Northern Sky Research

Keep Your Feet on the Ground

Aug 10th, 2016 by Lluc Palerm-Serra   More from this Analyst | Profile

Satellites are the stars in the satellite industry ecosystem. They have attracted most of the innovative focus in recent years with the HTS or EO constellation revolutions. However, we must be very aware there isn’t any satellite value without a ground terminal. As an industry, we must keep our feet on the ground and acknowledge that ground equipment needs to keep pace with the innovation happening in the skies. The future applications creating growth for the industry will only materialize if these technological progresses in the ground segment take shape. The good news is, the market opportunity for ground equipment is massive. In NSR’s Commercial Satellite Ground Segment report, global shipments for Commercial Satellite Ground Equipment are forecast to surpass 57 million units by 2025, generating US$11.5 billion in revenues.

In order to capture a slice of these rapidly growing but contested market, equipment manufacturers will need to adapt to the new technological environment. In video markets, the transition to HD, Ultra-HD and smart STBs will generate most of the growth potential. On the other hand, HTS will be the key driving force in data markets, opening new market opportunities while setting new technological requirements. But what are the key verticals attracting growth in this market generating over $100 Billion in Cumulative Revenue through 2025?

DTH and Consumer Broadband are the only two truly mass markets for the SatCom industry. These are the only verticals counting global annual shipments in millions and will attract a large chunk of the revenue growth opportunities in ground equipment. Conversely, highly specialized verticals like aeronautical and maritime connectivity together with mobile backhaul will generate a relatively small number of shipments, but the high value associated to each terminal and the rapid development of the verticals will translate into a significant percentage in the total revenue growth.

Mass Markets Driving Growth

The market for DTH receivers clearly drives the majority of shipments, generating $64 billion in cumulative revenues in the next 10 years. However, there are differentiated trends depending on each region. In saturated markets such as North America or Eastern Europe, most of the shipments will come from upgrades given the end-user requirements for higher quality UHD and advanced features resembling the convenience of OTT. On the contrary, penetration in less developed markets like Asia or Latin America is still relatively small, and there is room to engage new customers. The focus in these regions is still in SD slowly transitioning to HD.

Consumer Broadband is the second largest segment in annual shipments. The addressable market is massive and the opportunity to capture new users globally is tremendous. The challenges lie in serving these unconnected users economically. Despite the rapid development of the vertical, the pressure on the cost of the terminal and finding a compelling business model are key aspects that need to be solved.

It is not strange that some industry players push to develop other mass markets such as the connected car or the Internet of Things. If these markets were unlocked, it would bring generous growth opportunities for both ground equipment and service provisioning. However, given the technological challenges and the pressure from ground networks, NSR is still cautious about these developments.

Connected Everywhere

The need to keep connected everywhere is a major driver for the satellite industry today, and ground equipment is no different. Lower price of capacity is opening new markets and ground platforms should adapt to this new environment.

Aeronautical connectivity is among the most interesting verticals for equipment manufacturers. In-Flight connectivity is becoming the norm, but penetration is still relatively small providing very fast growth opportunities in the near future. Key players in the vertical are reporting record installations each quarter, with each terminal driving several orders of magnitude more value than equipment in other verticals. Maritime also presents positive growth prospects.  While the narrowband market is fairly established and continues to provide stable opportunities, the emergence of broadband for merchant shipping and especially for passenger fleets will drive revenue growth for maritime equipment at 6.7% CAGR in the next 10 years. While small in relative terms, backhaul is the fastest growing vertical for equipment revenues forecasting growth at 15.3% CAGR.

The positive growth prospects shouldn’t be confused with an easy market environment. Growth opportunities will be highly competed, and each vertical presents its own challenges. The aviation market has severe barriers to entry, and terminal requirements are very stringent. Equipment in the maritime markets needs to meet higher bandwidth requirements while still facing the traditional challenges of operating in a harsh environment. The backhaul market is highly contested, and the SatCom industry needs to adapt to meet the technology and business model requirements of the mobile ecosystem.

Bottom Line

Generating over $100 Billion in cumulative revenues in the next 10 years, it is clear the opportunities in the ground equipment markets are quite meaningful. Beyond that, technological developments in the ground segment hold the key to unlocking new markets for the SatCom industry.

The massive demand generated by consumer oriented markets such as DTH units or Consumer Broadband terminals, together with high value verticals like aeronautical, maritime and backhaul, hold the largest growth opportunities. Other verticals like SatCom Earth Stations will present some challenges, but the players that navigate those challenges could still witness growth.

Optimistic forecasts should not hide the challenges that industry actors will face. HTS is creating a whole new set of technology requirements in terms of throughput, number of carriers, larger bandwidth per carrier... In an increasingly complex market, business models and partnerships will play a role as important as technology. Finally, we must not forget how the SatCom industry integrates in the global IP world meeting the new trends in traffic patterns, media or the emergence of new applications.

NSR offers the broadest and deepest understanding of the ground equipment markets relying on NSR’s extensive knowledge of the satellite MSS, FSS, HTS and EO segments using the different targeted analysis as building blocks for this global segment. NSR supports equipment vendors, service providers, satellite operators and financial institutions in their technology and business strategy assessment and planning. Please contact cbaugh@nsr.com for more information.