The Future of VSAT

ENTS 630, Fall 1999

Advisor: Dr. Joseph P. Bailey

Jerriett Brown, Jerry Frank, Moses Juwillie, Jiasi Li, Vikas Shah

Abstract

VSAT or Very Small Aperture Terminal is a telecommunications technology

that uses geosynchronous satellites as relays for point to point, multi-point or
broadcast communications. This paper introduces the key concepts and
history required for understanding this rapidly growing technology in the
present frame of reference.

In trying to understand the future course of this telecommunications

technology, two analyses are performed. A price elasticity study is presented
to gain understanding of market forces and definition. The results indicate
that while the VSAT industry has collapsed to a few key players, the market
is competitive; price pressure is exerted by substitutes. Secondly, a model of
VSAT deployment in the United States shows that the rate of VSAT
deployment is a monotonically decreasing function of population density, yet
the VSAT industry is growing at a rate equal to or in excess of 30%. Causal
factors of this paradox, such as mergers, acquisitions and globalization are
discussed.

I. Introduction to VSAT Technology

VSAT or Very Small Aperture Terminal is a telecommunications technology

that uses geosynchronous satellites as relays for point to point or broadcast
communications. Conceptualized in the 1970’s, mass production of VSAT
terminals began in the late 1980’s. One of the major suppliers to the U.S.
market, Hughes Network Services, has supplied more than 250,0001 VSAT
terminals to date.

VSAT technology offers a number of benefits when compared to traditional

land-based telecommunication solutions. The majority of these benefits are
related to the technology’s freedom from terrestrial infrastructure. Due to
the service footprint of geosynchronous satellites, continental diameter
networks can be deployed in a matter of weeks. With only three

1
1998 Hughes Electronics Corp., 1998 Hughes Annual Report, pg. 6

1
geosynchronous satellites required to provide worldwide coverage, a global
network can be generated at a fraction of the cost of a wireline network of
equal connectivity. VSAT can provide telecommunications service to regions
that are inaccessible to the more traditional land-based communication
technologies. The combination of large service footprint, broadcast, multicast
and point to point capabilities make VSAT attractive in a number of
communications markets: distance learning, LAN/WAN relay services, point
to multi-point services, Point of Sales, telephony and multimedia
broadcasting. The balance of benefits and tradeoffs will be more fully
discussed in later sections.

Current VSAT network topology can be parsed into two classes: star and
mesh. The star topology is primarily used for data services. Remote units
such as PoS terminals or branch office LANs communicate to a central
processing site called a hub. Should remote to remote communication be
desired, the path would be from the point of origin, through the satellite to
the hub, and then back through the hub to the destination. This is known as
a two “hop” path. A mesh topology allows the remote stations to directly
communicate with each other via a single hop.

Because of the altitude of the geosynchronous orbit, the hop or round trip
delay for VSAT services is approximately 250 msec. In order to use VSAT for
voice applications, the long propagation delay must be minimized. The mesh
topology resolves this problem by using a two hop path only during the initial
call setup. After path initialization, a single hop is used, providing direct,
remote to remote communication. By using only one-hop delay, the mesh
topology provides near toll quality voice transmission with minimal
propagation delay.

The VSAT satellites operate in two sets of spectral ranges in the United
States: In the Ku band the uplink operates between 12.75 and 14.5 GHz. and
the downlink between 10.7 and 12.5 GHz.; In the C band the uplink operates
between 5.8 and 7 GHz., and the downlink will be in the 3.4 - 3.8 GHz. band.
It should be noted that there are technical tradeoffs between C and Ku band
operation. The higher frequency Ku equipment will allow for higher data
rates and reduced dish size. The signal integrity of C band equipment is less
effected by weather but experiences greater interference from terrestrial
microwave sources2.

II. VSAT Industry History

The VSAT market has consolidated from several companies to a few
prominent players (Figure 1). Of the survivors, two major groups, Hughes
2
Maral, G., VSAT Networks, John Wiley & Sons, New York, 1995

2
 Historical View of the VSAT Market

1986 1988 1990 1992 1994 1996 1998 1999

HNS (MA/COM) 1st 2-way VSAT network 1st VSAT LAN network (Toys R
(Wal*Mart) Us)

AD/COM Sold to Scientific

Atlanta

Scientific Atlanta

Tridom Sold to AT&T

AT&T/Harris

AT&T/Tridom Sold to GE

Equatorial Sold to CONTEL

Comsat TP Sold to CONTEL

CONTEL Sold to GTE

GTE Spacenet NEC H/W Gilat H/W Sold to GE

GE/Spacenet Sold to Gilat

Gilat/Spacenet

Figure 1-Historical View of the VSAT Market

Network Systems (HNS) and Gilat/Spacenet control the majority of the VSAT
products and service market (Figure 2). The first two way VSAT network
was deployed by MA/COM which was subsequently acquired by Hughes
Network Systems. Since then, HNS has been a consistent presence in the
VSAT Industry. The mergers of another group of companies GTE Spacenet,
AT&T/Tridom, GE/Spacenet led to the emergence of Gilat/Spacenet

While the enormous capital investment made by both Gilat and HNS provide
a significant barrier to market entry, argument can be that market price
behavior in the VSAT market is very competitive rather than duopolistic.
Further pressures on prices is exerted by substitute technologies and will be
more fully discussed in later sections. For a complete example of the pitfalls
and realities of VSAT deployment, please turn to the appendix.

3
III. The VSAT Market

VSAT Market Share in 1998

HNS
47%

Gilat
40% Other
13%

Figure 2-VSAT Market Share

With the recent emergence of Gilat as a significant and strong contender, the
VSAT market is facing immense pressures on margin. This can be detected
by observing that officially, HNS and Gilat still practice 3rd degree pricing
discrimination, but because there are so many variables in the pricing
structure, they are able to charge different prices for each of their customers,
significantly enhancing revenues.

HNS, once having held significant market power, has been forced to
reevaluate it’s market structure because of Gilat’s relentless pursuit of
market share. This has resulted in the continual decline in the cost of VSAT
products and services with a commensurate increase in demand, both in
United States and globally.

4
Figure 3-The Demand Curve of VSAT Terminals

The Demand Curve of VSAT Terminals

5000
1997
4000
Price/Unit

1998
3000
1999
2000
1000
0
58000 80500 115000
Quantity

With the rapidly rising demand for high-speed data and other
telecommunication services, the VSAT industry is facing a dramatic change
in pricing structures and service offerings. As reported by Comsys, the
demand for VSAT terminals has dramatically increased over the past few
years (Figure 4). The number of terminals deployed for the year 1998 were
80,000 with respect to 58,000 in 1997, which accounts for a compound annual
growth of 27% over the past three years. The Comsys 1999 VSAT report then
goes on to state that a total of 500,000 terminals are globally deployed.

We can derive the price elasticity of demand from the following:

η = %∆Q/%∆P = (∆Q/∆P) * (P/Q)

= (80,500-58,000) / (3500 - 4700) * (3500/80,500)
= -1.52

Since the absolute value of η is greater than 1, the price is elastic for the
above demand curve. This is further evidence that the market is competitive.

Figure 4-Annual VSAT Bookings

Annual VSAT Bookings

100000
80000
60000
Sites
40000
20000
0
1995 VSATs Booked
1996
1997
1998
Year 5
Proving that the market is competitive does not necessarily account for the
rate of growth enjoyed by the VSAT industry. What does? A consumer
survey3 places the technology’s appeal in a more analytical light:

Reason For Selecting VSAT % of Respondents

Cost Savings 91%
Flexibility 84%
Reliability 80%
Data Rate Support 65%
No other svc met need 41%

"Our satellite network is a key competitive advantage. It's what lets us

deliver our reservations at the lowest cost in the entire hotel industry. Frame
relay would drive up annual costs by $2 million. We couldn't cost-justify
switching to another technology, even if we wanted to." Says Maybe Lynn
Goodendorf, director of telecommunications operations for Holiday
Hospitality Corp. (Holiday Hospitality is the corporate franchise for such
hotels as Holiday Inn, Crowne Plaza, and Sunspree.) This statement helps
explain why Holiday Hospitality Corp with its 2400-site network is sticking
with VSAT’s, despite aggressive proposals from frame relay providers.

The case is far from unique. With increasing global trade, companies are
turning to VSAT to reach a particular location in mountainous terrain and
distant places, which prevent fiber or other lines from being laid cost-
effectively. And it’s usually the only choice for the maritime and oil
industries.

The economic advantage of VSAT is not limited to usage. Unlike frame relay,
a VSAT network only has one piece of equipment to manage at the remote
site. Training and operational costs are significantly lower than a Unix based
system.

Figure 5-Annual Cost/Site of Alternatives

Annual Cost/Site

1.5/256K ASDL
Technology
Competing

1.5 M T-1
56K/128K Frame Realy
3
J.T. Johnson, Users Rate VSAT
512/128 VSAT, Data Communication Magazine, 1992

56K Leased Line

$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000
6
Cost/Site
VSAT services can help companies avoid the long provisioning delays
involved in the deployment of conventional leased lines. Depending on the
national PTT and the location of a network site, provisioning of leased lines
in some places can take six months or more. If a site is located far off the
beaten path, PTTs may even require their customers to pay some or all of the
expenses involved in running a leased line to that site. With VSAT service,
operators say they can establish working links in four weeks or less, with
installation charges limited to the cost of setting up the VSAT earth stations.
VSAT services also holds the promise of delivering more reliable connections
compared with conventional leased lines in many parts of the world.
Although VSAT transmissions can be adversely affected by environmental
conditions like rainstorms, availability generally is much greater than that of
conventional leased lines.

When it comes down to dollars, general cost comparisons between VSAT

services and their terrestrial equivalents reveal the striking advantages of
the technology. Charges for terrestrial services are distance dependent, while
VSAT connections cost the same whether sites are 1 or 1,000 miles apart.
VSAT customers can immediately enjoy economies of scale as networks
expand; most of the operator's fixed costs are located in the central hub which
is needed regardless of how many VSAT’s are installed.

But what's most clear in terms of costs is that VSAT charges are coming
down--and fast. They're just a third of what they were a few years ago.
What's behind the price decline? Several factors, including reductions in
equipment prices and import tariffs, economies of scale as hubs handle
greater numbers of connections, efficiency improvements as operators gain
operational experience, and aggressive competion. VSAT operators as a rule
charge flat monthly tariffs--which is likely to be a welcome change for
customers tired of interpreting unpredictable, volume-based terrestrial
equivalents bills from PTTs and others.

IV. Modeling U.S. VSAT Deployment

In order to understand the future of VSAT technology we will construct a

model of its present employment in the United States. The model is based
the hypothesis that VSAT employment is a monotonically decreasing,
piecewise linear function of population density. This model will be general
enough that global application should be possible, with the appropriate
adjustments for per capita income and the availability of substitutes.

Discussion is limited to VSAT data and video services offered in the United
States by the two principal players in the VSAT industry, Hughes Network

7
Systems, Inc. and Gilat Satellite Networks Ltd. These two companies
account for 88 % of the market. Telephony applications will be excluded from
this study as they are insignificant in the U.S4,5.

To support our thesis, we will examine the Hughes partial customer database
for hub based services as described in the Comsys 1999 VSAT report entitled
“VSAT INDUSTRY STATUS REPORT TO CLIENTS: HUGHES NETWORK
SYSTEMS: American Services”. This selection is made as the largest
application of VSAT is hub based data services6,7 and Hughes is the
acknowledged leader in hub services. Study of this data reveals that the
majority of users of hub services (1998) can be grouped into eight categories
as listed in table 2.

Category Installed
Retailers 35,402
Automotive Companies 2,825
Financial 1,736
Hospitality 1,587
Service Providers 1,561
SCADA 1,198
Telecom 542
Distance Learning 395
Table 1 : User Categories

Noting that retailers are the most prevalent group of users, which include
petroleum distributors, food and drug stores, it is easy to imagine that at
least one of these businesses will appear in relatively small towns. As the
time necessary to perform an adequate survey was not available, the data
will be simulated by postulating that at a population density of 500 per
square mile, there will be at least one VSAT user per jurisdiction. After this
point, we will model VSAT terminal population to scale linearly with
population density.

VSAT population density = A * Pd

A = scaling factor, b = y intercept
Pd = pop. density; Pd > 500 / mi2

Note that the Hughes database has a little over 50,000 entries. Gilat’s data
indicates a similar number of sites that are serviced. As a first order check
4
http://www.gilat.com/gilat/
5
http://www.hns.com/
6
http://www.gilat.com/gilat/
7
http://www.hns.com/

8
on the previous model we note that there are significantly more than 100,000
business in the United States. According to the 1998 US Census8, there were
over 22.3 million corporations, partnerships and nonfarm proprietorships.
Even if we allow that only 30% of these entities have need for data services,
that number exceeds 100,000 by more than an order of magnitude. Therefor,
at some point, the VSAT density formula postulated in the preceding section
must fail.

One possible hypothesis can be generated by examining the other modalities

of data transport; due to the cost of infrastructure, the economic advantage of
VSAT is inversely dependent upon the distance from the point of application
to a population center. Perhaps, at a certain population density, sufficient
telecommunications infrastructure will exist and make VSAT much less
attractive. Data services with greater bandwidth, much lower latency and
lower cost become readily available. We will postulate that at a second
critical point of population density, VSAT employment begins to fall off. We
will we will use Madison, Wisconsin to test for a point of inflection in the
deployment function.

Madison is a rapidly growing, medium size city. It is the State capitol, home
of the University of Wisconsin and a number of large insurance companies,
all of which depend heavily upon electronic data systems. Madison is also
nearly 90 miles from Milwaukee and 200 miles from Chicago. This
convergence of distance to communications hubs and a strong need for data
services make Madison a good candidate for providing the second critical
point of the population density function. According the 1998 US Census9,
Madison had a population of 198,000 living in a space of 57.8 miles, yielding
an average population density of 3,400 / mi2.

To discover if this population density will yield a point of inflection in the

VSAT deployment function, we use the Hughes partial customer database10
again. By cross checking the Hughes database against the YAHOO.com
yellow pages for Madison, we can get an approximate VSAT terminal census.
The results of this survey are presented in table 2.

8
http://www.census.gov/prod/3/98pubs/98statab/sasec17.pdf
9
http://www.census.gov/prod/3/98pubs/98statab/sasec1.pdf
10
Bull, Simon, The VSAT Report, VSAT Industry Status Report to Clients, Communication Systems
Limited, 1999

9
Table 2: VSAT Users In Madison, WI
Company Number of Sites in Madison, Wisconsin
Bed, Bath & Beyond 1
Best Western 3
Beverly Enterprises 1
Blockbuster 7
Consolidated Freight 1
Hughes Mall Services 10
Kohl’s 3
Marathon Oil 1
Mobil Oil 7
NBC (affiliate station) 1
Pep Boys 2
Shell Oil 3
ShopKo 4
Target Stores 3
Texaco 4
TOTAL 51

We have assumed, for the purposes of the census that the VSAT penetration
rate for the businesses in Madison that correspond to the Hughes report, is
100%. Therefor we expect approximately 51 VSAT terminals inside of
Madison’s borders. This corresponds to a VSAT density of

51 VSAT / 57.8 mi2

or
0.88 VSAT / mi2 at a population density of 3,400 / mi2

This can not be considered a point of inflection and was not anticipated. We
had expected that the demographics would force an increase in VSAT density
with increasing urbanization up to some point of infrastructure development.
We then anticipated a decreasing function that would asymptote, to some
number greater than zero because of point of sale (PoS) operations. To
further develop the model, a data point at the other extreme will be
developed, New York City.

10
 Company Number of Sites in New York, New York
Bed, Bath & Beyond 1
Best Western 1
3
Beverly Enterprises 4
0
Blockbuster 1
27
Consolidated Freight 13
Hughes Mall Services 13
Kohl’s 0
Marathon Oil 1
Mobil Oil 5
NBC (affiliate station) 1
Pep Boys 78
Shell Oil 6
ShopKo 0
Target Stores 12
Texaco 73
TOTAL 233
Table 4: VSAT Users In New York, NY

This highly representative census yields 233 VSAT terminals inside of the
borders of New York City. According to the 1998 U.S. Census11, NYC had
7,381,000 inhabitants living on 308.9 mi2. This corresponds to a VSAT
density of
233 VSAT / 308.9 mi2
or
0.75 VSAT / mi at a population density of 23,900 / mi2
2

VSAT Employment vs. Population Density

1.1
VSAT Term / sq. mile

1
0.9
0.8
0.7
0.6
0.5
500 3400 23900
Population Density

This leads us to a surprising conclusion that VSAT employment is a linearly

decreasing function of population density in the United States. The function
can be described by

11
http://www.census.gov/prod/3/98pubs/98statab/sasec1.pdf

11
 VSAT / mi2 = -10.68 x 10-6 ( Pd) + 0.916
Where Pd = Population Density

We have presented an argument that there is an anti-correlation between

VSAT density and population density. Clearly, the model suffers from a
paucity of data points; the census relies too much upon too few businesses in
too few locations. Another source of error is in the “fuzzy” definition of
jurisdiction. Despite all of these of errors, what can we infer from the data?
There is no doubt regarding the future of the VSAT industry – growth is
typically quoted at a rate of 30% per year. First, we can say that for any
given locality, increasing urbanization or densification does not, at the very
least, strongly correlate to increased VSAT employment. VSAT utilization
must be driven by other trends.

By examining the key features of the VSAT technology, we can begin to

identify the socio-economic factors that are driving VSAT’s rapid growth:

1. Rapidly deployable telecommunications networks.

2. Network diameters of continental or global scale – the marginal cost of
distance is essentially zero.
3. Freedom from terrestrial infrastructure development costs.
4. Freedom from PTT and ILEC interface requirements.

Two major trends in business require the communication technologies that

exhibit the aforementioned properties: globalization and growth by
acquisition and alliance. “Behind the growing integration of the world
economy lies the decline in the costs of transport and communication.
Between 1930 and 1990 average revenue per mile in air transport fell from
68 US cents to 11 cents, in 1990 dollars. The cost of a three-minute telephone
call between New York and London fell from $244.65 to $3.32. Between 1960
and 1990, the cost of a unit of computing power fell 99 per cent.” This
startling analysis was presented in a October 1, 1997 Financial Times
article12. While the reader is left to ponder the “chicken and egg” nature of
global business and technology, one thing is clear – the end of the 20th
century has given rise to the multi-national corporate business model. Large
business information networks have become, almost by definition, global in
scale.

Globalization can also be presented in an alternative light. Chairman of the

Federal Communications Commission, Bill Kennard, has said "We can't

12
Financial Times, Perspective: The heart of the new world economy, October 1 1997

12
afford to have in this country a digital Dark Ages where some people are just
cut off from all this technology… There's a real danger in the country that
some Americans have all this wondrous technology and it makes them
smarter and more competitive in the workplace and others are left
behind…13" Without doubt, other PTT and communications bureau chiefs
have come to the same realization; access to communications technology for
all is essential to the economic well being of a country. Having access to
knowledge and markets can very well be the difference between a growing
economy and a backwater. Many of the developing countries face the double
burden of small GNP and formidable natural barriers. The combination
makes the development of standard telecommunications infrastructure
impossible. VSAT, with the capability of leaping tall mountain ranges in a
single bound, is a solution that is being exercised with greater regularity.
While telephony is a moot point for VSAT in the United States, it is not in the
rest of the world.

The last trend that requires the capabilities of VSAT is the concentration of
market power and scope by acquisition and merger.
Vodaphone/Mannesmann, Atlantic Telecom/Marconi, American Home
Products/Warner-Lambert, the list of mergers and acquisitions is large,
growing larger and is global in nature.

These ventures require rapid placement of global diameter

telecommunications networks. These networks must be dynamic as
suppliers, payroll and personnel, manufacturing locations and chains of
command change on almost an overnight basis.

We can see by examining the top ten customer list for Hughes and Gilat that
the common denominator is continental or larger network diameter.

Table 3-Top 10 Customer List for Hughes and Gilat

HNS' "Top 10" Customers GILAT'S "Top 10" Customers

Customers Application # of Sites Customers Application # of Sites
EDS Data Services 10660 MCI/US Postal Service Postal Services 26,000
HOT Telecom Data Services 10062 GTECH Worldwide Lottery 11,500
Amoco Gas Station 6907 Alliance Data Systems Gas Stations 6500
Impsat Rural Telephony 6727 Telespazio Financial News 4850
Mobil Oil Gas Station 6496 Rite Aid Retail & Intranet 4300
Ford Automotive 6332 IBM/Peugeot-Citroen Automotive 4200
Chrysler Corporation Automotive 6322 ChinaSat et al Stock News 3800
Chevron Gas Station 5986 Telkom South Africa Rural Telephony 3000
Telecom Italia Data Services 4540 Pagenet Paging 3000
Texaco Star Gas Station 4135 National Stock Exchange Stock Trading 2100

13
http://www.cnn.com/1999/TECH/computing/12/07/fcc.chief.profile/index.html

13
V. Conclusion

We assessed the overall nature of the industry by examining the structure of

the VSAT market. Research found that VSAT products and services are
offered in a competitive market, the market being defined not only as VSAT
but it’s substitutes as well.

A socio-economic model of the VSAT market revealed a surprisingly linear

anti-correlation of VSAT employment with population density. While the
methodology used to reach that conclusion required significant assumptions,
a conclusion could still be drawn that the rapid growth in the VSAT industry
had little to do with societal trends such as urbanization or urban
densification. Rather, the strength of the market growth continues to be
rooted in a number of other trends; globalization, consolidation and the
fundamental understanding that a healthy society is held together by lines of
communication. The commercial satellite industry has delivered a wide
range of new services and technologies that effectively and economically meet
these needs.

14
 Appendix

Case Study of VSAT Provisioning Process

15
This example14 is the result of a VSAT RFP (request for proposal) for a 200-
site installation, spanning Eastern and Western Europe, Africa and the
Caribbean over a five year period. Nine operators responded to the request.

Among the nine schemes evaluated, there was a wide range of overall project
costs, from a low of US$3,002,400 to the US$7,498,842 figure submitted by
France Telecom Transpac (see Table 1).

So what goes into overall VSAT service costs? Per-site monthly charges—
which can account for up to 90 percent of the total—and one-time charges like
installation costs. IBM came through with the lowest monthly rate at
US$194, but its installation charge of US$1.1 million bumped up the overall
project cost. HOT's per-site monthly charge of US$250 was third lowest, but
it waived installation charges altogether.

At the other end of the scale, Transpac had the highest per-site monthly
charge: US$578. Infocom's rate of US$538 was slightly less—but its
installation charge of US$3 million was astronomical. (It should be noted that
Banknet Data Communications Kft [Budapest, Hungary] and Infocom levy
usage rates based on traffic volume. To make their bids comparable, these
costs were added to the per-site monthly charge in the table.)

When prices vary that widely, network managers need to make sure they
know what they're paying for. Basically, there are more than installation and
per-site fees that go into the overall cost. There's also equipment,
maintenance, satellite capacity, and licensing fees (see Table 2). And each can
have an effect on an operator's bid.

Operators have to make heavy initial investments in such equipment as hubs

and earth stations, and these costs are usually passed on to the customer as
reflected in the overall price. The cost of the VSAT terminals themselves
actually plays a larger role. In fact, the four highest bids came from operators
that use the most expensive terminal; meanwhile, low-bidder HOT used the
least expensive terminal.

Network managers also should keep in mind that the VSAT being used could
affect the operator's ability to accommodate new apps or added traffic.
Spaceline, for instance, says a 25 percent increase in traffic over five years
would result in a US$516,000 increase in project cost. That's because all of its
Nexstar VSATs would have to be replaced. The Nexstar IV doesn't have the
capacity to accommodate higher traffic rates. It peaks out at 64 kbit/s
according to Director of Sales and Marketing.

14
GLOBAL NETWORKS ( www.data.com) , Vsat Services: Keep An Eye On The Skies

16
And adding voice also could add to costs. The PES5000, for instance, doesn't
accommodate voice at all. The PES6000 accommodates voice but not while
configured to route LAN traffic. The Nexstar IV can handle voice but not very
well. The more expensive PES8000 answers the voice call, but so does the
bargain-rate Skystar—something networkers should keep in mind.

Besides the initial investments on the hubs and earth stations, and the VSAT
terminals costs, We also found out that dish size can make for substantial
differences in price, scalability, and reliability. Operators determine the
appropriate size by calculating a number of variables to arrive at the link
budget. The key variables are data rate, availability, and BER (bit error
rate). Unfortunately, operators that want to lower their bids can tweak these
results —often at the expense of network performance.

Having this system is the ideal thing to do, but we discovered that no matter
how good the system is technically, it could all be undermined by poor
customer service. It's crucial for network managers wanting to build a VSAT
network need to find out the particulars on maintenance. Response time and
Repair time, should be specified as separate items in the SLA (service-level
agreement).

Capacity is the next major consideration—and depending on how much

operators build into their networks, it could also affect price. In other words,
a low bid might hide the fact that there is really not enough capacity for a
particular company's applications. What it boils down to for network
managers is making sure they know how the apps they're running will
perform.

Networker managers should take a particularly close look at the amount of

capacity budgeted for the inbound route. That's the link to the hub that's
shared between the VSATs; the outbound route is the link from the hub to
the VSATs. Because the inbound route is shared among VSATs at each
remote office, it's the more costly of the two. Generally, when operators use
the same equipment, the more capacity that's allocated to the inbound route,
the lower the response time and the higher the price.

When comparing prices, network managers also should find out whether
licensing fees are included. Sometimes an operator does not include them?
This is due to the commonly stated reason that charges vary too widely
among countries. Where deregulation has taken hold, licenses can run about
US$10 per site per year. But fees are much higher in some other countries.
Fees aren't the only licensing issue. Some operators may not hold licenses in
a given country—and that could make for longer time

17
to deploy. This is particularly true in countries where regulations have not
been lifted.

A comparable terrestrial frame relay for the network we spec'd, for instance,
would have A bid, from Orion Network Systems Europe [London], made use
of a fully meshed frame relay network capable of handling voice and data.
Such functionality has its price: The Orion proposal was priced higher than
the TDMA proposals at a cost of at least US$10 million—or 33 percent to 233
percent more expensive than the VSAT bids.

This case revealed a number of interesting issues concerning the industry:

• More and more companies with vast networks spanning several regions or
countries or continents find the migration to VSAT very affordable as
compared to competing technologies;
• The big players in the industry continue to increase their share of the
market through joint-ventures or partnerships—Like Hughes Network
Systems, known in Europe as HOT;
• The lowest bid won not only because it was low, but it offered other
incentives, like waiving the installation charge, representing one of the
major players on the market (Synonym to stability and possible future
growth);
• The interconnection of sites in different that brings about exchange of
information: business, social and political, eventually cultural;

18
Table 1: VSAT Operator Bids

Operator Location Phone URL Service Hub Installation Monthly Discounted

Charge (per site) total11
Banknet Data Budapest, +36-1-202-6246 http://www.banknet.net Banknet Budapest, $240,000 $339 $4,067,340
Communication Hungary Datasat Hungary
Kft.

Belgacom Belgium +32-2-202-9094 http://www.belgacom.be Vstar Liedekerke, $277,186 $381 $4,644,716

Brussels, TDM/TDMA Belgium
Detesat GmbH Bonn, +49-228-910-400 http://www.detesat.com SatLAN Hameln, $287,092 $550 $6,887,092
Germany Germany
France Telecom Paris, +33-1-45-38-88-88 http://www.transpac.franc Satstar Rambouillet, $566,222 $578 $7,498,842
Transpac SRD etelecom.fr France
SA
Hughes Olivetti Milton +44-1908-319-101 http://www.hoteu.com Hotstar Greisheim, Free $250 $3,002,400
Telecom (HOT) Keynes, Germany
Ltd. U.K.,

IBM Global Paris, +33-1-41-885-840 http://www.ibm.com/glob NS VSAT Paris $1,100,000 $194 $3,428,000
Services alnetwork
Infocom Satellite Kiev, +380-44-543-7191 http://www.ukrpack.net Infodata Kiev, $3,000,000 $258 $6,090,000
Communications Ukraine Ukraine
Inc.
Joint Stock Kiev, +380-44-416-5592 igor@romukr.kiev.ua Romantis- Kiev, $1,490,000 $209 $3,992,000
Company Ukraine Ukraine Ukraine
Romantis ISBN
Ukraine

Spaceline Düsseldorf, +49-211-967-7574 http://www.spaceline.com Spaceline Düsseldorf, $300,000 $370 $4,440,000

Communications Germany, Star Germany
Services GmbH

1. All prices in U.S. dollars; prices do not include insurance, shipping taxes, local taxes, licenses fees, or terrestrial
leased-line link.

19
Table 2: What the Bids Include

Equipment Maximum Maximum Maximum Line speed Maximum Price Licensing

guaranteed guaranteed guaranteed (downstream/ response increase charges
network service-call time to upstream) time4 for 25%
availability4 response time 4 repair4 (kbit/s) growth
in traffic

Banknet PES6000 99.9% per 4 hours/ 3 hours/ 256/128 2.5 seconds/ $132,632 Yes (except in
month/ 99.9% 4 hours1 3 hours 2.5 seconds Russia And
per month Ukraine)
Belgacom PES6000 99.9% per 4 hours/ 4 hours/ 256/140 2.2 seconds/ $55,683 No
month/ 99.8% 8 hours2 8 hours2 2.2 seconds
per month2
Detesat PES6000 99.5% per 4 hours/8 hours 4 hours/12 hours 192/150 4 seconds/ $620,155 Yes
month/ 99.5% 4 seconds
per month
France PES6000 99.9% per 4 hours/ 4 hours/ 128/80 Not $420,000 No
Telecom month/ 99.8% 8 hours 8 hours disclosed
Transpac per month

HOT PES5000 99.75% per 8 hours/ 2 hours/ 138/76.8 2 seconds/ $96,000 Yes
month/ 99.75% 8 hours 2 hours 2 seconds
per
month
IBM Skystar 99.7% per 4 hours/ 4 hours/ 38.4/256 2.5 seconds/ $120,000 Yes(except
Advantage month/ 99.5% 8 hours 8 hours 2.5 seconds Eastern Europe)
per month
Infocom PES6000 99.9% per 4 hours/ 4 hours/ 384/512 2.3 seconds/ $320,000 Yes
month/ 99.8% 12 hours 8 hours 2.3 seconds
per month
Joint PES8000 99.9% per 12 hours/ 24 hours/ 64/64 2.5 seconds/ $132,000 Yes
Stock month/ 99.9% 12 hours 24 hours3 2.5 seconds
Romantis per month
Spaceline Nexstar IV 99.5% per 4 hours/ 4 hours/ 256/128 2.5 seconds/ $516,000 Yes
year/ 99.5% 8 hours 4 hours 3 seconds
per year
1. Except in Ukraine and Russia, where it's 8 hours within 150 kilometers of the capital
city and 24 hours beyond.
2. The operator says it meets requested SLA values but did not actually submit these
values. 20
3. 4 hours in Kiev.
4. Western Europe/Eastern Europe
21