Fixed Wireless Business

Satellite Service:
The Other Wireless Broadband

Not so long ago, the idea of using satellites to deliver high-speed Internet service was almost laughable—unless your customers were in the Arctic Circle or in the middle of the Mojave Desert.

by Gerry Blackwell [May 7, 2002]

Originally, satellite Internet access was only a one-way system so you still needed a dial-up connection for the uplink to go with the downlink. It was slow and it was way too expensive.

Well, things have changed. And if you're a dialup ISP operator looking for a way to offer subscribers broadband access, satellite services may be a viable option now.

When StarBand Communications Inc. of McLean, Va., launched its new small business, two-way high-speed Internet service recently, it made the announcement from a flower shop in downtown Washington, D.C. The proprietor was a beta StarBand customer.

Real nowhere band is everywhere
The message was clear: satellite Internet service now makes sense almost anywhere—even right in the middle of the nation's capital.

StarBand's record to date proves it. The company launched residential services a year ago, and already has a surprising 40,000 subscribers, including some in every one of the 50 United States.

"We are the only truly national high-speed Internet network," boasts StarBand president and chief marketing officer David Trachtenberg.

"We have subscribers virtually everywhere. We've got people surfing with StarBand at the bottom of the Grand Canyon, in the Arctic Circle in Alaska, on Park Avenue in New York and in downtown Washington, D.C."

"The huge advantage of satellite Internet," Trachtenberg says, "is its ubiquity."

The company leases Ku-band transponders on two satellites from Gilat Satellite Networks of Petach Tikva, Israel. Over 90 percent of the U.S. population can see the StarBand birds using 24 x 36-inch dishes (1.2 meters in Alaska and Hawaii) pointed at the southern sky.

Subscribers can also get the StarBand service bundled with satellite television packages from partner and investor EchoStar Communications Corp. of Littleton, Clo. EchoStar uses the same satellites and dishes.

Bandying about broadband rivals
StarBand still can't compete head-to-head with cable, digital subscriber line (DSL), and fixed wireless broadband access, Trachtenberg admits, but he believes it eventually will be able to.

In the meantime, according to StarBand research, there are 30 to 40 million American homes that do not have access to cable or DSL, plus about 7 million small businesses with between 1 and 10 employees.

And the beauty is, they typically don't need educating about the benefits of high-speed, always-on Internet. The cable and DSL providers have already done that.

"All we have to do is tell people it's available," Trachtenberg says. "There are a lot of frustrated seekers out there that can't get high-speed service—including in some very surprising areas."

The company's most successful markets are in Texas and California in "circles of affluence" around major centers such as Los Angeles and San Francisco. "Their investment has already been made [in computer equipment] ," Trachtenberg says of StarBand's suburban subscribers, "they want the product and they have the disposable income."

What StarBand offers consumers is a package that guarantees 500 Kbps of bandwidth in off-peak hours (9 a.m. to 8 p.m.) and no less than 150 Kbps in consumer peak hours in the evening. The price: $69.95 per month.

Small business customers can purchase a three- or five-seat service ($129.95 or $169.95) that guarantees 1 Mbps during office hours and no less than 150 Kbps in consumer prime time.

Subscribers are currently experiencing about 400 Kbps in the evening, Trachtenberg says.

Satellite is not for everyone, he readily agrees. "It's important to set expectations properly," Trachtenberg says. Because of the latency introduced by having to send signals 22,000 miles round-trip to and from the satellites, voice over Internet and real-time online gaming do not work well.

But thanks to some technical innovations by the company's engineers, for most applications—including streaming media—the StarBand service looks like any terrestrial service in side-by-side testing, Trachtenberg claims.

The consumer service is still about $20 a month more than cable or DSL, though. And the market universe of prospects unserved by cable or DSL is clearly shrinking all the time.

But the price gap is closing, Trachtenberg notes, as cable and DSL providers hike their rates. And the market universe is not shrinking as fast as StarBand originally expected because DSL and cable providers have slowed their build-outs.

Furthermore, satellite can get even cheaper given a high enough volume of customers.

"It will take some time to build the business," Trachtenberg concedes. "But we have plenty of time [before under-served markets disappear] to get up to the volume we need to compete head-to-head with cable and DSL."

One of the beauties of StarBand's economics, he points out, is that it only pays for the satellite capacity it uses and can scale up as it grows its customer base. There is plenty of capacity on the Gilat Ku-band satellites to grow the business, Trachtenberg adds.

This also gives StarBand an advantage over fixed wireless service providers who have to worry about significant capital costs, tower and roof rights hassles, line of sight problems and other potentially profit-killing complications.

Joining the band
Can StarBand outlast fixed wireless and cable-DSL competitors? Can it build a viable business with customers in under-served areas and then use a national presence and brand to outmuscle other players?

It will be an interesting race at the very least. If you think satellite has a chance of winning, you can get on board now.

StarBand has adopted a multi-tiered distribution strategy, with retail agents and wholesale distributors. ISPs, says Trachtenberg, are ideal candidates to become StarBand partners.

"They don't want to lose their customers to cable or DSL providers. They're looking to sign customers to some kind of broadband service. Their customers want to stay with them—if they're able to offer a suite of services. They already have a relationship with the end users, and they have the technical expertise to manage them."

There are two ways ISPs can participate.

One of StarBand's wholesale distributors is US Online Inc. , the Wenatchee, Washington-based meta-ISP. US Online has over 100 ISP affiliates, serving 400,000-plus subscribers. Affiliates can market the StarBand service, do the installs and continue to manage the accounts through US Online. So the first option involves joining US Online.

The second option is much less attractive. Independent ISPs can become retail agents, selling to customers and doing installs, but relinquishing control of accounts to StarBand.

Becoming a wholesale distributor—which requires significant volume guarantees—is out of the reach of Tier-2 and -3 ISPs, Trachtenberg adds.

We're not sure how good an opportunity this is, but it's clear StarBand is at least interested in talking to ISPs. It couldn't hurt to talk could it?

—End

Online resources:
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