Do Satellite Communications Threaten Telcos and Their 5G Plans for Vertical Markets?

Many satellite companies look to expand their business by offering broadband connectivity. A few days ago, the Federal Communications Commission’s (FCC) chairman, Ajit Pai, proposed to accept SpaceX’s application to use low Earth orbit satellite technologies to provide broadband services in the United States and across the globe. This initiative can help bring broadband and connectivity to remote areas, while also offering more connectivity options in areas already served by carriers. In the past year, the FCC approved requests to provide broadband services in the United States using satellite technologies by OneWeb, Space Norway, and Telesat.

Satellite companies and technologies are at the crucial stage of being affected by the development of 5G. In 2016, the FCC denied protected status for satellite bands, including the C-band (4-8 GHz), which was previously identified as a potential 5G spectral band. Talks of repurposing certain satellite bands for 5G use make the move of satellite companies to bring broadband focusing on bridging the digital divide a welcome offer for regulatory bodies always looking to connect the unconnected. Satellite technology could also be used to support 5G. In January 2018, thSae satellite industry compiled a document titled “Satellite Solutions for 5G” during the European Electronic Communications Committee (ECC) Working Group Frequency Management’s (WGFM) 87^th meeting, presenting the possible use of satellite communications in 5G. However, there are still doubts that the technology could meet the capacity and latency requirements of the 5G specification and that it could be of viable use to support 5G use cases, such as the enhance mobile broadband (eMBB) use case.

By targeting remote and isolated areas, satellite companies will mostly provide services complementing carriers’ offerings and footprints, thus they will not be in direct competition with telco operators, at least for the short term. Bringing connectivity to remote areas helps bridge the digital divide, but can also create new opportunities. Remote coverage and connectivity is essential to support the needs of remotely located industries. Many end markets, such as farming and agriculture, mining, railways, trucking, disaster emergency response, oil & gas, and energy, could use high-speed connectivity provided by satellite broadband. This will impact telco operators, as they want to leverage the innovative power of 5G to target multiple end markets, especially because they may not have coverage in areas where these verticals require broadband access.

Improving satellite technology results in more competitive offerings. OneWeb affirms that its Internet access would have latencies of around 30 ms with speeds around 50 Mbps. Such features, if delivered, would support a broadband service able to directly compete with telcos’ traditional offerings. Additionally, satellite companies like SpaceX will provide global coverage, a feature that could attract certain international business enterprise.

Telco operators must assess whether, in the long term, these new players and technologies will pose a threat to their core business, carefully evaluating these companies’ core business needs and rationale for entering the broadband market. In the short term, satellite companies will mostly not compete with telco operators and their offerings and reach will primarily complement the telco operators’ footprints. However, telco operators want to use 5G to address multiple separate verticals, such as industrial, mobility, etc. Some of these verticals, and especially the remote-based industries, will eventually be targeted by both satellite companies and telco operators, which will result in increased competition.

Satellite companies targeting multiple end markets will ultimately result in a more limited opportunity for telco operators. To adapt to this situation, when their own connectivity options will not be sufficiently competitive, operators will have to position themselves as partners, marketing their complementary services, such as data analytics and cloud infrastructure. One example of a partnership between a telco operator and a satellite communication provider to reach end markets is Deutsche Telekom, which in 2015 partnered with Inmarsat and Nokia to bring high-speed connectivity to the aviation industry, leveraging both a LTE-based ground network and a satellite network. This initiative resulted in the current pan-European network branded the European Aviation Network.

Telco operators must understand that a connectivity-only business model could come under increasing pressure, even with the advent of 5G. Satellite technologies are evolving and costs are decreasing, which could present a long-term competitive threat for operators. Furthermore, other companies like Google and Facebook have also been experimenting and assessing alternative technologies, such as balloons (Project Loon) and drones (Project Aquila), to bring connectivity. Besides these projects, in 2015, Google and Fidelity invested US$1 billion in SpaceX; the same year, Facebook announced a partnership with Eutelsat to launch a satellite in 2019 to expand broadband connectivity in Sub-Saharan Africa.

There is no single way to face a changing market. A unique approach to the expansion of satellite providers offering broadband services was taken by SoftBank. SoftBank, a telco operator with a strong attitude for investments, invested at least US$1 billion in the satellite communication provider OneWeb. SoftBank also tried, unsuccessfully, in 2017 to push forward the merger between OneWeb and Intelsat to create a leading satellite communication provider. Despite its shortfall, this move shows the importance attributed by SoftBank to the expansion of satellite technologies.

SoftBank’s example proves that telco operators should consider different solutions that best adapt to their strengths, assets, and capability, while facing new challenges and competition. Satellite operators may prove to be valuable partners for coverage in remote areas and can help operators reach areas for which they could not create a business case.