Stimulus funding for satellites brings broadband to remote rural areas

While other stimulus award winners are just beginning to break ground or are still waiting for EPA approvals, Hughes Network Systems already has signed up remote rural customers for its satellite broadband service—funded, in part, through the broadband stimulus program. Although Hughes hasn’t released numbers, Hughes Vice President of Channel Marketing Mark Wymer told me the company, which launched the subsidized offering in October, has had “considerable success” with it.

I took some time this week to talk with Wymer and Lisa Scalpone, general counsel for ViaSat, another of the four satellite broadband providers that won a total of $100 million through the broadband stimulus program. As regular readers may know, I’ve been critical of satellites as an alternative to landline or even terrestrial wireless-based broadband services. So you may be surprised to hear me say that I came away from these conversations thinking it was a good idea to give some of the stimulus funding to the satellite operators.

It doesn’t mean I’ve changed my opinion about satellite service itself. Because of the laws of physics, the latency of satellite-based offerings is not as good as that of terrestrial offerings.

But the point of the stimulus program was to create jobs as soon as possible—and the satellite program was uniquely suited to achieving that goal because satellite operators already offer broadband service nationwide, even in the most remote rural areas. The funding did not go toward network construction but instead pays installation and some service costs for customers who did not already subscribe to satellite service in rural areas where no terrestrial carrier offers service (or has received funding to offer service) at speeds of 768 kb/s or above.

Wymer said Hughes already has added installers to support the program, and Scalpone said ViaSat, which plans to launch its subsidized offering by the end of June, will need to hire call center and compliance and reporting personnel. ViaSat doesn’t do its own installations, but the companies it contracts to do that work also will likely need to hire people.

As Scalpone noted, greater broadband subscribership also should help boost rural economies—a topic Connected Planet has explored previously. “Mom and pop shops in rural America will see a significant uptick in business,” Scalpone said.

Satellite offerings compared

Hughes and ViaSat will be in competition with each other for stimulus program customers. Hughes won funding for service throughout the U.S., while ViaSat won funding for the midwest and west. ViaSat also resells its offering through Dish Network, which won the rest of the U.S.—enabling ViaSat to essentially be a nationwide provider of the subsidized offering as well. (To complicate matters even further, ViaSat won its funding under the WildBlue name and Dish won funding under the EchoStar name.)

Hughes normally charges $60 a month for its basic 1 Mb/s downstream- 200 kb/s upstream service plus $10 a month for equipment rental. New customers in areas that qualify for the stimulus program can get that service for $40 a month—a price Wymer said Hughes is required to offer for a year. Customers also can obtain discounts on higher speed services, which currently peak at 2 Mb/s.

The company is planning to launch a new satellite in 2012 that Wymer said will be “ten times more powerful than what we have now,” enabling the company to offer speeds as high as 10 Mb/s. With that new platform, the company hopes to raise the amount of bandwidth a customer gets at each price level, which may enable customers who signed up through the stimulus program to continue to get the same speed service at roughly the same price as in the stimulus offering.

ViaSat’s normal pricing closely matches that of Hughes--$70 a month for 1 Mb/s downstream service—and the stimulus program price for that offering also will be $40 a month. ViaSat’s current maximum speed is 1.5 Mb/s a month, but it also will be launching a new and more powerful satellite that will enable it to offer higher-speed service (up to 10 or 12 Mb/s). As a result, ViaSat definitely plans to continue to match the stimulus program price when the program is over, Scalpone said.

Satellite performance issues

The big question for the satellite stimulus program is how satisfied customers will be with the offerings. A recent report from the Small Business Administration revealed more dissatisfaction with satellite broadband than any other type of Internet access other than dialup. Much of this dissatisfaction relates to the inherently higher latency of satellite-based services.

I asked Wymer and Scalpone about the performance of their offerings and both acknowledged that the round trip to and from the satellite increases latency—about half a second, according to Scalpone. Some services are affected by the delay, while others are not, they said.

Scalpone noted, for example, that streaming media is not impacted because of buffering. But both Wymer and Scalpone noted that higher latency is an issue for anything requiring “twitch” interaction such as a video game.

Scalpone and Wymer had different opinions about the impact of latency on standard web browsing. Wymer said customers don’t see any real degradation. But Scalpone said customers notice more of a delay accessing standard web pages than when they access streaming media. The reason, she said, is that accessing some web pages can create many round trips with today’s ground technology. ViaSat expects to improve that situation by using new ground station technology for the satellite that it is launching in 2011.

As for voice communications, Scalpone said VoIP performance on ViaSat’s network is not any worse than for communications between two cellphones. Wymer said Hughes engineers are working on new packet prioritization options and compression rates with the goal of enhancing the performance of VoIP. “The smaller you can make the packet and prioritize it, you can optimize it to the point where it’s not very noticeable,” he said.

What all this means for small telcos

Because of the traditionally high price of satellite broadband and because of performance issues, telcos have tended not to view satellite broadband as competition. Satellite providers clearly are beginning to close both of those gaps. Telcos that have deployed fiber will continue to have an edge in that their bandwidth can be upgraded virtually infinitely, and they don’t have the latency issues. But they shouldn’t be complacent.

At least one FCC report has argued that satellite broadband could be the best approach to serving some of the 7 million or so U.S. homes that can’t get broadband today—and the gains the satellite providers are making add strength to those arguments.

What concerns me, though, is what will happen in high-cost areas where telcos need ongoing Universal Service support for broadband infrastructure they already have deployed. If funding is awarded based on a reverse auction with a 4 Mb/s minimum speed target, could satellite providers underbid the telco and if so, what happens? Does the satellite provider get the funding and does the telco close down its higher performing network?

The FCC hasn’t said that’s what it has in mind. But it also hasn’t ruled out that possibility.