The long-term dream of building satellite and hybrid satellite-terrestrial broadband networks is moving closer to reality. Meanwhile, Nokia-Siemens Networks (NSN) is once again active in M&A and its push to win managed network service contracts reflects the company's and ICT industry's shift to consolidated business services suppliers.
Satellite cellphone and broadband networks have failed in the past to appeal to mass markets, due to both the physical requirements of antennas and other aspects of mobile device designs and the practical limits on the capacity that can be hoisted up into orbit and that must share limited bands of spectrum across large terrestrial areas.
This has contributed to an inability to achieve the device cost structure needed to support the short-lived competitive product cycles. Use has been relegated to applications for which high cost, bulky devices and antenna units are tolerable.
My guesstimate for a critical mass of deployments is coverage of over 100 million POPs within a fairly contiguous geographic region. Part of that requirement is that this region be able to attract ARPU in line with the costs of deployment; thus the formula would vary if considering a low ARPU country like India compared to a high ARPU country like the US. The revenue vs cost of deployment, promotion and operation of the network would obviously have to be taken into account.
A hybrid satellite business model might be justified in extremes of cost vs revenue situations; the coverage scenario in India would be over 300 million POPs to build a viable satellite-terrestrial business model as the ARPU of the captured market would be much lower and may take several years to mature an appetite for premium broadband services. The US market, on the other hand, is more driven by the internet-phone application service model where higher ARPUs are the norm.
For developed markets such as the US and Canada and parts of Mexico and Latin America that a satellite network might reach, a major requirement is similar to that for Clearwire or any other terrestrial network: gaining access to the most popular mobile phones and hot devices that have driven market share.
Broader scope
This has been a major reason why Motorola, an infrastructure supplier to Clearwire-Sprint, elected to make its new Droid phones available on Verizon (and other) networks rather than on the Clear network - the difference between expected sales of tens of millions vs perhaps a million or so, respectively.
So what will become of Harbinger/LightSquared's planned hybrid satellite-terrestrial network? To begin with, the scale of the agreement is expected to evolve in a step-wise fashion. The major down payment of about $3 billion can be viewed as a "foot in the door" required to build out the spectrum. While the initial investment is sufficient to achieve the early coverage milestones, it is far from the amount needed over the next ten years to substantiate the outlined vision for the new hybrid operator model. The announcement of $7 billion to $8 billion capital expenditure is not entirely secured.
Harbinger's goal of turning over the investment in spectrum and operations for what they hope is a very sizeable profit, may assuage the company to pump up the level of commitment.
LightSquared is also a play on the expected evolution of ICT operator model to that of a more open, collaborative wholesale model. This new model includes "everything but the kitchen sink" use of spectrum as an exploited resource to serve everything from low ARPU M2M apps to high-value mobile broadband subscriber devices and specialty vertical market applications. Implicit in this IP broadband everywhere model is the expectation that much of the creativity in devices, applications and vertical-to-mass market development will be performed by others. As Clearwire has recently acknowledged in discussions, "we can't develop applications ourselves, the open market has to do that for us."
The target of the ever-evolving marketplace must be set two to five years in advance of announcing new deployments and the work needed to make devices available during their brief "hot" window of opportunity.
Harbinger's move to use NSN to build and manage its network fits well with the company's intent to eventually sell the developed spectrum assets. It also fits the growing rigors for operators to become facilitators of partnerships, wholesale services and become active in a wide range of vertical markets.
In other words, deliver content and services in a volatile shape-shifting business environment. We think that the hybrid satellite-terrestrial LTE network business model will achieve significant success after passing a few thresholds.
Robert Syputa is a senior analyst and advisor with Maravedis