Northern Sky Research

Satellite Backhaul ‘As a Service’

Jun 22nd, 2017 by Lluc Palerm-Serra   More from this Analyst | Profile

Mobile Infrastructure is changing rapidly, both technologically and business wise. Introduction of new concepts like SDN/NFV arrive with new business models in which equipment and infrastructure are now offered “As a Service”. What are the implications for satcom, and how can the satellite industry capture growth in this new environment?

Backhaul will be one of the key drivers for satellite industry growth in the coming years. Growth in the active base, appearance of new use cases or the transition to broadband services all will boost demand. According to NSR’S Wireless Backhaul via Satellite, 11th Edition report, capacity revenues alone will grow from roughly $1.1 billion in 2016 to over $3.4 billion in 2026. More importantly, mobile operators are willing to externalize network management services, which multiplies the size of the business that can be extracted from deployments to unprecedented levels in the satellite industry.

Everything ‘As a Service’

Mobile operators globally face revenue growth stagnation, and in order to keep margins, operators are looking at strategies to gain efficiencies. At the same time, several factors such as debt-heavy balance sheets or the need to be responsive to recent technology trends and market dynamics make MNOs more risk averse and willing to transform CAPEX investments into OPEX. This has created entirely new markets such as the Towercos businesses (management of mobile towers), which in some regions like Latin America or Africa own close to 50% of the total towers. This move towards ‘Everything as a Service’ will only accelerate with the introduction of innovative network conceptions like SDN/NFV. Services are now penetrating into the core functionalities of mobile operators, for example, with the recent deal between Tigo Rwanda and Ericsson to provide BSS functions ‘as a Service’ (charging, billing, provisioning, mediation, roaming, etc.). All in all, MNOs are more willing to outsource infrastructure management and focus on the customer-facing core competences.

Satellite requires a very particular skillset. Traditionally, satellite was relegated to a niche role serving government obligations in rural locations. Few operators relied on satellite to backhaul traffic, and those MNOs generally deployed and managed the networks internally, acquiring the necessary equipment and skills. However, with the need to continue extending broadband coverage to remote areas and the emergence of new use cases, satellite is becoming another tool in the backhaul technologies mix. If the satcom industry wants to play a bigger role in the backhaul ecosystem, it needs to develop a service offering that facilitates the adoption of satellite backhaul.

Satellite End-to-End Solutions

This trend towards ‘infrastructure as a service’ is also gaining momentum in the satellite industry. This allows satcom to offer services to mainstream mobile operators without a background in satellite technologies. Examples of such deployments include the Managed Rural Coverage deal between Ericsson and MTN to provide mobile coverage for a set period according to service level agreements and key performance indicators, or the recently announced deal between Speedcast and Wasel Telecom for fully managed connectivity.

The revenues that can be extracted from these kinds of deployments are much higher than what was seen in the past for the satellite industry. Not only do new deployments involve larger capacity requirements and smarter terminals, they also require end-to-end integration of RAN equipment, energy supply, towers, etc.; growing the total deal size for system integrators.

The Role of Governments

No one questions the benefits of connectivity for our societies. One of the latest studies from The World Bank highlights that a ten percent increase in broadband increases GDP per capita by USD13,036. Governments around the world have tried to stimulate broadband expansion through USF/USO programs with diverse outcomes. Most of the time, the critical challenge in these programs is ensuring the long-term sustainability. Some governments are pursuing innovative approaches to incentivize private investment in rural areas to ensure economic viability and minimize public economic burden.

One promising example is the new entity created by the Peruvian government, Rural Infrastructure Mobile Operator. These entities do not serve final customers and do not own radio access spectrum but offer backhaul and infrastructure to regular mobile operators. These rural operators have certain obligations in terms of quality of service, but they also have important advantages to protect their investments like the obligation from Mobile Operators to buy services from them and some protection against MNO’s own network expansion. While the concrete results of such implementation are still uncertain, the satellite industry must develop wholesale offers that can help mobile operators achieve their objectives of network expansion.

Bottom Line

The way mobile operators build their networks is changing radically with the adoption of concepts like SDN/NFV and new business models like ‘Infrastructure as a Service’. This is having an immediate impact also in the satellite industry.

As satcom attracts more mainstream mobile operators without internal satellite skills, the industry needs to develop wholesale offers that can meet the needs of those mobile operators. Furthermore, this will have a positive outcome for systems integrators as the size of deployments is growing with end-to-end solutions.

Governments still have a key role to play in the expansion of broadband coverage. While some USF/USO programs have long-term viability issues, ensuring a ‘friendly’ legislative environment that incentivizes and protects investments can make a big difference in stimulating broadband expansion.

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