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February 21, 2000

Satellite Services Still Waiting For Liftoff
Growing industry has yet to capture sizable portion of the digital transmission market

By Alan S. Kay

Illustration by Brian Raszka

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on England aspires to deliver commercials--not on the air, but through the air. England's company, Media DVX LLC, plans to make its mark by digitally delivering commercials to broadcast and cable-TV stations.

Traditionally, that's done by dubbing copies of a master videotape prepared by an advertiser or agency and shipping the copies to each outlet via courier services. Media DVX, with headquarters in New York and Minneapolis, does it differently: It provides all the necessary hardware and then ships each commercial, in digital form, from the studio to each recipient station by satellite.

It's not news that digital delivery of business data and content is increasingly popular. When it comes to commercials, delivering digital files is faster and more reliable than delivering copied and hand-carried videotapes, says England, the company's president. And depending on market conditions, it may be less expensive as well. But why use satellites in this age of redundant terrestrial broadband capacity and near-commodity pricing? "We looked at the cost and efficiency of delivering terrestrially vs. satellites and quickly realized that in going point-to-multipoint, satellite is more efficient and cost-effective," he says.

That realization is music to satellite vendors' ears, but it has been slow in coming. First envisioned as a way to bring data and voice telephony services to parts of the world difficult to wire terrestrially, geostationary satellites--those in orbits that keep them stationary relative to the Earth's surface--have become a component of many enterprise WANs and distribution networks during the last few years.

A recent edition of The Satellite Book, a quarterly put out by investment banking firm C.E. Unterberg, Towbin, describes the "relative immaturity" of the satellite industry. Satellites overall are a growing business, but they're starting from an "insignificant" share of the networking and communications market, says William Kidd, a VP and satellite analyst at Unterberg, Towbin. He says typical estimates put satellite traffic at 3% of the global communications market, and forecasts a 14% annual growth rate between 1999 and 2004, followed by a 10.8% rate for the next five years.

Those numbers pale compared with the amount of still-dark optical fiber already laid in conduits, the new fiber backbones scheduled to be laid between now and 2005, and the increase in carrying capacity expected as dense wave division multiplexing is deployed. Analysts' projections of the annual growth in demand for data transport over the next decade range from 30% to 80%, but supply is likely to outrun that by a substantial margin.

For example, Ford Cavallari of Renaissance Worldwide predicts that in 2001, bandwidth capacity will have grown to 400 times 1998 levels but demand will have increased only 18-fold. As merely one example of the terrestrial infrastructure buildout, the Williams Co., one of a half-dozen new U.S. fiber carriers, is adding 22,000 miles of fiber to the 10,000 it already owns.

Satellite services have yet to capture a substantial portion of the otherwise skyrocketing digital transmission market. Comsat Corp., a veteran satellite services provider, reports that satellite communications represents 10% of the combined voice and data communications market. And Simon Bull, a senior consultant at satellite consulting firm Comsys, says vendors sold a total of only 85,000 satellite dish units worldwide in 1998.

But satellite technology has a loyal customer base when it comes to point-to-multipoint applications. Satellite data transmission can't compete on price with terrestrial systems for individual point-to-point connections, and few say that will change in the foreseeable future. In the developed world, satellite's strength is in delivering digital content to large numbers of geographically dispersed recipients, commonly called multicasting, or in collecting inventory, point-of-sale, or credit-card validation data from multiple locations.

Rite Aid Corp., a Camp Hill, Pa., pharmacy retailer, has been a heavy user of satellite technology for about seven years. The company has VSAT ground stations deployed in 3,600 locations. In fact, the only time satellite transmission isn't used is when the store can't make a direct line-of-sight connection with a satellite because of a natural or man-made obstruction.

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