The satellite world is buzzing as a string of announcements suggested that later this year, U.S. consumers will be able to access the Internet directly from their rooftops without any need whatsoever for terrestrial connections.
Two-way very-small-aperture-terminal (VSAT) systems have been around in the corporate telecommunications arena for years. But they are sophisticated interactive satellite systems that carry price tags well beyond the reach of the average consumer.
Will this introduction of affordable high-speed Internet services from the sky transform the existing digital-subscriber-line vs. cable-modem duel into a three-way shootout? Will these new satellite systems be affordable? Does it represent either a slam dunk or the Holy Grail for the direct-broadcast satellite sector in North America?
The answer to those questions is yes, sort of. But executing this satellite-based strategy will not be easy. (See related story for a sample of industrywide opinions.)
Nobody is divulging their prices, which makes meaningful analysis difficult, at best. But the blending of two-way satellite Internet-access capability together with the new local-into-local TV content propels the satellite-TV industry into uncharted territory.
The net result is a very different DBS service, and one that is far more complex and formidable in terms of competitive strength. Keep in mind that laced into every DBS subscriber contract in the United States is a firm stipulation requiring a dedicated phone link whenever two or more DBS receivers are present in the same household.
AIMING AT PC -NOW
The focus here is on two companies-the top two contenders in the global VSAT market-which have announced plans to launch two-way consumer satellite Internet services later this year.
Germantown, Md.-based Hughes Network Systems, with its "DirecPC" service, is the VSAT industry leader. McLean, Va.-based Gilat-To-Home is a joint venture between Tel Aviv, Israel-based Gilat Satellite Networks Ltd., which is aggressively chasing HNS for the top VSAT slot, and Microsoft Corp.
DirecPC can burst up to 400 kilobits per second. HNS has yet to finalize the return-path data rate for the two-way system, although it will match the terrestrial-return-path range, according to HNS marketing director Sam Baumel. GTH intends to match and surpass the 400-kbps performance level, while offering a return channel speed of 150 kbps, according to chief technology officer Yossie Gal.
Both DirecPC and Gilat now have VSATs on the market that operate at downlink speeds well above 1 megabit per second, but those are totally different models. Each is aiming at the PC, and not the TV, at least for now.
The HNS "DirecDuo" system-a variation of DirecPC that unites DirecPC Internet access and the DirecTV DBS service on a single dish-already positions DirecPC directly astride the PC-and-TV convergence curve.
HNS is the second-largest seller of DirecTV receivers, outpaced only by Indianapolis-based Thomson Consumer Electronics. HNS also has ties to America Online Inc. thanks to the soon-to-be-launched "AOL Plus via DirecPC" service. Finally, HNS has a set-top box under development for AOL and DirecTV, as well, under the "AOL TV" banner.
This all stems from the $1.5 billion investment AOL made in DirecTV parent Hughes Electronics Corp. last year.
AOL Plus via DirecPC will be a satellite-based broadband service-not two-way initially-according to Baumel, who contrasted AOL Plus with AOL TV, the video-centric, entertainment-oriented data experience that will use a dial-up modem.
In a nutshell, AOL Plus via DirecPC represents a first step in the ultimate migration to the Hughes "Spaceway" broadband satellite platform, scheduled for launch in 2003.
For its extensive trial run extending through the summer, Gal said, GTH will roll out a dish equipped with three low-noise-block converters (LNBs), and GTH and partner Microsoft will jointly determine both the retail price and branding of this dish.
EchoStar Communications Corp.'s Dish Network DBS programming will also beam down into the GTH dish-hence the three LNBs. Echo-Star recently announced another satellite Internet-access alliance with iSKY Inc., a Ka-band service also based in Colorado, which intends to launch its two-way broadband satellite service in late 2001.
"We are keeping all of our options open and are willing to talk with any Internet provider. We want to offer our Dish Network services on as many platforms as possible and appropriate," EchoStar spokesman Marc Lumpkin said.
"We view our relationships with Gilat and iSKY as the same," he added. "They both offer EchoStar an opportunity to bundle our Dish Network television programming onto a single dish that can also offer high-speed Internet service."
400 KBPS IS BROADBAND
Do HNS and GTH really want to attract lots of new customers?
According to Stephen A. Blum, president of Tellus Venture Associates in Marina, Calif., this is the big question. Blum believes these services are going to be expensive. Why? It costs a lot to provide the service and, in order to make them work, they need
to keep subscriber numbers down. He added that the new two-way services will consume a lot more bandwidth than one-way or hybrid satellite/ terrestrial services.
"If they want to compete head-on with, say, DSL, then they have to offer some advantage over DSL, and that is likely to only be price. There is nothing I know of that Gilat and DirecPC can do that DSL cannot," Blum said. "If they price competitively with DSL, they will attract a lot of customers, but the revenue received from those customers is not likely to be able to pay the cost of the service."
Niall Rudd is a broadband consultant and principal author of a new study by St. Albans, U.K.-based Communications Systems Ltd., which predicts 600 million broadband-enabled households worldwide by 2010. He said a hardware giveaway is in order, and the systems will benefit from the network effect, now seen in the United Kingdom with the ONdigital and Sky digital services.
"Ideally, the hardware needs to be free, with revenue based on monthly subscriptions for both standard and premium services," Rudd said.
DirecPC is already a remarkably inexpensive piece of satellite hardware at $149 plus a monthly service fee-slightly more than a cable modem. DirecDuo is available for $199. DirecPC's customer-premises equipment involves a relatively user-friendly, universal-serial-bus interface with a terrestrial-return path via a phone link.
"We have achieved a very appealing consumer offering. And this will become even more appealing with the two-way service," Baumel said. "After all, DSL and cable modems have not achieved true broadband status in their current consumer iterations. [A speed of] 400 kbps is definitely a broadband service in our opinion."
"The changes are now coming by the hour in the satellite Internet market," said Bucky Maddocks, president of Satellite Component Engineering, a satellite-TV dealer in Ellsworth, Maine. He has been struggling to keep abreast of the fast-paced evolution of products and the steady stream of announcements by future service providers concerning new satellite-based Internet-access offerings.
The fast-paced changes are being given further impetus based on some very bullish numbers coming from Wall Street. Tom Watts and the corporate-strategy and research team at Merrill Lynch & Co., for example, recently released a forecast of more than 10 million broadband-satellite subscribers by 2009.
DIRECPC LEARNED A LOT
With a total subscriber base of roughly 100,000-plus, DirecPC has no real rivals in the consumer satellite-Internet-
access market, . In Europe, services such as Europe Online Networks S.A. and CBL Starspeeder-both based in Luxembourg-are growing, but neither is in the same league as DirecPC yet.
How many DirecPC and DirecDuo systems are installed? How many Ku-band transponders are now used by DirecPC? How many DirecPC subscribers can you squeeze onto one Ku-band transponder?
HNS would not divulge these numbers. In an August 1997 published report, PanAmSat Corp. CEO Fred Landman said, "Depending upon the setup," approximately 30,000 DirecPC users could be accommodated on a single Ku-band transponder.
Of course, this candid admission was made three years ago, and much has changed in terms of the efficiency and performance of satellite transmissions. PanAmSat announced in late March that it is planning to add 10 more Ku-band transponders to accommodate the AOL Plus via DirecPC service.
Besides PanAmSat, DirecPC taps satellite capacity from GE American Communications Inc. (GE Americom). GE Americom's parent company has a 25 percent stake in the parent company of GTH, and GE-4 is the satellite on which GTH intends to launch its service.
DirecPC customers are generally split into distinct camps. One is wildly enthusiastic about the performance of DirecPC, well in advance of any DSL or cable-modem availability. In fact, with the existing requirements for either three-mile proximity via DSL to a switching-site location or direct proximity to an upgraded cable-TV plant, DirecPC is an attractive alternative.
There are other DirecPC customers who appear a bit disappointed, however. They are apparently not pleased with the way HNS engages in imposing limitations and constraints on Web surfing. This issue of network performance is a delicate one, indeed, and perhaps second only to the actual price of the hardware-combined with any monthly service fees-in terms of establishing how viable the two-way market will become in the future.
HNS openly acknowledges that it now operates under the rules of a so-calledfair-access policy. At www.-direcpc.com/consumer/cost/-describe_fap.html, a description of that policy begins as follows: "Analysis of DirecPC system-usage patterns indicate that the top 5 percent of the DirecPC subscriber base are often responsible for as much as one-half of the total DirecPC service traffic. Further, it is clear through communication with these subscribers that some of them were reselling the DirecPC service, or using DirecPC's single-user service plans to provide Internet access to an entire network. In short, these subscribers were doing much more than surfing the Web at high speed-the purpose for which the DirecPC Surfer'service plans are designed."
"This is all about a certain small subset of customers who are consuming an inordinate share of system resources. This is not a contention issue-this is a usage issue that involves how the service is offered," Baumel said. "We are very sensitive when it comes to expectations and making sure that the user understands the various levels of performance this service offers."
One DirecPC customer interviewed said HNS did not do a very good job of informing him about "all of the caps on this service." This particular user said the FAP was a complete mystery to him, and DirecPC failed to mention limits on the service. He added that these came to his attention only after he had installed the DirecPC system. He described his annoyance with a predictable reduction in his throughput after approximately 45 minutes.
Nevertheless, by his own account, this individual's track record with DirecPC is somewhat remarkable. After doing all of the necessary installation work by himself, including a WinGate connection-DirecPC supports Microsoft's Internet Connection Sharing, which allows users to run their in-home PC networks on a single Internet link-and an Ethernet hub, he could crank up two PCs simultaneously for well over three hours per night.
MP3 files were downloaded off six pop-ups on each of the two PC screens. By this DirecPC user's calculations, this could only be achieved with a throughput well in excess of 300 kbps.
GTH FOCUSES ON USER
GTH also aims to achieve and exceed the 400 kbps speed range in the process of deploying a trial two-way satellite network involving between 10,000 and 20,000 users, Gal said. Each participant in the trial will be provided with a GTH receive-and-transmit unit based on Gilat's two-way "SkyBlaster" system, along with a preconfigured PC including two PCI (peripheral component interconnect) boards supplied by GTH.
The ultimate goal is to provide customers with CPE that consists of a set-top-box-like desktop appliance with a USB port.
When Microsoft announced in February that it was taking a substantial equity stake in GTH-Gilat will ultimately retain 35 percent-there was a specific clause in the press release that is worth a second look.
"After receiving all necessary approvals, Microsoft expects to invest $50 million, and it will initially hold a 26 percent stake in the new company. In addition to its cash investment, Microsoft has plans to purchase a significant number of VSAT units over the initial four-year period, subject to completion of technological milestones."
Gat was not prepared to comment on the business arrangement between Microsoft and Gilat in this venture, which has a total initial capitalization requirement of $300 million. But he made it clear that any technological milestones will be addressed accordingly with the desired outcome.
"We are assessing our progress on a daily basis. We are focused on the user experience. When it comes to sizing our network, for example, we will make sure that the experiences of some subscribers on other services will not be repeated on GTH. I am referring to the fact that in certain instances, the demands of a large population of users during certain times of the day can trigger a degradation of the performance level of a service. I can assure you that this will not happen to GTH users," Gat said.
"Users will be well informed when it comes to the operational parameters of the GTH network. We will educate our customers so that they have realistic expectations in terms of the performance of GTH," he added.
He said GTH is identifying and creating an installation network using companies nationwide that have achieved high standards when it comes to this type of activity.
Crossing into more of a consumer-oriented satellite-TV-type installation world is big step for Gilat, which has been the chief competitor for HNS in the commercial VSAT market worldwide for the past two or three years.
But Gilat has no prior consumer-electronics experience. The presence of a support team in the form of consumer-electronics retail giant RadioShack, as well as Microsoft, greatly strengthens the ability of GTH to cope with its first plunge into the U.S. consumer market.
GTH offers the only DVB-compliant (Digital Video Broadcast) box, yet neither HNS nor GTH is pursuing patented, proprietary two-way systems. Although this is not unusual or unexpected, the European-based DVB consortium approved the so-called Return Channel System specifications known as "DVB-RCS" in late February, according to a DVB spokes-person.
Is the Internet really heading skyward this year as far as U.S. consumers are concerned? Or are more work and a few more months needed before this concept flies? Either way, imaginations are soaring.