Northern Sky Research

Innovate or Die for Satellite Backhaul

May 8th, 2016 by Lluc Palerm-Serra   More from this Analyst | Profile

No one doubts the mobile ecosystem is one of the most prolific environments for innovation. From the hottest applications in Silicon Valley like Virtual Reality or Artificial Intelligence to empowering development in rural communities through digital tools, the world is only increasing the amount of data consumed. These innovations are transpiring across the entire value chain, and backbone infrastructure as well as access networks need to rapidly adapt to absorb the massive demand in data traffic. But what’s the impact for the satellite industry?

HTS is undoubtedly opening new opportunities for satellite companies, and new high-value 3G and 4G sites are being served. The explosion in data traffic is also creating attractive opportunities for revenue growth. In the Wireless Backhaul via Satellite, 10th Edition NSR forecasts capacity revenues for mobile backhaul to grow at double-digit rates over the next 10 years. But value capture in this vertical goes well beyond the traditional CPE shipments and capacity provisioning offerings as the evolution of the ecosystem brings new business opportunities.

Business Model Innovation

There is an emerging trend among mobile operators to outsource the management of the network. The focus is shifting from owning and competing simply by providing the infrastructure towards differentiating through offering higher-value services. This trend is especially remarkable in emerging economies where, as an example, Towercos (operators owning infrastructure and leasing back to mobile operators) own 42% of towers in Latin America.

This creates opportunities to offer end-to-end solutions to mobile operators. Satellite operators, equipment manufacturers and service providers need to work closely to offer the most appropriate solution in this new market environment. The focus in reducing risk for mobile operators is such that in many instances, they are willing to adopt pay-as-you-go models for capacity usage. The risk for the infrastructure providers is higher, but the potential for capturing revenue growth is much bigger.

Rapid Technology Shift

Despite being a bit late to the game, the satellite industry is finally entering the 3G and 4G backhaul markets particularly due to the lower cost of capacity provided by HTS. In many cases, the higher data requirements per site are changing the economics for backhauling. OPEX is increasingly a larger factor in Total Cost of Ownership (TCO), and better utilization of bandwidth is preferred even at a higher CAPEX, O3b being a case in point.

Simply providing bandwidth and connectivity is no longer enough. One of the key value propositions for satellites is the ability to share capacity among multiple sites, which perfectly matches with the bursty traffic patterns of 3G and 4G. Ground equipment providers propose different solutions for traffic acceleration, compression and prioritization, which is increasing the computing requirement at the edge of the networks. With most of the traffic being media, this pattern will only accelerate, and some equipment manufacturers are even starting to add cache capacity in the terminals to store popular content, which is leading to the next big driver for innovation in the mobile ecosystem.

Content-Centric Platforms

Mobile operators are transforming their business models. The greatest opportunities in the mobile ecosystem lies in the provision of content. Mobile operators are moving towards content platforms to capture some of the value leaked to OTT applications. Some recent moves like the acquisition of DirecTV by AT&T or the latest partnerships between Vodafone and Netflix point to that direction.

Technology is also adapting to these new trends with the definition of broadcast protocols in 4G. Given the network requirements set for 5G, a lot of the content will need to be moved to the edge of the network. In the convergence of these technological and market trends, NSR forecasts the emergence of the opportunity for IP Content Distribution.

Deep Dive in the Mobile Cost Curve

Capacity pricing is one of the hot topics in the satellite industry. Broadband markets have proved to be very elastic, and HTS has unleashed markets like consumer broadband or 4G backhaul. Current HTS satellite capacity pricing is in the range of $1.5-3 per GB (assuming a cost of 500-1000 $/Mbps/Month), which is still very competitive when directly compared with LTE services. However, the technologies in the mobile industry are evolving very fast, and the cost per GB will decline very rapidly in the coming years.

This pressure from ground networks have major implications in all broadband markets for the satellite industry. From consumer broadband, to the potential connected car market and of course for satellite backhaul, the satellite industry needs to keep innovating to remain price competitive with other technological alternatives.

Bottom Line

The mobile backhaul market will create tremendous revenue opportunities for the satellite industry. However, the mobile ecosystem is very dynamic and players that want to stay relevant in the market need to keep the pace with technology and business model innovations.

Bandwidth provisioning is no longer enough to serve this market as mobile operators are less interested in owning and managing infrastructure as focus moves to providing services. End-to-end solutions including risk-sharing models are key for the new network deployments. Ground equipment also needs to adapt to the new requirements for 3G and 4G backhauling, including more efficient use of bandwidth and traffic optimization. The growth in consumption of media and new network architectures can create new opportunities for IP Content Distribution via satellite.

The new price levels of HTS have opened new markets like wireless backhaul for 4G networks. However, mobile operators are also drastically cutting costs and the satellite industry needs to keep innovating to remain relevant in the overall broadband markets.

NSR offers the deepest knowledge on satellite industry wireless backhaul trends and the most experience in evaluating HTS opportunities. NSR supports service providers, equipment vendors, satellite operators and financial institutions in their broadband strategy assessment and planning. Please contact cbaugh@nsr.com for more information.