1

The Future of VSATENTS 630, Fall 1999

Advisor: Dr. Joseph P. Bailey

Jerriett Brown, Jerry Frank, Moses Juwillie, Jiasi Li, Vikas Shah

Abstract

VSAT or Very Small Aperture Terminal is a telecommunications technologythat uses geosynchronous satellites as relays for point to point, multi-point orbroadcast communications. This paper introduces the key concepts andhistory required for understanding this rapidly growing technology in thepresent frame of reference.

In trying to understand the future course of this telecommunicationstechnology, two analyses are performed. A price elasticity study is presentedto gain understanding of market forces and definition. The results indicatethat while the VSAT industry has collapsed to a few key players, the marketis competitive; price pressure is exerted by substitutes. Secondly, a model ofVSAT deployment in the United States shows that the rate of VSATdeployment is a monotonically decreasing function of population density, yetthe VSAT industry is growing at a rate equal to or in excess of 30%. Causalfactors of this paradox, such as mergers, acquisitions and globalization arediscussed.

I. Introduction to VSAT Technology

VSAT or Very Small Aperture Terminal is a telecommunications technologythat uses geosynchronous satellites as relays for point to point or broadcastcommunications. Conceptualized in the 1970’s, mass production of VSATterminals began in the late 1980’s. One of the major suppliers to the U.S.market, Hughes Network Services, has supplied more than 250,0001 VSATterminals to date.

VSAT technology offers a number of benefits when compared to traditionalland-based telecommunication solutions. The majority of these benefits arerelated to the technology’s freedom from terrestrial infrastructure. Due tothe service footprint of geosynchronous satellites, continental diameternetworks can be deployed in a matter of weeks. With only three

1 1998 Hughes Electronics Corp., 1998 Hughes Annual Report, pg. 6

2

geosynchronous satellites required to provide worldwide coverage, a globalnetwork can be generated at a fraction of the cost of a wireline network ofequal connectivity. VSAT can provide telecommunications service to regionsthat are inaccessible to the more traditional land-based communicationtechnologies. The combination of large service footprint, broadcast, multicastand point to point capabilities make VSAT attractive in a number ofcommunications markets: distance learning, LAN/WAN relay services, pointto multi-point services, Point of Sales, telephony and multimediabroadcasting. The balance of benefits and tradeoffs will be more fullydiscussed in later sections.

Current VSAT network topology can be parsed into two classes: star andmesh. The star topology is primarily used for data services. Remote unitssuch as PoS terminals or branch office LANs communicate to a centralprocessing site called a hub. Should remote to remote communication bedesired, the path would be from the point of origin, through the satellite tothe hub, and then back through the hub to the destination. This is known asa two “hop” path. A mesh topology allows the remote stations to directlycommunicate with each other via a single hop.

Because of the altitude of the geosynchronous orbit, the hop or round tripdelay for VSAT services is approximately 250 msec. In order to use VSAT forvoice applications, the long propagation delay must be minimized. The meshtopology resolves this problem by using a two hop path only during the initialcall setup. After path initialization, a single hop is used, providing direct,remote to remote communication. By using only one-hop delay, the meshtopology provides near toll quality voice transmission with minimalpropagation delay.

The VSAT satellites operate in two sets of spectral ranges in the UnitedStates: In the Ku band the uplink operates between 12.75 and 14.5 GHz. andthe downlink between 10.7 and 12.5 GHz.; In the C band the uplink operatesbetween 5.8 and 7 GHz., and the downlink will be in the 3.4 - 3.8 GHz. band.It should be noted that there are technical tradeoffs between C and Ku bandoperation. The higher frequency Ku equipment will allow for higher datarates and reduced dish size. The signal integrity of C band equipment is lesseffected by weather but experiences greater interference from terrestrialmicrowave sources2.

II. VSAT Industry History

The VSAT market has consolidated from several companies to a fewprominent players (Figure 1). Of the survivors, two major groups, Hughes 2 Maral, G., VSAT Networks, John Wiley & Sons, New York, 1995

3

Figure 1-Historical View of the VSAT Market

Network Systems (HNS) and Gilat/Spacenet control the majority of the VSATproducts and service market (Figure 2). The first two way VSAT networkwas deployed by MA/COM which was subsequently acquired by HughesNetwork Systems. Since then, HNS has been a consistent presence in theVSAT Industry. The mergers of another group of companies GTE Spacenet,AT&T/Tridom, GE/Spacenet led to the emergence of Gilat/Spacenet

While the enormous capital investment made by both Gilat and HNS providea significant barrier to market entry, argument can be that market pricebehavior in the VSAT market is very competitive rather than duopolistic.Further pressures on prices is exerted by substitute technologies and will bemore fully discussed in later sections. For a complete example of the pitfallsand realities of VSAT deployment, please turn to the appendix.

Historical View of the VSAT Market

19901986 1988 19941992 19981996 1999

HNS (MA/COM) 1st 2-way VSAT network(Wal*Mart)

AD/COM Sold to ScientificAtlanta

1st VSAT LAN network (Toys RUs)

Scientific Atlanta

Tridom Sold to AT&T

AT&T/Tridom

GTE Spacenet Gilat H/WNEC H/W

Sold to GE

Sold to GE

GE/Spacenet Sold to Gilat

Gilat/Spacenet

CONTEL Sold to GTE

AT&T/Harris

Comsat TP

Equatorial

Sold to CONTEL

Sold to CONTEL

4

III. The VSAT Market

Figure 2-VSAT Market Share

With the recent emergence of Gilat as a significant and strong contender, theVSAT market is facing immense pressures on margin. This can be detectedby observing that officially, HNS and Gilat still practice 3rd degree pricingdiscrimination, but because there are so many variables in the pricingstructure, they are able to charge different prices for each of their customers,significantly enhancing revenues.

HNS, once having held significant market power, has been forced toreevaluate it’s market structure because of Gilat’s relentless pursuit ofmarket share. This has resulted in the continual decline in the cost of VSATproducts and services with a commensurate increase in demand, both inUnited States and globally.

VSAT Market Share in 1998

Gilat 40%

HNS47%

Other13%

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Figure 3-The Demand Curve of VSAT Terminals

With the rapidly rising demand for high-speed data and othertelecommunication services, the VSAT industry is facing a dramatic changein pricing structures and service offerings. As reported by Comsys, thedemand for VSAT terminals has dramatically increased over the past fewyears (Figure 4). The number of terminals deployed for the year 1998 were80,000 with respect to 58,000 in 1997, which accounts for a compound annualgrowth of 27% over the past three years. The Comsys 1999 VSAT report thengoes on to state that a total of 500,000 terminals are globally deployed.

We can derive the price elasticity of demand from the following:

η = %∆Q/%∆P = (∆Q/∆P) * (P/Q) = (80,500-58,000) / (3500 - 4700) * (3500/80,500) = -1.52

Since the absolute value of η is greater than 1, the price is elastic for theabove demand curve. This is further evidence that the market is competitive.

Figure 4-Annual VSAT Bookings

The Demand Curve of VSAT Terminals

1999

1998

1997

0

1000

2000

3000

4000

5000

58000 80500 115000

Quantity

Pri

ce/U

nit

1995 1996 19971998

VSATs Booked0

20000

40000

60000

80000

100000

Sites

Year

Annual VSAT Bookings

6

Proving that the market is competitive does not necessarily account for therate of growth enjoyed by the VSAT industry. What does? A consumersurvey3 places the technology’s appeal in a more analytical light:

Reason For Selecting VSAT % of Respondents

Cost Savings 91%Flexibility 84%Reliability 80%Data Rate Support 65%No other svc met need 41%

"Our satellite network is a key competitive advantage. It's what lets usdeliver our reservations at the lowest cost in the entire hotel industry. Framerelay would drive up annual costs by $2 million. We couldn't cost-justifyswitching to another technology, even if we wanted to." Says Maybe LynnGoodendorf, director of telecommunications operations for HolidayHospitality Corp. (Holiday Hospitality is the corporate franchise for suchhotels as Holiday Inn, Crowne Plaza, and Sunspree.) This statement helpsexplain why Holiday Hospitality Corp with its 2400-site network is stickingwith VSAT’s, despite aggressive proposals from frame relay providers.

The case is far from unique. With increasing global trade, companies areturning to VSAT to reach a particular location in mountainous terrain anddistant places, which prevent fiber or other lines from being laid cost-effectively. And it’s usually the only choice for the maritime and oilindustries.

The economic advantage of VSAT is not limited to usage. Unlike frame relay,a VSAT network only has one piece of equipment to manage at the remotesite. Training and operational costs are significantly lower than a Unix basedsystem.

Figure 5-Annual Cost/Site of Alternatives

3 J.T. Johnson, Users Rate VSAT, Data Communication Magazine, 1992

$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000

Cost/Site

56K Leased Line

512/128 VSAT

56K/128K Frame Realy

1.5 M T-1

1.5/256K ASDL

Co

mp

etin

g

Tec

hn

olo

gy

Annual Cost/Site

7

VSAT services can help companies avoid the long provisioning delaysinvolved in the deployment of conventional leased lines. Depending on thenational PTT and the location of a network site, provisioning of leased linesin some places can take six months or more. If a site is located far off thebeaten path, PTTs may even require their customers to pay some or all of theexpenses involved in running a leased line to that site. With VSAT service,operators say they can establish working links in four weeks or less, withinstallation charges limited to the cost of setting up the VSAT earth stations.VSAT services also holds the promise of delivering more reliable connectionscompared with conventional leased lines in many parts of the world.Although VSAT transmissions can be adversely affected by environmentalconditions like rainstorms, availability generally is much greater than that ofconventional leased lines.

When it comes down to dollars, general cost comparisons between VSATservices and their terrestrial equivalents reveal the striking advantages ofthe technology. Charges for terrestrial services are distance dependent, whileVSAT connections cost the same whether sites are 1 or 1,000 miles apart.VSAT customers can immediately enjoy economies of scale as networksexpand; most of the operator's fixed costs are located in the central hub whichis needed regardless of how many VSAT’s are installed.

But what's most clear in terms of costs is that VSAT charges are comingdown--and fast. They're just a third of what they were a few years ago.What's behind the price decline? Several factors, including reductions inequipment prices and import tariffs, economies of scale as hubs handlegreater numbers of connections, efficiency improvements as operators gainoperational experience, and aggressive competion. VSAT operators as a rulecharge flat monthly tariffs--which is likely to be a welcome change forcustomers tired of interpreting unpredictable, volume-based terrestrialequivalents bills from PTTs and others.

IV. Modeling U.S. VSAT Deployment

In order to understand the future of VSAT technology we will construct amodel of its present employment in the United States. The model is basedthe hypothesis that VSAT employment is a monotonically decreasing,piecewise linear function of population density. This model will be generalenough that global application should be possible, with the appropriateadjustments for per capita income and the availability of substitutes.

Discussion is limited to VSAT data and video services offered in the UnitedStates by the two principal players in the VSAT industry, Hughes Network

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Systems, Inc. and Gilat Satellite Networks Ltd. These two companiesaccount for 88 % of the market. Telephony applications will be excluded fromthis study as they are insignificant in the U.S4,5.

To support our thesis, we will examine the Hughes partial customer databasefor hub based services as described in the Comsys 1999 VSAT report entitled“VSAT INDUSTRY STATUS REPORT TO CLIENTS: HUGHES NETWORKSYSTEMS: American Services”. This selection is made as the largestapplication of VSAT is hub based data services6,7 and Hughes is theacknowledged leader in hub services. Study of this data reveals that themajority of users of hub services (1998) can be grouped into eight categoriesas listed in table 2.

Table 1 : User Categories

Noting that retailers are the most prevalent group of users, which includepetroleum distributors, food and drug stores, it is easy to imagine that atleast one of these businesses will appear in relatively small towns. As thetime necessary to perform an adequate survey was not available, the datawill be simulated by postulating that at a population density of 500 persquare mile, there will be at least one VSAT user per jurisdiction. After thispoint, we will model VSAT terminal population to scale linearly withpopulation density.

VSAT population density = A * Pd

A = scaling factor, b = y interceptPd = pop. density; Pd > 500 / mi2

Note that the Hughes database has a little over 50,000 entries. Gilat’s dataindicates a similar number of sites that are serviced. As a first order check 4 http://www.gilat.com/gilat/5 http://www.hns.com/6 http://www.gilat.com/gilat/7 http://www.hns.com/

Category InstalledRetailers 35,402Automotive Companies 2,825Financial 1,736Hospitality 1,587Service Providers 1,561SCADA 1,198Telecom 542Distance Learning 395

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on the previous model we note that there are significantly more than 100,000business in the United States. According to the 1998 US Census8, there wereover 22.3 million corporations, partnerships and nonfarm proprietorships.Even if we allow that only 30% of these entities have need for data services,that number exceeds 100,000 by more than an order of magnitude. Therefor,at some point, the VSAT density formula postulated in the preceding sectionmust fail.

One possible hypothesis can be generated by examining the other modalitiesof data transport; due to the cost of infrastructure, the economic advantage ofVSAT is inversely dependent upon the distance from the point of applicationto a population center. Perhaps, at a certain population density, sufficienttelecommunications infrastructure will exist and make VSAT much lessattractive. Data services with greater bandwidth, much lower latency andlower cost become readily available. We will postulate that at a secondcritical point of population density, VSAT employment begins to fall off. Wewill we will use Madison, Wisconsin to test for a point of inflection in thedeployment function.

Madison is a rapidly growing, medium size city. It is the State capitol, homeof the University of Wisconsin and a number of large insurance companies,all of which depend heavily upon electronic data systems. Madison is alsonearly 90 miles from Milwaukee and 200 miles from Chicago. Thisconvergence of distance to communications hubs and a strong need for dataservices make Madison a good candidate for providing the second criticalpoint of the population density function. According the 1998 US Census9,Madison had a population of 198,000 living in a space of 57.8 miles, yieldingan average population density of 3,400 / mi2.

To discover if this population density will yield a point of inflection in theVSAT deployment function, we use the Hughes partial customer database10

again. By cross checking the Hughes database against the YAHOO.comyellow pages for Madison, we can get an approximate VSAT terminal census.The results of this survey are presented in table 2.

8 http://www.census.gov/prod/3/98pubs/98statab/sasec17.pdf9 http://www.census.gov/prod/3/98pubs/98statab/sasec1.pdf10 Bull, Simon, The VSAT Report, VSAT Industry Status Report to Clients, Communication SystemsLimited, 1999

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Table 2: VSAT Users In Madison, WI

We have assumed, for the purposes of the census that the VSAT penetrationrate for the businesses in Madison that correspond to the Hughes report, is100%. Therefor we expect approximately 51 VSAT terminals inside ofMadison’s borders. This corresponds to a VSAT density of

51 VSAT / 57.8 mi2

or0.88 VSAT / mi2 at a population density of 3,400 / mi2

This can not be considered a point of inflection and was not anticipated. Wehad expected that the demographics would force an increase in VSAT densitywith increasing urbanization up to some point of infrastructure development.We then anticipated a decreasing function that would asymptote, to somenumber greater than zero because of point of sale (PoS) operations. Tofurther develop the model, a data point at the other extreme will bedeveloped, New York City.

CompanyBed, Bath & BeyondBest WesternBeverly EnterprisesBlockbusterConsolidated FreightHughes Mall ServicesKohl’sMarathon OilMobil OilNBC (affiliate station)Pep BoysShell OilShopKoTarget StoresTexaco

TOTAL

34

51

Number of Sites in Madison, Wisconsin

1234

10317

3171

1

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Table 4: VSAT Users In New York, NY

This highly representative census yields 233 VSAT terminals inside of theborders of New York City. According to the 1998 U.S. Census11, NYC had7,381,000 inhabitants living on 308.9 mi2. This corresponds to a VSATdensity of

233 VSAT / 308.9 mi2

or0.75 VSAT / mi2 at a population density of 23,900 / mi2

This leads us to a surprising conclusion that VSAT employment is a linearlydecreasing function of population density in the United States. The functioncan be described by

11 http://www.census.gov/prod/3/98pubs/98statab/sasec1.pdf

VSAT Employment vs. Population Density

0.5

0.6

0.7

0.8

0.9

1

1.1

500 3400 23900

Population Density

VS

AT

Ter

m /

sq. m

ile

CompanyBed, Bath & BeyondBest WesternBeverly EnterprisesBlockbusterConsolidated FreightHughes Mall ServicesKohl’sMarathon OilMobil OilNBC (affiliate station)Pep BoysShell OilShopKoTarget StoresTexaco

TOTAL

1273

233

Number of Sites in New York, New York

17860

13015

34012713

11

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VSAT / mi2 = -10.68 x 10-6 ( Pd) + 0.916Where Pd = Population Density

We have presented an argument that there is an anti-correlation betweenVSAT density and population density. Clearly, the model suffers from apaucity of data points; the census relies too much upon too few businesses intoo few locations. Another source of error is in the “fuzzy” definition ofjurisdiction. Despite all of these of errors, what can we infer from the data?There is no doubt regarding the future of the VSAT industry – growth istypically quoted at a rate of 30% per year. First, we can say that for anygiven locality, increasing urbanization or densification does not, at the veryleast, strongly correlate to increased VSAT employment. VSAT utilizationmust be driven by other trends.

By examining the key features of the VSAT technology, we can begin toidentify the socio-economic factors that are driving VSAT’s rapid growth:

1. Rapidly deployable telecommunications networks.2. Network diameters of continental or global scale – the marginal cost of

distance is essentially zero.3. Freedom from terrestrial infrastructure development costs.4. Freedom from PTT and ILEC interface requirements.

Two major trends in business require the communication technologies thatexhibit the aforementioned properties: globalization and growth byacquisition and alliance. “Behind the growing integration of the worldeconomy lies the decline in the costs of transport and communication.Between 1930 and 1990 average revenue per mile in air transport fell from68 US cents to 11 cents, in 1990 dollars. The cost of a three-minute telephonecall between New York and London fell from $244.65 to $3.32. Between 1960and 1990, the cost of a unit of computing power fell 99 per cent.” Thisstartling analysis was presented in a October 1, 1997 Financial Timesarticle12. While the reader is left to ponder the “chicken and egg” nature ofglobal business and technology, one thing is clear – the end of the 20th

century has given rise to the multi-national corporate business model. Largebusiness information networks have become, almost by definition, global inscale.

Globalization can also be presented in an alternative light. Chairman of theFederal Communications Commission, Bill Kennard, has said "We can't

12 Financial Times, Perspective: The heart of the new world economy, October 1 1997

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afford to have in this country a digital Dark Ages where some people are justcut off from all this technology… There's a real danger in the country thatsome Americans have all this wondrous technology and it makes themsmarter and more competitive in the workplace and others are leftbehind…13" Without doubt, other PTT and communications bureau chiefshave come to the same realization; access to communications technology forall is essential to the economic well being of a country. Having access toknowledge and markets can very well be the difference between a growingeconomy and a backwater. Many of the developing countries face the doubleburden of small GNP and formidable natural barriers. The combinationmakes the development of standard telecommunications infrastructureimpossible. VSAT, with the capability of leaping tall mountain ranges in asingle bound, is a solution that is being exercised with greater regularity.While telephony is a moot point for VSAT in the United States, it is not in therest of the world.

The last trend that requires the capabilities of VSAT is the concentration ofmarket power and scope by acquisition and merger.Vodaphone/Mannesmann, Atlantic Telecom/Marconi, American HomeProducts/Warner-Lambert, the list of mergers and acquisitions is large,growing larger and is global in nature.

These ventures require rapid placement of global diametertelecommunications networks. These networks must be dynamic assuppliers, payroll and personnel, manufacturing locations and chains ofcommand change on almost an overnight basis.

We can see by examining the top ten customer list for Hughes and Gilat thatthe common denominator is continental or larger network diameter.

Table 3-Top 10 Customer List for Hughes and Gilat

13 http://www.cnn.com/1999/TECH/computing/12/07/fcc.chief.profile/index.html

Customers Application # of Sites Customers Application # of SitesEDS Data Services 10660 MCI/US Postal Service Postal Services 26,000

HOT Telecom Data Services 10062 GTECH Worldwide Lottery 11,500Amoco Gas Station 6907 Alliance Data Systems Gas Stations 6500Impsat Rural Telephony 6727 Telespazio Financial News 4850

Mobil Oil Gas Station 6496 Rite Aid Retail & Intranet 4300Ford Automotive 6332 IBM/Peugeot-Citroen Automotive 4200

Chrysler Corporation Automotive 6322 ChinaSat et al Stock News 3800Chevron Gas Station 5986 Telkom South Africa Rural Telephony 3000

Telecom Italia Data Services 4540 Pagenet Paging 3000Texaco Star Gas Station 4135 National Stock Exchange Stock Trading 2100

HNS' "Top 10" Customers GILAT'S "Top 10" Customers

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V. Conclusion

We assessed the overall nature of the industry by examining the structure ofthe VSAT market. Research found that VSAT products and services areoffered in a competitive market, the market being defined not only as VSATbut it’s substitutes as well.

A socio-economic model of the VSAT market revealed a surprisingly linearanti-correlation of VSAT employment with population density. While themethodology used to reach that conclusion required significant assumptions,a conclusion could still be drawn that the rapid growth in the VSAT industryhad little to do with societal trends such as urbanization or urbandensification. Rather, the strength of the market growth continues to berooted in a number of other trends; globalization, consolidation and thefundamental understanding that a healthy society is held together by lines ofcommunication. The commercial satellite industry has delivered a widerange of new services and technologies that effectively and economically meetthese needs.

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Appendix

Case Study of VSAT Provisioning Process

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This example14 is the result of a VSAT RFP (request for proposal) for a 200-site installation, spanning Eastern and Western Europe, Africa and theCaribbean over a five year period. Nine operators responded to the request.

Among the nine schemes evaluated, there was a wide range of overall projectcosts, from a low of US$3,002,400 to the US$7,498,842 figure submitted byFrance Telecom Transpac (see Table 1).

So what goes into overall VSAT service costs? Per-site monthly charges—which can account for up to 90 percent of the total—and one-time charges likeinstallation costs. IBM came through with the lowest monthly rate atUS$194, but its installation charge of US$1.1 million bumped up the overallproject cost. HOT's per-site monthly charge of US$250 was third lowest, butit waived installation charges altogether.

At the other end of the scale, Transpac had the highest per-site monthlycharge: US$578. Infocom's rate of US$538 was slightly less—but itsinstallation charge of US$3 million was astronomical. (It should be noted thatBanknet Data Communications Kft [Budapest, Hungary] and Infocom levyusage rates based on traffic volume. To make their bids comparable, thesecosts were added to the per-site monthly charge in the table.)

When prices vary that widely, network managers need to make sure theyknow what they're paying for. Basically, there are more than installation andper-site fees that go into the overall cost. There's also equipment,maintenance, satellite capacity, and licensing fees (see Table 2). And each canhave an effect on an operator's bid.

Operators have to make heavy initial investments in such equipment as hubsand earth stations, and these costs are usually passed on to the customer asreflected in the overall price. The cost of the VSAT terminals themselvesactually plays a larger role. In fact, the four highest bids came from operatorsthat use the most expensive terminal; meanwhile, low-bidder HOT used theleast expensive terminal.

Network managers also should keep in mind that the VSAT being used couldaffect the operator's ability to accommodate new apps or added traffic.Spaceline, for instance, says a 25 percent increase in traffic over five yearswould result in a US$516,000 increase in project cost. That's because all of itsNexstar VSATs would have to be replaced. The Nexstar IV doesn't have thecapacity to accommodate higher traffic rates. It peaks out at 64 kbit/saccording to Director of Sales and Marketing.

14 GLOBAL NETWORKS ( www.data.com) , Vsat Services: Keep An Eye On The Skies

17

And adding voice also could add to costs. The PES5000, for instance, doesn'taccommodate voice at all. The PES6000 accommodates voice but not whileconfigured to route LAN traffic. The Nexstar IV can handle voice but not verywell. The more expensive PES8000 answers the voice call, but so does thebargain-rate Skystar—something networkers should keep in mind.

Besides the initial investments on the hubs and earth stations, and the VSATterminals costs, We also found out that dish size can make for substantialdifferences in price, scalability, and reliability. Operators determine theappropriate size by calculating a number of variables to arrive at the linkbudget. The key variables are data rate, availability, and BER (bit errorrate). Unfortunately, operators that want to lower their bids can tweak theseresults —often at the expense of network performance.

Having this system is the ideal thing to do, but we discovered that no matterhow good the system is technically, it could all be undermined by poorcustomer service. It's crucial for network managers wanting to build a VSATnetwork need to find out the particulars on maintenance. Response time andRepair time, should be specified as separate items in the SLA (service-levelagreement).

Capacity is the next major consideration—and depending on how muchoperators build into their networks, it could also affect price. In other words,a low bid might hide the fact that there is really not enough capacity for aparticular company's applications. What it boils down to for networkmanagers is making sure they know how the apps they're running willperform.

Networker managers should take a particularly close look at the amount ofcapacity budgeted for the inbound route. That's the link to the hub that'sshared between the VSATs; the outbound route is the link from the hub tothe VSATs. Because the inbound route is shared among VSATs at eachremote office, it's the more costly of the two. Generally, when operators usethe same equipment, the more capacity that's allocated to the inbound route,the lower the response time and the higher the price.

When comparing prices, network managers also should find out whetherlicensing fees are included. Sometimes an operator does not include them?This is due to the commonly stated reason that charges vary too widelyamong countries. Where deregulation has taken hold, licenses can run aboutUS$10 per site per year. But fees are much higher in some other countries.Fees aren't the only licensing issue. Some operators may not hold licenses ina given country—and that could make for longer time

18

to deploy. This is particularly true in countries where regulations have notbeen lifted.

A comparable terrestrial frame relay for the network we spec'd, for instance,would have A bid, from Orion Network Systems Europe [London], made useof a fully meshed frame relay network capable of handling voice and data.Such functionality has its price: The Orion proposal was priced higher thanthe TDMA proposals at a cost of at least US$10 million—or 33 percent to 233percent more expensive than the VSAT bids.

This case revealed a number of interesting issues concerning the industry:• More and more companies with vast networks spanning several regions or

countries or continents find the migration to VSAT very affordable ascompared to competing technologies;

• The big players in the industry continue to increase their share of themarket through joint-ventures or partnerships—Like Hughes NetworkSystems, known in Europe as HOT;

• The lowest bid won not only because it was low, but it offered otherincentives, like waiving the installation charge, representing one of themajor players on the market (Synonym to stability and possible futuregrowth);

• The interconnection of sites in different that brings about exchange ofinformation: business, social and political, eventually cultural;

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Table 1: VSAT Operator Bids

Operator Location Phone URL Service Hub Installation MonthlyCharge (per site)

Discountedtotal11

Banknet DataCommunicationKft.

Budapest,Hungary

+36-1-202-6246 http://www.banknet.net BanknetDatasat

Budapest,Hungary

$240,000 $339 $4,067,340

BelgacomBrussels,

Belgium +32-2-202-9094 http://www.belgacom.be VstarTDM/TDMA

Liedekerke,Belgium

$277,186 $381 $4,644,716

Detesat GmbH Bonn,Germany

+49-228-910-400 http://www.detesat.com SatLAN Hameln,Germany

$287,092 $550 $6,887,092

France TelecomTranspac SRDSA

Paris, +33-1-45-38-88-88 http://www.transpac.francetelecom.fr

Satstar Rambouillet,France

$566,222 $578 $7,498,842

Hughes OlivettiTelecom (HOT)Ltd.

MiltonKeynes,U.K.,

+44-1908-319-101 http://www.hoteu.com Hotstar Greisheim,Germany

Free $250 $3,002,400

IBM GlobalServices

Paris, +33-1-41-885-840 http://www.ibm.com/globalnetwork

NS VSAT Paris $1,100,000 $194 $3,428,000

Infocom SatelliteCommunicationsInc.

Kiev,Ukraine

+380-44-543-7191 http://www.ukrpack.net Infodata Kiev,Ukraine

$3,000,000 $258 $6,090,000

Joint StockCompanyRomantisUkraine

Kiev,Ukraine

+380-44-416-5592 igor@romukr.kiev.ua Romantis-UkraineISBN

Kiev,Ukraine

$1,490,000 $209 $3,992,000

SpacelineCommunicationsServices GmbH

Düsseldorf,Germany,

+49-211-967-7574 http://www.spaceline.com SpacelineStar

Düsseldorf,Germany

$300,000 $370 $4,440,000

1. All prices in U.S. dollars; prices do not include insurance, shipping taxes, local taxes, licenses fees, or terrestrialleased-line link.

20

Table 2: What the Bids Include

Equipment Maximumguaranteednetworkavailability4

Maximumguaranteedservice-callresponse time 4

Maximumguaranteedtime torepair4

Line speed(downstream/upstream) (kbit/s)

Maximumresponsetime4

Priceincreasefor 25%growthin traffic

Licensingcharges

Banknet PES6000 99.9% permonth/ 99.9%per month

4 hours/4 hours1

3 hours/3 hours

256/128 2.5 seconds/2.5 seconds

$132,632 Yes (except inRussia AndUkraine)

Belgacom PES6000 99.9% permonth/ 99.8%per month2

4 hours/8 hours2

4 hours/8 hours2

256/140 2.2 seconds/2.2 seconds

$55,683 No

Detesat PES6000 99.5% permonth/ 99.5%per month

4 hours/8 hours 4 hours/12 hours 192/150 4 seconds/4 seconds

$620,155 Yes

FranceTelecomTranspac

PES6000 99.9% permonth/ 99.8%per month

4 hours/8 hours

4 hours/8 hours

128/80 Notdisclosed

$420,000 No

HOT PES5000 99.75% permonth/ 99.75%permonth

8 hours/8 hours

2 hours/2 hours

138/76.8 2 seconds/2 seconds

$96,000 Yes

IBM SkystarAdvantage

99.7% permonth/ 99.5%per month

4 hours/8 hours

4 hours/8 hours

38.4/256 2.5 seconds/2.5 seconds

$120,000 Yes(exceptEastern Europe)

Infocom PES6000 99.9% permonth/ 99.8%per month

4 hours/12 hours

4 hours/8 hours

384/512 2.3 seconds/2.3 seconds

$320,000 Yes

JointStockRomantis

PES8000 99.9% permonth/ 99.9%per month

12 hours/12 hours

24 hours/24 hours3

64/64 2.5 seconds/2.5 seconds

$132,000 Yes

Spaceline Nexstar IV 99.5% peryear/ 99.5%per year

4 hours/8 hours

4 hours/4 hours

256/128 2.5 seconds/3 seconds

$516,000 Yes

1. Except in Ukraine and Russia, where it's 8 hours within 150 kilometers of the capitalcity and 24 hours beyond.2. The operator says it meets requested SLA values but did not actually submit thesevalues.3. 4 hours in Kiev.4. Western Europe/Eastern Europe

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