The New Satellite Ecosystem

Changing The Way We Think About Selling Bandwidth and Terminals.

Satellite Operators and Integrators that don’t recognize they now exist in an industry that is pivoting will find themselves on the wrong side of history, and possibly the balance sheet.

Over the past 50 years, the satellite industry has shaped the world’s communication infrastructure and changed the expectations we as humans have about our ability to communicate instantaneously to and from anywhere on the  planet. 

Just like every other industry, we are not immune to the cycle of innovation, adoption, maturation, and pivot.  There are dozens of great examples of how our industry has learned to master this cycle, yet even today I see examples of companies continuously resisting change.

These companies will find themselves on the wrong side of history, and possibly on the wrong side of the balance sheet.  We’ve seen it happen several times.  All of us can point to component manufacturers that found themselves in a commoditized marketplace without a plan to pivot.  Most of them aren’t with us anymore.

But this cycle isn’t just for component manufacturers.  Operators, integrators, launchers…they are not immune to this cycle.  The cycle may be longer in period, but it exists.

And now the maturation/innovation phase of this cycle is impacting integrators and operators.  Many operators and integrators don’t realize that they now live in an industry that is pivoting.  And many of those that do know don’t know how to deal with it.

What is a Commodity?

On June 16th, 1903, Henry Ford founded his iconic company that still exists – and actually now thrives – even today.  Ford changed the way Americans – and the entire world – thought about transportation.  Before the Model T, the horse-drawn carriage was the only way to move about town, and trains were the way we transited long distances.  Automobiles changed the world.

Henry Ford was quoted as saying “If I had asked people what they wanted, they would have said faster horses”.  Well if we ask our customers what they want, they’ll say cheaper bandwidth and smaller antennas.  But what they probably really want is a better total cost of ownership and higher bandwidth at higher quality, regardless of the frequency, terminal type, or waveform technology.

Ford built one type of car.  The Model T.  Ford was also quoted as saying “Any customer can have a car painted in any color, so long as it’s black”.

Now, more than 100 years later, cars are built by hundreds of auto manufacturers around the entire planet, and yes they come in hundreds of colors too.  We think of cars as commodity products.  They are expensive and very personal purchases – as they typically represent the second-largest purchase we make in our lives (behind our home).  But they are still available everywhere by thousands of dealerships.

Cars aren’t commodities like laundry detergent and televisions, but the economics of car manufacturers are driven by the consumer’s ability to shop dozens of manufacturers, models, trim packages, colors, etc.  But back in 1903, there was one choice.  The black Model-T. 

In 1999, you could have any satellite bandwidth you wanted, so long as it was in C- or Ku-, and the operators are going to tell you how much it costs.  I don’ think that’s how it works in 2014.

What If I Told You That Satellites are Commodities.

In my lifetime, we’ve watched the transition from C-Band to Ku-Band as the workhorse frequency for backhaul and direct-to-home transmissions.  We’ve watched teleport antennas shrink from 30M to 6M and below, and remote terminals shrink from 4.8M to 0.7M and smaller.  We’ve seen the cost of military satellite communications terminals drop an order of magnitude in cost (two in some cases!).  And we’ve watched the creation of the throwaway terminal – the $100 VSAT bolted to the roof of half of suburbia.

Now we are watching another change.  Inmarsat has launched the first of three Global Xpress satellites, that provide high-capacity Ka-band spot beams across the planet.  VIaSat has launched a satellite that provides 140GBPS – more than the amount of all other commercial satellites aimed at North America combined, and are planning to launch another satellite with twice the bandwidth.  At least two companies are launching hundreds of satellites that provide a global “Wi-Fi” network.

When you consider the possibilities these new satellites provide, the traditional FSS satellites that provide a bent pipe of 1GHz per satellite start to look a lot like Palm Treos and Blackberries next to shiny iPhones.  With the massive decline in DoD procurement of bandwidth, the operators of these satellites are now in a price shootout with one another, fighting over ever-dwindling funds to keep the capacity used.

Imagine what the satellite industry will look like ten years from now.  To help put that into perspective, think about what was going on ten years ago.  By nature FSS operators are betting on the long-term when they launch a satellite with a 10-15-year lifespan.  Expecting to be able to launch a satellite in 2000 that is relevant compared to satellites launched in 2014 is like installing a PC with WindowsXP in 2000 and hoping it’s still relevant today.  That bandwidth may be used today, but will it be used tomorrow, and will it command the same price per MHz. 

Now is the Time to Change the Business Model.

The truth is that the industry has more opportunities available to it than it realizes.  Operators can do so much more with that capacity than they realize.  Integrators don’t have to continuously fight one another to the bottom of the margin barrel.  There are several business models that would allow for a higher return on our collective investment in ground and space technology. 

Satellite Communications does NOT have to be a zero-sum game.

Satellite Communications does NOT have to be a zero-sum game.  I’d rather see more head-to-head competition with fiber, LTE, and terrestrial.  With the right business model our industry can provide highly competitive solutions that don’t have to cost as much as they do today.

The key to improving the monetization of a satellite is to find business models that vertically and horizontally integrate technologies and solutions to solve a need.  This is why I argue that a DoD procurement strategy that separates bandwidth procurement from ground terminal procurement isn’t the best deal for the DoD. 

Carriers like Verizon and AT&T subsidize smartphones like iPhones and Androids.  As consumers, we choose a bundled package.  We love our smartphones because they’re very useful.  But we buy them through the carrier that makes them useful.   Satellite operators would be wise to vertically integrate with terminal manufacturers to provide a closed ecosystem that breaks the standard economic model and get them out of a zero-sum cost-per-megahertz shootout. 

Satellite Operators can do so much more with their capacity than they realize.

Look at what VIaSat is doing.  They make everything – even the satellite now.  They don’t compete on the standard economic playing field – they create new opportunities and partnerships.  Even Inmarsat is seeding the ground terminal market to create partner products built specifically for their constellation.  These operators are creating ‘walled gardens’ that offer a piece of CAT-5 to a customer anywhere on the planet.

Any argument about whether this frequency band or that antenna technology is better or worse is missing the bigger picture, and the bigger opportunity in front of our industry.  These arguments are thinly veiled attempts to market what vendors have, instead of what consumers want.

I would be nothing less than thrilled to work with satellite operators to further discuss these business model concepts.  Feel free to contact me if you’re interested in finding new ways to breathe life into your existing capacity.

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