Finding an Audience

Karen Brown

Enthusiasm among proposed broadband Internet satellite providers may be high, but analysts warn that the reality of the market may bring these ventures down to Earth.

To begin with, all but Hughes Network Systems' DirecPC will enter the market well after the year 2000, giving terrestrial-based broadband services ample time to grab critical market share.

"The key thing with the wireless providers is they will have to find a niche to live in, but whether that niche is in an area with competing broadband service - that remains to be seen," said Joe Laszlo, an analyst for Jupiter Communications Inc.

"The key thing for the satellite players is finding the right audience early on," he added. "Most of the services we've been talking about now will not be in the consumer market but in the business market."

With multinational corporations and big businesses needing worldwide high-speed connections, Laszlo thinks there could be room for satellite services to move into, but even that is a tricky market. And with the tremendous costs to put the satellite web in place,it will be a challenge to keep service fees down to attract the critical first customers.The industry has already seen an example of that, Laszlo said.

"That's what caught Iridium," he said, referring to Motorola Inc.'s now-abandoned satellite-based voice and data service. "People were not willing to pay what Iridium would have had to charge for voice service."

With these pressures in mind, Laszlo thinks the services will also have to widen their scope to make an effective business model to include business in areas such as Internet caching and specialized transmission needs.

"Most of the satellite data systems are pretty much focused on just data, but I think it is going to be important to find other applications to get to that end user," he said.

Bruce Kasrel, an analyst for Forrester Research Inc., is even more doubtful about satellite broadband Internet providers.

"They'll do OK in places where there is no competition, but any place else in an urban market where cable or DSL is established they'll get their pants beat, definitely," he said.

Given the long odds for satellite Internet providers, it is also unlikely the market will be able to support more than one or two players, Kasrel said.

"After that you would be straining the market potential," he said. "Overseas there may be more of a market, but here in the U.S. that won't be the case."