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Finally, broadband satellite with real speed

In 2012, Hughes Communications plans to launch a satellite that could improve performance tenfold. But will it be a real competitor to other broadband services?

Satellite broadband service has long been the choice of last resort for many consumers. It's slow, expensive, and capacity is limited.

But in the first half of 2012, that could change. Hughes Network Systems, one of the largest satellite broadband service providers in the world, will launch the Jupiter satellite, which will offer more than 100 gigabits per second of capacity. This is more than 10 times the capacity the company currently offers on its existing satellite, launched in 2008.

The new satellite means that Hughes and its wholesale customers, which will resell the service in Canada and the U.S., will now be able to address between 1.5 million and 2 million consumer broadband customers offering average download speeds of 5Mbps. High-end services could go up to as much as 20Mbps, according to Arunas Slekys, vice president of corporate marketing for Hughes.

While these speeds are not earth-shatteringly fast compared with cable modem services and fiber services from the phone companies, they are a huge improvement over what satellite is able to offer today. Hughes' top tier of service currently offers 2Mbps downloads with 300Kbps uploads for $120 a month. Compare this with Comcast, which is selling a 12Mbps/2Mbps service for $43 a month, without a bundle service discount. The price is actually cheaper if subscribers also sign up for TV and home phone service.

Even though satellite broadband will still not compete head to head with cable in terms of performance, it easily meets the Federal Communication Commission's minimum requirement for a broadband service: download speeds of 4Mbps and uploads of 1Mbps. These speeds also make it competitive with DSL or 4G wireless services.

AT&T and Verizon Communications, which still service more than half their customer base with traditional DSL technology, offer average download speeds around 3Mbps. Clearwire, which is building a 4G wireless service using WiMax, is selling residential wireless broadband service with average download speeds around 6Mbps.

The new satellite broadband speeds are good news for people who have traditionally had few options when it comes to broadband. Still, even though the speeds have improved, the pricing compared with DSL or even 4G wireless services, must come down for it to truly compete.

"The speed and capacity improvements with the new satellite are impressive," said Vince Vittore, a principal analyst with Yankee Group. "But I can't see a way for the pricing to be competitive. Hughes would have to figure out a way to significantly reduce the cost of the service. So I see it remaining a niche service for some time."

Hughes' Slekys wasn't able to provide specific information about the pricing of the new service. But he said that Hughes would be competitive with other available services. He said the increased capacity of the new satellite means Hughes can serve more customers, thus reducing its per subscriber cost.

Today, Hughes offers broadband service via the Spaceway3 satellite it launched in 2008. This satellite has a capacity of 10 gigabits per second and can potentially serve up to around 700,000 subscribers. Jupiter, the next-generation satellite that will be launched in 2012, will offer 10 times that capacity. Slekys explained that launching the new Jupiter satellite is roughly a $400 million investment, similar the cost of launching the previous satellite.

"When you do the math, it's conceivable that we can offer high-speed broadband service at competitive prices," he said. "We're not there yet, but you can see how it's on the horizon. And we think we will be able to reach a more mainstream customer base."

Hughes serves about 350,000 broadband customers on the current satellite that has capacity for up to 700,000 subscribers. At the end of the third quarter of 2010 (PDF), Hughes reported it served a total of 558,000 satellite broadband subscribers. Roughly, 208,000 subscribers are still served by satellites it leases capacity from, including ones operated by SES, Intelsat, and others. But as the contracts expire, the company moves subscribers over to its own satellite. By the end of 2015, the company expects to have more than 930,000 subscribers.

The company expects some of the subscriber gains to come from simply having a more appealing broadband product with faster speed downloads and uploads. Currently, the company's service appeals mostly to people who are unable to get any other broadband access.

Who needs it?
Today, about 90 percent of the U.S. population has access to either cable modem or DSL broadband service. This means that 10 percent of the population does not have access to any broadband. While these areas are often sparsely populated rural areas, there are also communities that are relatively close to major metropolitan areas that still have no access to broadband. Some of these areas include communities in the tech-centric San Francisco Bay Area and areas north of San Francisco in Mendocino County.

These are the parts of the country currently served by satellite. And the faster speeds, at any price, will likely feel like a godsend to those already in desperate need of faster broadband.

"The service from the new satellite will be a significant improvement over what people have today," Vittore said.

More than speed, Vittore said that the satellite will offer more capacity to individual subscribers. Today, most satellite broadband services are capped so that users can only consume a certain amount of data per month or even sometimes per day. When users exceed the limit, their service is throttled or slowed down to dial-up speeds. With more capacity from the satellite providing the new service, Hughes can greatly increase the caps or even lift them for some customers.

"This is especially important as people consume more video online," Vittore added. "Video is a huge consumption hog."

In addition to serving its current customer base, Hughes also received $58.7 million under the American Recovery and Reinvestment Act of 2009 administered by the Department of Agriculture's Rural Utilities Service. This award is part of the government's initiative to bring broadband to every American in the hopes of stimulating job growth and economic recovery. Hughes is expected to use this funding to bring service to more consumers in places where broadband is currently not available.

But rural and underserved consumers aren't the only ones that Hughes plans to address with its new service. The company is also looking to target the enterprise and government markets.

"Our birds [satellites] are already delivering service to businesses and government agencies," Slekys said. "We can provide redundancy for them, and we're also seeing a lot of emergency and first responders wanting our service."

The faster speeds and higher network capacity means that Hughes can more aggressively compete for these customers.

But cost, speed, and capacity aren't the only limitations facing satellite broadband services, such as those offered by Hughes. Latency on satellite broadband is a huge problem, given that the satellite dish providing access to the Internet must communicate with a satellite in a geostationary orbit 22,000 miles above the Earth's equator. This is more of an issue for services such as voice over IP or interactive gaming. While software can help reduce some of the latency, engineers cannot change how quickly signals travel from earth to the satellite and back.

Another consideration is that because the dish must communicate with the satellite, it has to be placed in clear view of the southern sky in the U.S. to receive the broadband signal. And as many satellite TV customers have experienced, weather can also affect reception of satellite broadband service. Outages are likely to occur during heavy rainstorms or other severe weather such as snow storms.

The upstart cost of satellite broadband is also pricey. Consumers must buy and install the equipment. Some estimates suggest it cost as much as $1,000 to get satellite broadband up and running. And because the dish that is used to deliver satellite broadband is different than the satellite delivering satellite TV, consumers who already subscribe to satellite TV service will get no break if they subscribe to satellite broadband.

All told, even the speedier satellite broadband that Hughes plans to launch in 2012 won't be a good fit for every consumer. But for those with no other options, it will be welcome update.