Internet Via Satellite Defies Gravity
frost.com
By Greg Caressi
Market Expansion In Spite of the Asian Economic Crisis Shows Satellite Role as Permanent; Niche is
Expanding
Although traditional satellite services are transmission of video, voice, and data, Internet traffic has been sent via satellite
since the U.S. Defense Department's ARPAnet program of the early 1970s. Satellite carriers, however, did not really begin
to appreciate the potential of the Internet market until 1996, when traffic growth began to accelerate strongly. Demand for
Internet links via satellite have increased steadily, and as economic recovery begins across Asia, carrying Internet traffic is
expected to continue to be one of the fastest growing segments of the satellite service industry in the region.
PanAmSat, which began offering satellite-Internet links in Asia only after the regional economic crisis began, now has
connections totaling 350 Mbps into Australia alone, along with customers in Japan, Korea, New Zealand, Indonesia,
Mongolia, and Taiwan. Intelsat has gone from 300 Mbps inbound satellite-Internet traffic to Asia at the end of 1998 to 600
Mbps through the first quarter of 1999. "We've seen a tremendous increase in a span of five months," says Larry
Valenciano, Intelsat's Regional Director for the Asia Pacific region.
Loral Orion provides Internet access for an estimated 3 million subscribers worldwide (primarily in Europe via Orion 1) via
satellite connections. The company entered the Asian market in 1998, offering Internet connections via Agila I (Loral is a
part owner of Mabuhay, the Agila 1 operator). It expects Internet traffic to be a rapidly increasing segment of its new
business , utilizing the Orion 3 satellite (to be launched in April, 1999).
The majority of the satellite-Internet demand in Asia originates with Internet service providers (ISPs) that are accessing
Internet content from sites and servers located in the U.S. These ISPs range from giant telcos to small startups. Many start
with relatively small inbound pipes of 64 Kbps to 2 Mbps, but expand their demand for satellite capacity rapidly. As
transmission of Internet traffic via satellite has become more commonplace, single ISP users are contracting for capacity up
to 45 Mbps; 155 Mbps circuits are now available.
Over time, the Internet via satellite market is expected to shift away from smaller ISPs towards large network connections
and toward more direct connections with end users in both the corporate and residential markets.
Figure 1 shows the forecast for service and equipment revenues associated with the Internet via satellite market in the Asia
Pacific region.
Figure 1
Asia Pacific Internet Via Satellite Service and Terminal Markets:
Forecast Revenues, 1998-2004
Year
Services (US$, Millions)
Terminals (US$, Millions)
1998
21.3
1.9
2001
133.8
100.3
2004
1070.0
487.2
Source: Frost & Sullivan
Why Satellite? Bypass Terrestrial Networks and Routers
The chief reason for relaying Internet traffic via satellite is to bypass the bottlenecks of landline networks. The first and largest
segment of this bypass market is backbone services - relaying trunked Internet traffic across large distances via satellite. The
largest customer class in this segment is populated by domestic carriers seeking high bandwidth connections for aggregated
Internet traffic being trunked between the U.S. and Asia. A second important customer class is made up of ISPs seeking
improved access to content in the United States through their own direct connections, bypassing the limitations of existing
telecom service providers.
Regional connectivity is another burgeoning market for backbone services via satellite, due to the need for short-haul Internet
connections. The current undersea fiber network is structured so that the largest backbones link the United States to other
countries. Consequently, an e-mail message from Malaysia to Taiwan might travel to the United States first, since capacity
through that route is greater. However, the speed of the Internet around the world slows down markedly during U.S.
business hours, because of the massive number of users there. Relaying regional Internet traffic through local satellites is an
easy way to avoid this dynamic without the expense of laying additional fiber.
Another emerging category in the Internet via satellite market is local loop bypass to provide Internet content directly to the
end user. In this market, consumer or corporate users download large files via satellite instead of through the crowded public
phone network. NTT's MegaWave service and Hughes' DirecPC are the most prominent satellite-based, local-loop bypass
services in Asia. These services use standard dial-up modems for the access path from the user to the Internet, but utilize a
one-way satellite downlink to provide high-speed downloading of large data files and graphic-intensive Web content directly
to the end user.
The Instant Infrastructure Effect: Rapid Deployment
Satellite set-up times are highly attractive when compared with terrestrial alternatives. While terrestrial fiber buildout can be a
multi-year, multi-billion-dollar process, a satellite can cover as much as one-third of the globe as soon as it is launched and
positioned in orbit.
This "instant infrastructure" effect makes satellites particularly appealing to the end user. For example, it took Loral Orion 22
days, from contract signing to operation, to set up an 8 Mbps satellite link between the central European ISP operations of
Ebone and the U.S. Internet backbone. While the actual installation and set up of equipment take only a couple of days, it
can take up to 90 days to clear regulatory hurdles and get equipment through customs.
Satellites Allow for Asymmetric Internet Demand
The flow of international Internet traffic reflects the fact that most Web content is in the United States, while an increasing
number of users are located in Asia. With the majority of Web content is in the United States, four to eight times more
packet data traffic flows out of the United States than into it. Therefore, Asian ISPs need more bandwidth coming from the
U.S. and only a relatively thin route line going to the U.S. Simon Cathcart, Regional Manager, Technical Sales, Asia for
PanAmSat, estimates that inbound traffic to Asian nations outweighs outbound traffic "by a ratio ranging from 4:1 to 10:1,
though this ratio drops as low as 2:1 in developed markets such as Australia. What determines the ratio is the amount of
content available in each country."
Despite the imbalance in Internet traffic patterns, Asian ISPs that lease fiber optic lines are normally required to purchase a
duplex (two-way) connection. Consequently, facilities-based ISPs using fiber networks will have under-utilized capacity in
one direction. This inefficiency forces Asian ISPs to either buy less capacity than they need--creating congestion--or lease a
larger duplex link and utilize it fully only in one direction--leaving a substantial amount of expensive capacity unused.
In contrast, satellite companies sell asymmetric circuits, allowing ISPs to lease only as much transponder capacity as they
need to match their traffic patterns. This dynamic has become a key selling point as satellite operators seek to gain more ISP
customers. Asymmetric satellite connections are common in the Internet via satellite market, reflecting the 8:1 ratio of traffic
patterns.
Satellite Reliability
By bypassing most of the clogged terrestrial network, satellites offer greater reliability for international Internet traffic than
conventional Internet access techniques. This includes speed of delivery for users in areas with limited phone infrastructure,
as well as the ability to receive consistently error-free data.
Reliability is particularly important for Asian ISPs who may lose customers if their ISP-to-backbone connection is subpar, as
well as for multinational corporations. ISPs with satellite connections have found that they can charge a premium for their
service, customers are willing to pay more for the guarantee of an uncongested pipe.
Bypassing landline congestion is a significant advantage of satellite-Internet access, even where fiber access exists. For
instance, by conventional means a U.S. web page requested by an Asian user might pass through MAE West, a major U.S.
network nodes, then hop across nine or more routers before reaching its destination. The same data sent via satellite would
go from MAE West to a satellite uplink for transmission directly to an Asian ISP with a rooftop VSAT dish. The ISP would
then route the data directly to the user.
Each satellite operator offers connections to the U.S. backbone through a variety of major U.S. ISPs and peering points,
creating flexibility for Asian ISPs (depending on their peering agreements) and providing redundancy if the network of one
U.S. backbone provider goes down.
Multicasting Capabilities
Finally, satellites are a natural platform for the delivery of multicasting services. The Internet has been gradually evolving into
a broadcast medium; content providers send anything from e-mail updates to audio and video programming to subscribers.
While the current terrestrial Internet is not optimized for multicasting, satellites are an efficient broadcast medium, with the
ability to "see" as much as a third of the globe from a single orbital position. Multicasting has not proliferated widely, but is
expected to make up an increasing portion of Internet traffic. Satellites are well-positioned to take advantage of this
broadband multimedia market as multicast services begin to proliferate.
Market Evolution
As indicated above, the Internet via satellite market has been built on ISP demand for connections to the U.S. backbone.
While international ISPs may start out with small connections of only 64 or 128 kilobits per second, Asia Pacific ISPs are
different, according to Carl Wu, Loral Orion's Executive Director for Internet Products. "They typically start out very high.
We're seeing circuits coming in at 2 megabits, 4 megabits, or 8 megabits." Still, as satellites go, this is a small contract, since
a typical 54 MHz Ku-band satellite transponder can handle data throughputs of up to 58 Mbps, and current satellites often
support 24 Ku-band transponders or more.
ISPs generally are fast-growing companies however, which translates into rapid increases in satellite capacity needs. After
they have established a positive experience with satellite Internet connections, these ISPs often upgrade their demand for
satellite capacity regularly, taking advantage of the ability to quickly supplement capacity to match their growing network
needs. PanAmSat's Andrew Jordan, Senior Vice President, Asia, reports that "ISPs generally upgrade capacity within the
first thirty days, and about every four months after that."
Many Asian ISPs start out using satellite for only some of their bandwidth capacity, maintaining their existing fiber links, says
Loral Orion's Wu. "Eighty to ninety percent of our customers in the Asia Pacific region use hybrid configurations, with
satellite often used as a receive-only, simplex circuit. Most customers who come to us have a small fiber link. Then the
business grows at a rapid rate and now they are being forced to expand capacity in a cost-effective fashion. Satellite is the
best alternative, so they get a 4 megabit or 8 megabit link" to the U.S. backbone. Regulatory restraints in Asia are another
factor causing demand for receive-only connections, according to Wu. "Some countries do not allow ISPs to transmit
Internet requests via satellite, but they can downlink."
PanAmSat has found that the belt tightening forced by the Asian economic crisis has increased the demand for
satellite-Internet capacity by ISPs seeking to streamline costs. For ISPs with multiple sites (needing point-to-multipoint links)
and highly asymmetric traffic, "satellite is the most cost-effective solution and allows for quick build up of the network and
rapid expansion of services," according to PanAmSat's Jordan. "Even for point-to-point connections, satellite is cost
effective as compared with fiber because of the asymmetric links."
In addition to using satellite-Internet connections to provide service to their own customers, larger ISPs commonly sell
access to smaller ISPs. This is especially true of the large telcos, like Dacom (through PanAmSat) or Hong Kong Telecom
(through Intelsat). Intelsat, with its connections to large PTTs in signatory nations, has staked out a presence in the large telco
market, according to Valenciano. Intelsat "has 45 Mbps Internet connections from the U.S. to Australia, New Zealand,
China, Hong Kong, Malaysia, and Singapore." Exemplifying the use of satellite in hybrid networks, Australia, Hong Kong
and Singapore use cable for the return path. Telcos in China and New Zealand have purchased asymmetric outbound
satellite connections, of 8 Mbps and 6 Mbps respectively.
Corporate Services
Providing Internet and data services to corporations via satellite is an emerging market in Asia, since companies have both
high bandwidth needs and the ability to pay for access. The largest demand in this sector is from multinational corporations,
particularly those whose operations span both developed and developing countries. Corporations use satellite-Internet
services mainly to connect several offices for intranet or extranet applications, database/file transfer applications, distance
learning/training and connecting remote offices to an ISP.
Slower Growth
To date, the corporate network market has not grown as quickly as the market for linking ISPs to the Internet via satellite. In
part, this is because many multinational corporations that need an international private network have already implemented
one using standard VSAT technology or leased lines. Additionally, growth in corporate use of intranets has been slower than
expected in Asia. Often, the advantages of moving mission-critical applications to a TCP/IP backbone have been
outweighed by the cost of doing so.
However, the corporate market for satellite-Internet services will actually be boosted, rather than eroded, by the expansion
of landline bandwidth. One of the principal reasons corporate demand for intranets has not met early expectations is that the
current Internet is not able to handle many of the high-bandwidth internal applications that companies might want to send via
an intranet. As landline capacity grows, intranet technology will become a more accepted corporate networking alternative.
Consequently, those corporations with offices in areas outside of metropolitan areas are likely to use satellites to connect
those offices with their central, landline-based intranet.
This market is more complex than simply connecting an ISP to an Internet backbone; it also encompasses corporate
interconnections of as many as hundreds of small offices. Corporate services can generally be categorized by the state of the
local telecom infrastructure. In more industrialized countries, with good telecom infrastructure, networks typically would be
one way, receive-only, with an outbound path via local phone lines. In less-developed countries with less dependable
infrastructure, two-way satellite terminals would be used, bypassing the local phone network entirely.
Direct Individual Access
In Japan, two competitors are already targeting the market for direct Internet acess via satellite for individual residential and
small business users. Both DirecPC and NTT's MegaWave service provide one-way satellite connections that allow
individual users to download large streams of Internet data and graphics. The standard dial-up modem or dedicated landline
connection is used for upstream access and requests. In addition to Internet access, either system can be used for corporate
training and distance learning applications. Executive Vice President Y. Nagai of NTT Satellite Communications estimates
the potential market for this type of service in Japan at over 1 million users, with expected penetration of over half a million
users by 2001.
NTT's MegaWave Pro combines Internet access with intranet connectivity, allowing for multimedia service that integrates
video (MPEG 1 or 2), audio, and data. Using a 45 cm antenna, the receiver can be tied into a router for a corporate LAN
or connected through a PC board, directly to a computer. (Residential users are targeted through a tie-up with
SkyPerfecTV, connecting to the user's computer through the set-top box.)
Megawave will mirror popular content at their Network Operations Center to improve delivery speed, and is setting up a
portal site as well. The service is being marketed through ISPs in Japan at a starting price of 4,000 Yen per month. DirecPC
offers a similar service in Taiwan and Japan (5,500 Yen for 5,000 Mb), and is expected to target Australia next.
Figure 2 indicates the percentage of broadband satellite traffic by type of service. As can be seen from the figure, the market
is expected to shift from the current domination by ISP services to networks and corporate users. By 2004, the ISP market
will not disappear, but is expected to become a subset of network services, as domestic landline connections improve, and
ISPs contract bandwidth directly from network providers (large telcos).
ISP Services include all Internet service providers.
Network Services include all public network operators (phone companies such as Hong Kong Telecom, China
Telecom, or Telstra) sending Internet traffic via satellite. During 1997 this was a small portion of the market, but
growth was strong in 1998.
Corporate services include all multinational corporations and other commercial entities sending internal IP traffic via
satellite.
Consumer services include satellite-Internet systems such as DirecPC. This segment is just emerging in Asia but is
expected to expand through existing competitors and through service offerings from direct-to-home satellite TV
service providers in the region.
Figure 2
Total Broadband Satellite Services Market:
Percent of Traffic by End User Type (Asia)
Year
ISPs
Network
Corp.
Consumer
1998
64%
25%
8%
3%
2001
30%
38%
25%
7%
2004
4%
44%
39%
13%
Source: Frost & Sullivan
Each of the major competitors in the Asian satellite market is hoping to position itself for growth in the market for corporate
services, multimedia, and multicast services. This means investing in network improvements, developing new software
initiatives and partnering with content providers. With Asia's need to bypass both backbone congestion and local loop
deficiencies to bring future Internet and IP multimedia applications to a growing pool of end users, it will remain a fertile
market for broadband satellite services. The recent past has shown that the market will expand in both good times and bad,
and that investments in satellite-Internet network capacity will pay off. Ask your local ISP; chances are your latest download
came via satellite!
July 1999
IRG #66
¸ 1999 Frost & Sullivan. All Rights Reserved.
E-mail newsletters@frost.com to discuss this article or other research issues.
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