never happened before. As many forecasts for fixed network bandwidth suggest a very widespread gigabit capability is coming, use of millimeter frequencies and small cell architectures will underpin the 5G 10 Gbps standard.

Even if the first versions of 5G routinely deliver only a gigabit, the implications are quite substantial. For the first time, mobile Internet access headline speeds will equal fixed network speeds.

So one big implication is that bandwidth abundance is coming. Even if no present user requires a gigabit, local access bandwidth will cease to be a constraint for Internet experiences.

That era of abundance also will reveal new bottlenecks, however.

In fact, latency is going to leap to the top of problems affecting end user experience.

That means we will be turning attention back towards the edge of the network, as that is one way to reduce the latency of cloud-based services.

But the key change, in 2015, is that Internet access abundance is going to become a reality shortly, with all sorts of expected, and likely unexpected, implications for everyone in the ecosystem.

Some platforms will be unable to keep up. One thinks of satellite and fixed wireless, for example.

Mobile access will become a full substitute for fixed access for the first time.

The end user estimation of price-value relationships is going to evolve. Price per bit is going to plummet.

Internet service provider profit margins will be under pressure. App providers will not have to worry about bandwidth constraints.

Nokia Networks has shown the ability to transmit mobile signals at 10 Gbps peak rates over the air at 73 GHz using Nokia mmWave gear at the Brooklyn 5G Summit, jointly organized by Nokia Networks and NYU.

NTT Docomo and Nokia Networks earlier had shown the ability to transmit at 2 Gbps rates in the 70 GHZ band, using Nokia Networks mmWave technology, in an indoor setting.

“Utilizing higher frequency bands including millimeter wave is key to deliver extremely high performance in 5G,” said Seizo Onoe, NTT DOCOMO CTO. “We believe that high-frequency spectrum shall be used not just for small cells as a means to complement the existing network, but also for building solid area coverage through coordination with existing lower frequency bands.”

Of all the potential changes, the equivalence of mobile and fixed access, in terms of headline speed, will be most significant, early on.

As mobile became a full equivalent of fixed voice service, with the added benefit of mobility and text messaging, so it is conceivable that the entire value proposition for fixed networks could be devalued.

A business with lots of business challenges could become even more challenged, in that respect. A change in primary value is likely to occur, as a result. Fixed access will evolve to support the applications where it has an advantage, such as bulk data backhaul, support for small cells or heavy linear video consumption.

Abundance often creates many new advantages and problems. So it will be for ISPs, cable companies, telcos, satellite and fixed wireless providers.