The $64K Question
Of course, the big question on the minds of network planners is pricing. Experts are willing to estimate broadband pricing, but the truth of the matter is that only time will provide anything approaching reality. Most of a handful of next-generation players we surveyed said they expect to charge rates comparable to or competitive with existing terrestrial services. Motorola stood out among them, stating that its rates would be lower than terrestrial, and Teledesic said its rates would be comparable or lower (see "Broadband: The Next Generation," page 90). One thing that is clear is next-generation providers will have more pricing flexibility than traditional VSAT services that require customers to order specific satellite
time and charge the customers for that bandwidth even if it is not used.
Ron Maehl, president of Loral, says it's typically more cost-effective in the United States today to go with satellite for anything less than about six T1 duty hours. Teledesic president Russell Daggatt adds that "satellites will never be able to match the economics of fiber with heavy continuous traffic on dense routes." He emphasizes that the market Teledesic and its service-provider partners are pursuing isn't the heavily used T1 terrestrial line, but the last mile, where very little high-speed infrastructure exists today.
That message doesn't sit well with some analysts who say most businesses won't want to calculate T1 duty hours or buy into pricing models that are primarily usage-based--especially when the rest of their service providers are moving to flat-rate pricing models. They point out that the options are hard to compare anyway, because satellite services will involve connect and disconnect time, which isn't a factor w
ith leased terrestrial T1.
"Satellite providers can put up all kinds of smoke about duty hours," says Bob Egan, a research director with Gartner Group, "but, if at the end of the day I can buy T1 coast-to-coast for $1,000 a month, then that's the competition; and if I can buy an international circuit for $3,000 or $4,000 a month, that's the competition. At the end of the day, the economics will be based on competing against terrestrial networks." And Egan predicts that those who can't compete that way are apt to be part of an upcoming satellite bloodbath.
Basically, it's not a winning strategy to pick up the bandwidth scraps that terrestrial providers don't see fit to pursue--not when so many satellite bandwidth providers are heading for the sky and when so much investment is at stake.
Pioneer Consulting senior analyst Scott Clavenna says most satellite providers tell him they plan to come in at about 10 percent under terrestrial T1. He believes this will provide little incentive for existing fiber
backbones to migrate to satellite services. Clavenna says he believes that bandwidth on demand will have its greatest economic appeal for those businesses that experience both continuous and bursty traffic, since satellites can accommodate both. Because of their unified infrastructure, he sees satellites measuring up favorably against international global outsourcing groups like Concert Communications Services, AT&T-Unisource, Global One and Cable & Wireless.
Pricing also will have to be on target for low-end antennas, with some experts expressing skepticism that providers will be able to come in at $1,000 or less--especially for the phased-array antennas mandated by LEO systems. One likely option is subsidizing those terminals if their price exceeds the $1,000-or-less acceptance level.
I Can Get It for You Wholesale
It remains to be seen, however, just who will provide those kinds of subsidies. That's because most next-generation satellite providers are focuse
d on wholesale services to ISPs, resellers and other service providers. Celestri and Teledesic say they plan to sell their services on a wholesale-basis only. Others, who aim to offer direct services to large companies as well as wholesale providers, include Lockheed Martin's Astrolink, GE Capital Americom's GE*Star, Orion (which is being acquired by Loral) and Hughes' Spaceway. Angel Technologies, which plans to offer its Halo services via piloted flights over major cities, also envisions a dual approach. Loral's CyberStar is the only provider we surveyed that plans to concentrate exclusively on direct sales to large and small businesses as well as consumers.
Most providers, however, expect the price of broadband to decline considerably in coming years as satellite systems and terrestrial options, such as xDSL and cable modems, foster a competitive broadband access market.
Eventually, big businesses are expected to push to receive services directly from their satellite providers, but it makes sense fo
r these providers to concentrate on a wholesale strategy. U.S. satellite providers must win the approvals of the FCC, ITU and each country in which they'll provide service. By partnering with nationwide service providers and giving terrestrial providers a piece of the action, constellation providers can make many access and competing-frequency use problems vanish.
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