Satellite Internet: Wireless medium looks for a niche

The prospects for satellite Internet services have been seen as pie in the sky for the most part. That may be changing ever so slowly however, as space companies and telecommunication start-ups begin to put meat on the bones of their business plans and take aim at untapped markets, especially in remote areas.

A handful of companies already offer Internet services over satellite, although none at speeds that are comparable to a fast landline. However, several space companies have plans to launch anywhere from four to 64 satellites and beam the Internet at broadband speed to waiting receivers.

Teledesic - funded by Motorola, Boeing, Bill Gates and Saudi Prince Alwaleed Bin Talal - intends to launch services in 2005 using a constellation of small, low-Earth orbit satellites. Start-up Astrolink International, backed by Lockheed Martin, plans to launch a geosynchronous orbit satellite in early 2003.

Existing services such as those from Tachyon have download speeds ranging from 128K bit/sec to 1.544M bit/sec, and upload speeds to the satellite ranging from 64K bit/sec to 256K bit/sec. StarBand Communications has services offering downloads of 500K bit/sec and uploads of 150K bit/sec. The speeds compare to those for DSL, although the costs do not.

Analysts say a 2-foot-wide dish similar to one used for satellite TV reception but capable of two-way communication will cost around $600 to $900, with installation running about $250. Subscription costs will start at $70 per month for basic services.

Chances are slim that do-it-yourself installation packages for two-way satellite broadband dishes - which would cut installation costs - will come to market soon, as has happened with DSL. The Federal Communications Commission insists that licensed professionals must install such devices to prevent accidental interference with other transmissions.

Earth-based competition

Satellite providers say they will be able to add subscribers much faster than their land-based competition, and can update their services more easily.

"Most of the people we're talking to want to build a private network," says Jeff Guzy, executive vice president and general manager for broadband deployment at CyberStar, a subsidiary of Loral Space and Communications.

Ease of procurement is a big selling point, according to Guzy.

There's no need to roll out fiber, or check the quality of the lines, or deal with an incumbent local carrier to access phone equipment.

Satellite services will also be able to provide bandwidth on demand, charging customers only for the amount of data downloaded each month. Applications requiring short bursts of heavy data downloads may make best use of these services, according to the vendors.

One drawback: Satellite services must yield to the laws of physics, in particular the speed of light.

A satellite in geosynchronous orbit is 44,000 miles from Earth. The distance the signal must travel results in latency of between one-third and one-half second, making it less useful for things such as phone service, videoconferencing, interactive gaming or applications dependent on real-time data.

Ideal for far-flung offices

For companies with operations far from comfortable metropolitan fiber-optic rings and a giant phone company with armies of technicians around the corner, the satellite dish may be the answer. But, in all likelihood, they will appeal only to companies where landlines are not available.

"A major question mark is cost," says Paul Kellett, a senior research analyst at Pioneer Consulting. "There are parts of the world where there's nothing to compete with, though."

Another analyst sees the great wilderness as a frontier for satellite services.

"The only business use for it is in far-flung places," says Brownlee Thomas, a global telecommunications services analyst for market research firm Giga Information Group. "It's always going to be a gap filler."

Still, it's a big gap. Gartner's market analysis firm Dataquest released a study in February forecasting an increase in the number of installed satellite terminals from 293,500 last year to 7.2 million terminals in 2005.

The large phone companies responsible for most DSL service in the U.S. have little financial incentive to make every one of their central offices ready for DSL, a gap satellite companies hope to exploit, according to Tony Modelfino, a vice president of services and applications at Astrolink.

"Every technology has its sweet spot, a geographic sweet spot," he says.

"There are about 20,000 central offices in the U.S.," Modelfino continues, and a DSL provider "can get to 80% of the businesses by going after 20% of those central offices."

Location affects provisioning feasibility

However, satellite has its own provisioning issues. Because the FCC demands professional installation, the only places in the U.S. able to get satellite service installed are those that a technician can reach economically.

"We're really targeting an enterprise market, not a consumer market," Modelfino says. "If I'm doing $50 per month" in subscription charges for consumers, "I have to think long and hard about doing a truck roll."

Astrolink is aiming at small branch offices at out-of-the-way locations. Astrolink plans to launch its first satellite in 2003, indicating a belief that the provisioning challenges for competing technologies will still be there by then. The company figures between 20% and 30% of the market will have no affordable broadband alternatives.

The question that industry watchers ask now is if satellite broadband services will encounter the same kinds of problems the rest of the Internet industry has experienced. Will too many people be trying to get service from the same place at the same time, like the early days of AOL? Will over-investment - without an immediate way to recoup costs - drive margins down and players out of business?

If phone companies find a way to easily get their unused fiber-optic capacity into the workrooms and bedrooms of their customers before satellite companies come online, it could be an ugly end for an expensive trip.

Chidi writes for IDG News Service's Boston bureau.