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Market Perceptions of Satellites and Competition from Fiber Optics.

Last year, the satellite industry observed the 10th anniversary of the first US commercial communications satellite--Westar I, whose launch by Western Union in 1974 opened a new era in telecommunications.

I will review where the fixed satellite services (FSS) marketplace has been and is going, and the dimensions of the FSS supply/demand factor. Finally, I will grapple with the belief of a number of people that fiber optics is a threat to the future of satellite communications.

It's well for us to recognize that the pioneering efforts of the first satellites in orbit are important for three major reasons that relate to today's space goals.

First, the entrepreneurial risk and pioneering investment in those first satellites marked a significant first step in the commercial utilization of space by private industry.

Second, the performance of those satellites gave confidence to a commercial satellite industry in the US that represents a capital investment of billions of dollars and the creation of new jobs.

Third, through its preparation and launch of those early satellites, the industry demonstrated to the world the successful collaboration of American business and government working together in an extraordinary partnership to extend the frontiers of space communications. Today, this business-government partnership is dynamically developing in many exciting fields leading to new space applications we can hardly imagine.

What about the satellite applications in the next 10 years that we can imagine and how has this industry evolved to embrace them? The big user of satellite communications in the first 10 years was video--cable television led by HBO, broadcast television led by PBS, major network and independent stations. This year we observe the 10th anniversary on July 14 of the first transmission ever of a video news report. TVN, The Independent Newservice of New York, used a Westar I transponder to transmit the Apollo-Soyuz mission coverage from Houston to Chicago. The material was fed to 75 TV customers in the US and Canada. And on August 9, 1975, Westar sent the first transmission of a live sports broadcast within the 48 contiguous states. The video and audio play-by-play was of the Milwaukee Brewers versus Texas Rangers baseball game from County Stadium in Milwaukee to NBC affiliate KXAS-TV in Fort Worth.

Great Growth in Decade

The satellite industry has come a long way in 10 years. The video segment of the total satellite services market has indeed matured. Our perceptions about important new growth segments on which to bank business decisions about satellite design and launches require that we take an objective look at those market drivers shaping our industry today.

First the domestic market drivers (Figure 1). Divestiture continues to have a profound impact on the way we are doing business today and how we will in the future; not just the way other common carriers, like Western Union, RCA and MCI will compete, but the way every user, especially the large business communications users, will assess voice and data requirements.

Deregulation should serve the public interest in providing economic alternatives, especially in the area of private networks. Digital technology, currently making strong advances in video and radio transmission and converging voice and data, will drive telecommunications users toward an integrated end-to-end "system." In that system, local distribution, especially in the last miles, will be important competitive factors by service providers. Also important is the ability of these providers to offer customers "differentiated" services tailored to their unique telecommunications needs.

An illustration of this integrated "seamless" transmission system developed in response to the market drivers shows the key role played by satellites in the long-haul portion (Figure 2). From customer locations, signals are carried by cable, microwave radio or fiber-optic lines to an operations center. The signals are transmitted via these means to an earth station, uplinked to a

satellite, amplified and downlinked to another earth station for local distribution. The ground segment, in this scenario, is "complementary" to the satellite-based service.

International Issues

Looking at international market drivers (Figure o), direct access to Intelsat provides new market opportunities for domestic satellite service providers. The controversial issue of separate satellite systems to Intelsat seems close to policy resolution this year.

Overall, the push toward greater global connectivity assures that satellites will play a major role in providing every conceivable type of communications efficiency, cost-effectively; over entire continents, linking continents, transmitting to moving vehicles on land, sea and in the sit, and ultimately transmitting directly to individuals on a personal level. These are the new market applications made thinkable by satellite technology.

Toward a Digital World

The advances in digital technology that we saw as a domestic market driver toward integrated voice and data systems will lead finally to a fully digital world.

The digital world can be addressed by both satellites and fiber optics. But here is a dire prediction--one echoed by a number of industry observers--from BusinessWeek, May 21, 1984:". . . fiber optics is . . . likely to make obsolete the fleets of communications satellites now relaying data around the world. This technology will make ground communications so cheap and fast that experts predict that few commercial communications satellites will be launched in the 1990s."

Myth or reality? Satellite-based services can be categorized as multipoint, mobile, remote, special events and long distance. These are the services currently implemented and forecasted for implementation via satellites (Figure 4).

Examples of multipoint services are CATV, network TV, national and state radio networks and the news media. Clearly, installing fiber-optic cable to multipoint locations is not economical because the many locations are remote, do not require high-capacity transmission mediums and can vary from time to time.

Examples of mobile services are oil exploration, currently being implemented, and radioi determination and land-mobile services, currently being processed for implementation by the FCC. There is no way that mobile services can be implemented via fiber-optic cable.

Webster defines "remote" as "out of the way," "secluded," "separated in space." Examples of services to remote locations that cannot support high-capacity tranmission mediums are partial transponder services (PTS), best characterized as single-carrier-per-channel and spread spectrum. These services are now being supplied in growing numbers by service providers such as Western Union, ASC, RCA, Vitalink and Equatorial. Clearly, installing fiber-optic cable to remote locations is not economical because the locations are remote, do not require high-capacity transmission mediums and can vary from time to time.

Special events, which are a large part of our video service business, occur at different locations (sports events, educational seminars, videoconference). It is not likely that fiber-optic cable will be installed for occasional use by the recipients of these services.

Minimal Fiber Impact

Long-distance communications, such as between New York and Los Angeles, may sometime in the future be implemented via fiber-optic cable. However, fiber-optic cable will not impact these satellite-based services in the near future because these services are a small percentage of satellite-based services. Most importantly, "long-distance" fiber-optic cable systems are not being implemented by single entities. Tying pieces together will be difficult arrangements, technically and from a business standpoint.

Teleports, such as the New York City Teleport (Figure 5), are an interesting way to look at both satellite-based communications and fiber-optic/cable-based communications. First of all, teleports are new to our terminology, but not so new in other ways. Teleports are springing up all over the country and worldwide. Some are office park or real-estate based. Others are just antenna farms serving a urban area. These farms are not unlike the separate clusters that exist now, with one exception. They are designed to look at all satellites, not just one carrier's.

Teleports are developing now to handle the specific growth demands of urban areas. The marriage of fiber-optic cables from the teleport to customer lcoations is also taking place.

Satellite-based services have additional advantages when compared with fiber-optic cable. It is less costly and takes less time to implement satellite-based services than fiber-optic-based services because of construction costs associated with fiber-optic cable. The high cost of rights-of-way is a prime conern. Once implemented, satellite-based services have higher reliability. For example, in July 1984, service was interrupted between Bermuda and the US when a cable repair ship broke the Bermuda-US cable, and service was restored via satellite shortly thereafter.

If my assessment of the fiber factor is correct, then we must reasssess the issue of transponder demand versus supply, or transponders in orbit. Forecasts of any commodity are important to the business planners in that respective industry. Commodities usually have trend lines, and forecasts are based on that history. However, the commercial satellite industry is just this year entering its second decade. There was no trend line, no market base to grow from in the 1970s, when satellite forecasters were "casting about" in uncharted waters. That these forecasts frequently missed the mark, that their timing was off, that they did not anticipate technical changes, cost changes, launch delays--all this is pardonable.

We have some history in this industry now. Our markets have been defined. We have more quantifiable indicators. Suppliers to the satellite transponder service industry, such as earth station manufacturers, are making their production decisions tied to their analysis of satellite demand. New shipments of receive-only and transmit/receive earth stations are expected to grow from 11,000 in 1984 to 24,000 in 1988, for a total increase of over 3,000 per year. Out of this annual quantity, there are almost 400 transmit/receive earth stations. This represents a shipping ratio of seven receive-only earth stations to one transmit/receive earth stations. The question now is: How much space-segment capacity will be utilized by this increase of 400 transmit/receive earth stations? Assuming one TI carrier per earth station in partial transponder application would result in one 24-channel C-band satellite, or its equivalent, per year through 1988 just to handle this market segment. And, using this approach, that is a very conservative estimate.

Supply and Demand

Looking at the whole transponder supply/demand issue, figure 6 depicts transponder demand and in-orbit transponders through year-end 1984, and assumes that each C and Ku-band satellite contains 24 transponders with 36-MHz bandwidth or equivalent. The demand chart was developed by Western Union and was the result of a study conducted for 18 months for NASA's Advanced Satellite Technology Program. The study included a service defintion and economic tradeoff of satellites versus other transmission mediums, including fiber-optic cable. Demand forecasting in a relatively new medium is not an exact science. However, this forecast appears to track others.

The first question is, "How many transponders will be available to meet the demand at any point in time?" The forecast of in-orbit transponders is based on currently authorized slots and slots applied for in the November 7, 1983 processing group. The FCC has authorized 38 slots for a variety of satellites, including C-band, Ku-band and hybrid satellites. Satellites in-orbit or being constructed for launch account for all but six slots. Construction cannot proceed on these six slots until the applicants have been certified as financially qualified by the FCC. This group of satellites is represented by the thinner solid line on the chart and assumes no launch failures and no in-orbit transponder failures.

The balance of in-orbit transponders is included in the November 7, 1983 processing group. There are 62 orbital slots available for C and Ku-band satellites, assuming two-degree spacing between satellites and co-location of C and Ku-band satellites. Therefore, there are 30 slots remaining, which include the six currently not proceeding with construction as a result of their not being certified as financially qualified by the FCC.

A Question of When

The second question that must be answered is, "When will the 30 remaining slots contain operating transponders?" This is difficult to answer because of the regulatory process, the availability of launch vehicles and the launch of replacement satellites, which, of necessity, must have priority over new satellites. This group of satellites is represented by the dotted line on the chart. The junction where the solid line (authorized transponders) meets the broken line (forecasted transponders) will move to the right (no increase of in-orbit capacity) in proportion to the delay in processing the November 7, 1983 group of domsat applicants. Further, the rate of increase of in-orbit capacity will depend on the availability of launch vehicles. The result is a two-year or more hiatus when no new capacity will be launched.

Current indications suggest that if the FCC eliminates some applicants, the current group of domsats could be processed by mid-1986. However, those eliminated might petition for reconsiderations or instigate legal action, thereby extending the hiatus another year.

On the other hand, if the FCC institutes comparative hearings, the hiatus could be extended another two or three years. As the hiatus is extended, the forecasted launches will pass below the pessimistic demand forecast curve. As a result of launch-vehicle availability, domsats may not be launched in a timely manner because the Shuttle is committed to supporting the space station and space lab projects, and Defense Department and NASA requirements. These commitments may result in domsats being launched by expendable launch vehicles, which may not be immediately available in the quantities required. Figure 6 assumes that expendable launch vehicles will be available in the timeframe shown.

Stranger Market Developing

What I have tried to do is to suggest some new ways of assessing the attractiveness of the satellite marketplace by focusing on major market drivers that shape the way we will do business both domestically and in world markets. Two issues that continue to hang over the efforts of satellite planners and marketeers are those related to the so-called fiber "threat" and transponder "glut." My message is to guard against accepting, without analysis, the kind of conclusionary statements about satellites that we saw in the BusinessWeek article. There are strong indications that mobile and disbursed communications will be the main business of future satellite services.

I predict we will see a stronger satellite services marketplace evolving especially in the 1986-87 time frame. As Bob Hope said 10 years ago on the occasion of Westar I's inaugural transmission. "What God hath wrought is looking better and better all the time!"
COPYRIGHT 1985 Nelson Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1985 Gale, Cengage Learning. All rights reserved.

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Author:Albert, J.
Publication:Communications News
Date:Mar 1, 1985
Previous Article:Subcarrier Transmission of Narrowband Video Signals Offers Exciting Promise.
Next Article:Coordination Critical for Temporary Earth Stations.

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