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Satellite broadband is finally competitive on price, but distribution remains a key challenge

As a rural broadband customer is it better to spend EUR30 per month on a 7.2Mbit/s mobile service or a 6Mbit/s satellite service? That is the question facing German consumers now that mobile operators are rolling out rural LTE services using the 800MHz digital dividend band and Eutelsat has started taking orders for its Tooway Ka band satellite broadband service.

On the face of it the satellite proposition should be far more attractive because the 6Mbit/s headline rate is more or less guaranteed (except during very heavy rain, when it may drop back to a rather lower rate), whereas anyone who has used mobile broadband knows that the actual throughput is highly variable and generally well below the headline rate.

There are, however, some further considerations. LTE services give you a hefty 10GB monthly data allowance but with Tooway you only get 4GB every four weeks and a further limit of 1GB per hour (larger bundles are also available at extra cost with LTE and Tooway). Moreover, an LTE router with built-in Wi-Fi can be rented for an extra EUR2.50 per month whereas with Tooway you need to pay EUR200 for a terminal and then buy your own Wi-Fi router. Finally, the LTE terminal is a simple desktop unit that just needs to be plugged in somewhere near a window (and can be taken to other people’s houses if you wish), whereas the satellite terminal consists of a dish bolted to the side of your home connected to an indoor unit via a co-axial cable. Users who are unable to fit the equipment themselves can expect to pay at least another EUR100 for professional installation.

If the up-front costs of the Tooway service could be amortised over 24 months then the price premium over LTE would only be around 30% (see Figure 1): in those circumstances it is arguable that Eutelsat would still be very competitive if it could maintain its quality of service, particularly for consumers who live in places with poor LTE signal strength (or no LTE coverage). However, many existing satellite resellers are simply too small to make this kind of financing offer to their customers.

Figure 1: Comparison of satellite and LTE broadband costs in Germany, July 2011 [Source: Analysys Mason, 2011]

Note: Satellite pricing based on SAT Internet Services 6Mbit/s Tooway product; mobile broadband pricing based on Vodafone Zuhause Internet 7200S service.

Of course, most other European markets have no rural LTE coverage at present, and here Ka-band satellite broadband offers vastly superior performance to anything that has previously been available, at prices very similar to those on offer in Germany. Even so, terminal subsidies and high-profile marketing campaigns for satellite broadband would appear to be pre-requisites to drive take-up.

Avanti Communications, the only other satellite operator with a Ka-band service in Europe, is trying a different distribution strategy, by selling what is effectively a white-label service through third parties in the hope that they will buy in bulk, promote it, and subsidise the terminals. But many of the agencies that fund rural broadband roll-outs have a preference for fibre-based infrastructure and there is a risk that operators may put more effort into selling their own fixed and mobile broadband services rather than someone else’s satellite service, even to consumers for whom satellite would offer superior performance.

Distribution therefore looks like being the key issue for European satellite broadband operators to focus on over the next five years, and a critical factor in determining whether recently-launched Ka-band satellites earn a good return for their owners.

Philip Bates, Senior Manager at Analylys Mason

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