"The Future of Broadband"
hns.com
Remarks by Jack A. Shaw
Chairman and CEO, Hughes Network Systems and Executive Vice President, Hughes Electronics Corporation
23rd Annual Large Credit Union Conference
Dana Point, California
September 17, 1999
Introduction
It?s a pleasure to address this important segment of North America?s financial services industry ? and to have this chance to thank the credit union movement personally.
Fortunately for all of us, credit unions know what the real problems are for your members ? and are always there to help solve them.
I?m well aware of your record of success in the United States ? over 11,000 federally-insured credit unions serving some 78 million individual members ? combined assets up nearly five percent since a year ago ? and expanded member services. And I?ve been learning today about great success of credit unions in Canada and Mexico.
I?ve been a member of the Hughes Aircraft Employees Federal Credit Union for six years. So I?ve gained a firsthand appreciation of what credit unions do best ? provide affordable, personal, reliable financial services to individuals. Credit unions are really serious about their motto, "Not for profit, not for charity, but for service."
It?s no mystery to me why credit unions for the past 15 years have ranked first in customer satisfaction of any financial services organization, according to the American Bankers/Gallup survey. This demonstrates once again that you know your customers and your business.
In short, both Hughes Electronics and I are proud to be part of the credit union movement and salute all of you.
With the Internet revolution sweeping through every aspect of our lives and commerce, it?s imperative that all of us understand how this will change how we do business. That?s why I want to describe today what is changing and how it will affect us ? with a special emphasis on the role of satellite telecommunications in all this.
The Internet and Credit Unions
Early on, credit unions recognized the importance of the Internet and began adapting to new e-commerce markets. By the middle of this year, nearly 2,500 U.S. credit unions had web sites, many of them interactive ? an impressive number given the size and resources of most credit unions. With the explosive growth of Internet delivery of financial services, it?s a natural fit that credit unions stamp their brand on the World Wide Web.
It will enhance your ability to reach and serve customers, increase the speed and volume of information throughout your system, lower costs for transactions to other businesses and to members, and bring added business value to your service. As costs for high-speed broadband transmission services fall across the board, including satellite-based services such as ours, credit unions and the providers that link them together, will find these services increasingly affordable.
This is especially important because increased efficiencies mean that your members will earn even higher returns on their share accounts and pay even less for loans and other services. It?s reassuring to know that the ultimate beneficiary will be your membership ? that the benefits will go straight into members? family budgets.
The Internet Revolution
We are only beginning to understand how the Internet will affect our society. If this were a baseball game, we?re only in the top of the second inning ? the excitement?s just beginning.
The Internet is already driving phenomenal advances in technology. For example, Bell Labs recently announced that advances in fiber optic cable technology now enable a single strand of fiber as thin as a human hair to carry 25 million conversations or 200,000 video signals simultaneously ? and one cable contains a dozen such strands.
At Hughes, we are launching our third-generation satellites later this year, our new HS-702 model, with improved propulsion, higher power, and longer lifetimes ? as well as onboard digital processing and multi-beam antennae that can direct signals to hundreds of widely-scattered areas of the earth?s surface.
The economic impacts are even more phenomenal. Forrester Research predicts that e-commerce will amount to a full 10 percent of the U.S. economy by 2002. But as established retailers like Wal-Mart and Toys "R" Us get serious about asserting themselves on the Internet, the sky?s the limit.
However, the far greater impact of the Internet will be on businesses? internal information and business-to-business transactions. For example, Cisco Systems recently noted that four years ago, closing its quarterly accounts could take up to 10 days. Now the time is down to two days, and Cisco aims to make this procedure a one-day job ? on any day of the quarter.
Business-to-business transactions, known as e-business, are having a huge impact on efficiencies and relationships as companies can seek out lowest prices for supplies, reduce inventories and delivery times, and anticipate future needs. Forrester predicts that business-to-business trade of goods over the Internet will reach a phenomenal $1.3 trillion in the U.S. by the year 2003.
For example, Intel by yearend expects that three-quarters of its orders will arrive electronically. That has meant 45,000 fewer faxes per quarter from Asian buyers and has enabled Intel to reassign clerks who processed orders to concentrate now on customer relations.
As The Economist stated recently, "The Internet is turning business upside down and inside out. It is fundamentally changing the way companies operate. This goes far beyond buying and selling over the Internet . . . and deep into the processes and culture of an enterprise."
Broadband Markets and Satellites Today
At Hughes, we fully expect satellites to gain an increasing share of the e-commerce and e-business markets. Businesses already extensively use our satellite terminals we call VSATs to connect far-flung operations to the central office with streams of data, voice, video and graphics images. We have more than 300,000 Hughes VSATs installed around the world so far.
For example, when you pay at the pump at your local gas station, it?s usually a VSAT that handles the credit card transaction. In the U.S., Mobil Oil has nearly 8,000 gas stations with VSATs handling 1.2 million transactions per day.
The U.S., Canadian, and British brokerage house Edward Jones uses VSATs to connect its 4,000 sites so that any customer can get the same instant information as anyone on Wall Street. VSATs connect Automatic Teller Machines to their networks and participating banks and credit unions. VSATs also help with internal management needs, like employee training and teleconferencing.
These satellite-based systems meet an important need for bandwidth provided at costs and with convenience that competing technologies cannot deliver. Fiber optic cables are useful as backbones for nationwide and international telecommunications networks ? but their high costs and inflexible routes seriously limit them. In addition, the terrain can prohibit the installation of wire and they are most efficient for point-to-point communications; not for broadcast applications to multiple sites.
Fiber optic cables cost $200,000 per mile to install, and entire networks can run into the billions. One project that will add two cables between Japan and the U.S. West Coast will cost a projected $1 billion. Another more ambitious project to link 75 countries and territories will run about $10 billion.
At these costs, fiber-optic cable service is too expensive for all but the largest businesses and institutions. It will require far lower costs to economically connect medium and small businesses, even large businesses with far-flung operations, and, of course, consumers. This is what we call the "last-mile" problem ? how to provide affordable connections to consumers and most business sites.
Cable modems and digital service lines, known as DSL, are expanding, especially for consumers ? but technical limitations, signal quality, and costs are holding back their deployment. Cable modems can deliver high-speed Internet access but require that established companies, like Time Warner, rewire their entire systems. The cable that comes to your home today is only one-way and has to be replaced. Remember also that a lot of the cable is stapled to the studs inside the walls of your home ? try replacing that easily.
Telephone companies are beginning to offer affordable DSL service using existing copper phone wire, but its technology limits availability to homes or businesses within three miles or so of a switching station.
With U.S. businesses and consumers clamoring for affordable bandwidth, that presents satellite companies with tremendous opportunities to grow ? something we intend to take full advantage of.
Satellites offer great potential overseas in developed countries now relying on expensive, inflexible land-wired networks ? and even greater potential in developing nations where little wire exists. Fully wiring developing countries would take many too years ? and, after all, is simply unaffordable. Satellite-based services are uniquely suited to provide instant, affordable infrastructure that allows developing nations to leapfrog into full connectivity with the global economy.
DirecPC
Beyond VSATs, Hughes has been extending our very successful DIRECTV technology into broadband consumer and business markets with good results. Using the knowledge we gained in developing and deploying direct-to-home satellite television products and services, we developed a high-speed Internet service called DirecPC.
Using a21-inch satellite dish, similar to the ones DIRECTV subscribers use, DirecPC connects corporate intranets and home PCs to the Internet at high inbound data speeds ?up to six million bits per second ?with regular telephone modem speeds outbound.
Most of the need was to increase download speeds ? the "World Wide Wait" for downloading data was getting intolerable ? and DirecPC was a solution that offered instant relief. It?s a bridge to an even more advanced service, Spaceway ? which will provide two-way, ultra-high data speeds when we begin to deploy this service in North America in 2002. I?ll describe Spaceway shortly.
In the meantime, a growing number of corporate customers are using DirecPC for a variety of needs. For example, we just installed a DirecPC network for all 2,150 Kmart Stores nationwide to use for training, to download software to the stores, and for simultaneous broadcast of large data, audio, and video files. Edward Jones, which I mentioned a moment ago, is upgrading its VSAT network to include DirecPC for inbound multimedia applications.
DirecPC can also help businesses by improving the productivity of customers ? not just businesses? internal productivity. By turbo-charging home-PC download speeds, DirecPC eliminates the frustration over delays and encourages customers increasingly to shop and transact other business on-line. It can help financial institutions like credit unions offer a broader range of financial and buying services and improve competitiveness.
In short, satellite-based systems like VSATs and DirecPC are increasing their share of the broadband market because of their versatility, speeds, costs, interconnectivity and other factors. Sharply falling prices especially are creating new demand and new markets. For example, VSAT systems serving major oil companies? networks of gas stations now have reduced costs for processing credit card transactions to only about $100 per month per station.
Hughes, AOL and Broadband
Surely the most exciting development for Hughes this summer was our strategic alliance with American Online Inc. to develop and market uniquely integrated digital entertainment and broadband services nationwide.
AOL is investing $1.5 billion in Hughes and is developing a combination set-top box to provide DIRECTV and AOL TV interactive television to consumers next year. Subscribers will be able to surf the Internet on their TV sets using their remote control to access site data relating to the programming they?re watching.
While the first impact will be on the delivery of TV entertainment to DIRECTV?s seven million subscribers and AOL?s 18 million subscribers, the far more important impact will be on consumer broadband services.
By early 2000, we will be making a broadband service named AOL-Plus available on the DirecPC satellite Internet network nationwide. Consumers will then get download speeds of up to 14 times faster than typical speeds ? for an average cost of about $22 per month. We expect the new service to generate more than one million new DirecPC customers over the next three years.
Because AOL has also invested in partnerships with telephone companies offering DSL service, its investment with Hughes confirms the key role satellites will have in future Internet markets. This certainly is a gratifying acknowledgement. Needless to say, the $1.5 billion is gratifying too.
This strategic alliance will also contribute strength to our forthcoming Spaceway service. Our long experience with VSAT services and now with DirecPC and AOL-Plus will provide Hughes with a built-in advantage in the new two-way satellite broadband market.
We?ll be facing tough competition in that market, soon to take off. Astrolink and Teledesic will be offering services similar to those of Spaceway. But Hughes will be the only company in the competition with a well-established brand and broad base of customers ? and the experience with serving those customers and solving their problems. In contrast, our competitors will be building their satellite broadband businesses from scratch.
In other words, we expect to have a powerful competitive edge at the early stages in this new broadband arena.
Spaceway
By using the far greater capabilities of next-generation satellites ? starting with the new HS-702 satellites I mentioned earlier ? satellite-based broadband services will become one of the leading technologies providing corporate and consumer two-way, high-speed broadband services.
From high-speed Internet access, to corporate intranets, to virtual private networks, to multimedia broadcasting and high-speed data delivery, Spaceway will offer unmatched service.
North American service will begin in as early as 2002, when we have in place two satellites dedicated to Spaceway ? with a third satellite in orbit as a spare. The satellite will feature on-board digital processing, packet switching, and spot beam technology that will allow what we call full-mesh communications. Each satellite, in effect, will become a huge router in the sky that lets users communicate directly with each other without going through a hub on the ground.
We are engineering Spaceway to integrate seamlessly with the full range of existing systems and standards ? so that we complement, not entirely replace, land-based networks. We expect to work closely with fiber optic cable network companies, foreign telephone companies, Internet service providers, and content providers. Under our agreement with AOL, for example, we will reserve 10 percent of Spaceway?s North American capacity for AOL, and are offering an option for expansion to 40 percent of that capacity.
But the most exciting part will be the spectacular services that customers large and small can get from Spaceway.
It will help consolidate remote operations wherever they are located into a high-speed network ? enabling the downloading and uploading of even large multimedia files ? which can be stored on hard drives for use later. As I just mentioned, it will provide desktop-to-desktop videoconferencing without going through a hub. And it will be compatible with a wide range of existing equipment from telephones, TVs and fax machines to personal computers.
Consider Spaceway?s use in global tele-medicine. For little more than the cost of a satellite dish and a workstation, rural health clinics anywhere in the world could connect to major research and teaching hospitals to consult with the best experts in their fields. It will provide an affordable connection to send patients? high-resolution X-rays, for example, for examination by experts. To send such an X-ray by telephone modem today would take seven minutes. By Spaceway, it will take 7.8 seconds. Patients and doctors could then consult by videoconferencing as they reach a diagnosis and develop a treatment program.
At a more mundane level, Spaceway will enable even small businesses to have employees telecommute, lowering fixed costs and raising productivity and quality of life at the same time. Inexpensive connections will provide high-speed interactive data transfer between offices and home at the blink of an eye.
I believe it will also present credit unions with opportunities to link not only branch offices of the same credit union together ? but also to link all credit unions together regionally, nationally, and internationally.
Not even a decade old, the large and growing Financial Services Centers Cooperative provides a member service delivery system that promises to become the first truly nationwide financial services network ? offering coast to coast services no other financial institutions can match. It?s a remarkable innovation that is unmatched by even the largest banks ? and a credit to your ingenuity and commitment to your members..
The FSCC will process an estimated 10 million transactions by the end of this year, ranging from deposits and withdrawals to loan applications and disbursements. With this volume of transactions growing exponentially ? and you explore ways to cooperate with other credit union shared networks ? the FSCC will have an even greater need to transmit data. One way to meet that need can be satellite-based broadband services ? given their unmatched reliability, adaptability, and affordability.
Once Spaceway and similar services are up and running, they will create brand new lines of business because of their ability to send and receive rich content such as graphics and video, as well as data. We believe Hughes is uniquely positioned to gain the lead because of our existing base of customers and long experience in understanding and serving them. In the end, it will be customers who decide what this new service will be.
Conclusion
You can probably understand by now why we at Hughes are excited by the potential of satellite broadband services. No competing technology will rival the versatility, global reach and low costs of Spaceway and similar satellite services.
It represents a casting off of such physical limits as distance, terrain, weather conditions, and infrastructure that have disadvantaged so many individuals, businesses, and even nations. With a device no larger than a dinner service platter, aimed at an invisible point in the sky, anyone can bring the world into the room and interact with it.
Satellites will help level the uneven playing field among peoples of the world as they connect people to the world ? not just as receivers ? but as full partners in a two-way ebb and flow of information and work. That more level playing field, in turn, will generate wealth and prosperity for a vastly greater number of people as never before.
Two years ago, someone heralded the Internet and telecommunications revolution as having brought "the death of distance." At the time, the announcement may have seemed premature ? but this is no longer the case. And I invite all of you to get ready to connect to the world. Your life and your business will never be the same afterwards.
In closing, let me say once more how much I appreciate and admire the credit union movement. Despite fierce competition, you have gained strength, gained new customers, and evolved into full-service financial institutions uniquely responsive to individual needs.
Credit unions are truly here to stay. Hughes is proud to be part of this movement, and we stand ready to help you remain strong in the future. |
