Broadband In The Sky (via I* thread)
May 19, 1999 - 2:45 PM
By Roderick Beck
Media attention on broadband during the last year has focused
largely on cable and digital subscriber line, or DSL, technology.
The broadband brouhaha has largely ignored the emerging role
of satellites in providing data services such as high-speed
Internet access. But companies like Softnet Systems (SOFN)
and Hughes Electronics (GMH) unit Hughes Network
Systems are using satellite technology to attack the U.S.
broadband market. Due to its multicasting function and a lack
of broadband networks in developing countries, satellite is
poised to be the dominant broadband technology in much of
the world.
What Is Broadband?
Broadband generally refers to the ability of high-capacity
networks to rapidly deliver large amounts of data. In the
absence of network congestion, large capacity means minimal
delay and high quality. What most investors fail to realize is
that broadband comes in two flavors, backbone and local
access. Backbone refers to the long-distance networks that
route phone calls and data traffic, including the Internet, across
the country and around the world. Local access refers to the
‘‘last mile'' - the copper phone lines and cable television
networks that connect the telecommunication backbones to
the customers.
Over the last several years backbone capacity has exploded
due to huge investments in fiber optic networks complemented
by more powerful switching equipment. Not only have the
leading carriers dramatically increased their ownership of fiber,
but new technologies like wave division multiplexing and new
broadband carriers like Qwest Communications (QWST) have
also contributed to an explosion in backbone capacity.
Unfortunately, the local networks have not kept pace. The
result is that the copper wire connecting the end user to the
backbones is too thin. It has become a bottleneck. While the
backbone networks are like 20-lane highways, the exit ramps
are one lane and backed up for miles.
What Satellite Does Poorly
Many investors misunderstand where satellite fits in the
broadband picture. Many think the absence of wires makes
wireless technologies cheaper than the alternatives. That is a
myth. Satellites use electromagnetic spectrum very inefficiently
compared with fiber. For example, a satellite broadcast of an
analog television channel requires six times the spectrum of a
cable system. Such inefficient use of the spectrum is a general
problem with wireless technologies.
However, it's not the key problem. The Achilles Heel is that the
use of a spectrum by one satellite precludes the spectrum's
use by any other satellite or party in the same broadcasting
footprint. In contrast, fiber spectrum is virtually unlimited
because each strand of fiber uses it without excluding other
fiber strands from exploiting it. While fiber replicates spectrum,
satellite excludes its use by another satellite within the same
broadcasting area. Hence, spectrum is essentially free in fiber
optic cables, while satellite providers face a limited and costly
supply of wireless spectrum. This limited supply of spectrum
means that satellites cannot offer the huge capacity found on
the fiber optic backbones criss-crossing the U.S. and other
developed nations. In other words, fiber is here to stay as the
backbone of the wide-area telecommunication networks.
The inefficiency of satellite is particularly striking in
point-to-point applications that involve two-way communication
or interaction like telephony. Devoting limited satellite spectrum
to handle a simple phone conversation is expensive because
there is a high opportunity cost. The same spectrum can
provide much greater value if used in broadcasting applications
that serve a large number of customers. Scarcity of spectrum
leads me to believe that fiber will dominate the developed world.
The cost of fiber is less than copper on a capacity-adjusted
basis, and it's aided by developments in electronics that can
increase raw fiber transmission capacity by as much as
13,200%, so its cost will continue to plunge.
Where Satellite Excels
The key strength of satellite lies in broadcasting the same
content to many locations - point-to-multipoint applications.
Because the cost of delivering data within a satellite's footprint
is independent of distance or the number of sites receiving it,
broadcasting is a much cheaper way of sending data to a large
number of sites than terrestrial links. Hence satellite
broadcasting has huge cost advantages in multicasting content
of all kinds, including distance learning, video delivery to cable
companies, and Internet web pages. The huge economies of
scale make satellite more economical than fiber links for large
businesses, government organizations and ISPs that need the
same content delivered to many domestic or international
locations.
While satellite is unlikely to usurp the fiber optic backbones in
developed countries, I expect a very different outcome in the
developing world. In many African, Latin and Asian countries
the cost of building broadband wire networks is prohibitively
expensive due to lack of money and extremely challenging
terrain. Not only do the countries lack the internal networks to
quickly carry Internet traffic, but they must buy expensive
international links to the U.S.-based Internet which can cost as
much as $70,000 a month. Adding insult to injury, Internet
speeds are extremely slow in most developing countries with
large numbers of users who share the equivalent of a single
phone line's capacity. Even in a place like Greece, an ISP
might be serving large numbers of residential customers with
the equivalent of single phone line connection. The result is a
very expensive, but exceedingly slow Internet experience.
Satellite is emerging as a solution to these problems. A private
U.S. company, InterPacket Group, is broadcasting the
Internet to foreign ISPs via satellite in more than 40 countries.
In essence, satellite is used to leapfrog the transoceanic fiber
networks, directly connecting ISPs in countries like India to the
U.S. Internet. The result is that the ISP pays a fraction of what
a terrestrial U.S. Internet backbone provider would charge and
receives much faster access for its customers. In many cases
the Internet traffic is carried right to the ISP's point of presence,
or POP, bypassing the unreliable and congested national
networks as well.
Even ISPs in the U.S. are beginning to use satellite. A
company called SkyCache offers to monitor the Web sites
being downloaded by an ISP's customers to determine which
are most popular. It then broadcasts the sites directly to the
ISP's network, where they are stored in a local storage device
known as a cache. The result is that the most popular Web
content is stored locally at the ISP POPs or regional centers,
reducing the need for fat, expensive pipes to the Internet.
Moreover, because the Internet is congested, satellite delivery
improves speed and overall quality.
A related service is delivery of multimedia content to ISPs.
Softnet Systems, a cable Internet access company, is using
satellite to deliver streaming video and audio content to its
cable affiliates. Because streaming video and audio content
hogs bandwidth, satellite can once again reduce the amount of
Internet access that cable companies need to purchase from
the backbone providers.
Another interesting development is the DirecPC service
provided by Hughes Network Systems, the huge satellite
provider. Customers access the Internet through phone lines.
Requests are forwarded to the Web site, with the return traffic
being sent to a satellite transmission tower which beams the
traffic to a satellite. The satellite then sends the download at
400-kilobit speeds to a small satellite dish owned by the
customer. While this particular service itself has not been an
outstanding success, I believe satellite Internet access could
dominate rural areas of the U.S. where cable and DSL aren't
available. In the developing and third world, DirecPC-type
services will probably be very popular.
- About Roderick Beck
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