A confluence of market and technology forces have contributed to a period of great turbulence in the satellite industry in recent years. This is highlighted by the fact that FSS operators wholesale revenues decreased in 2018 (by 0.5%) for the fourth consecutive year despite a continued increase in traffic, with this situation due to reductions in capacity pricing across all regions. In 2018, the mobility segment was one of the bright spots for the FSS industry with the segment expected to continue to observe strong growth in coming years. According to Euroconsult’s 2019 edition of Satellite Connectivity and Video Markets Survey (published in September 2019), total satellite capacity leased increased to nearly 1.3 Tbps in 2018, up 27% year-over-year. Mobility applications observed a 50% increase in capacity leased in 2018 at 48 Gbps with Aero the fastest growing satcom application (81% growth).
The satellite mobility market comprises four main verticals. Each one of them has a different degree of maturity in terms of connectivity:
The In-Flight Connectivity market is poised for strong growth in the coming years. This market is showing an increasing interest in the VSAT technology for its bandwidth potential, which can help respond to the ever-growing needs of passengers within the cabin.
The Maritime market saw a remarkable uptake of VSAT installations in 2018. VSAT penetration in the large merchant shipping industry kept on increasing, and the cruise and leisure segments should generate even more growth in the future. Large cruise ships hosting thousands of passengers already demand several hundred Mbps per ship, and this value is set to continue increasing.
The land market, with the development of connected cars, is still at a very nascent stage. Even though this market is predicted to have tremendous growth potential, it is not mature enough and requires technology improvements, such as electronically steered antennas, before gaining more interest from end users.
The land market, with connected trains, is still at an early stage. Several railway operators have started to equip their trains, but the total number of connected trains is still limited. VSAT seems to be answering current needs, but 4G and 5G technology may compete with satellite technology at lower costs in coming years which partially explains the slow-growing interest in the satellite connectivity market.
To put the current situation in context, the mobility market is relatively recent compared to other VSAT markets which partly explains the difference in growth trends compared to other satcom applications. The first VSAT installations in the Maritime market started to take off in 2005, while the IFC market had to wait until the early 2010s to see its first VSAT installations on commercial aircraft. As of YE 2018, around 32,500 VSATs had been installed in the various mobility segments including 5,700 VSATs in 2018 alone. Maritime still accounts for approximately 80% of the total in 2018 as it has a much larger addressable market than aero. Over the next ten years, Euroconsult expects the net addition of mobility VSATs to average 6,000 units per year, leading to capacity usage of over 1 Tbps (X24 vs 2018).
In coming years, each market is expected to show specific intrinsic dynamics. The Aero market is poised for fast growth as the airline industry is showing increasing interest in providing connectivity to its passengers. Business aviation is less likely than commercial aviation to install VSATs in the near future as the need for cabin connectivity is usually much lower; however, the willingness to pay in business aviation is usually higher than in commercial aviation. A commercial aircraft can transport several hundreds of passengers, which are increasingly willing to stay connected during the flight. The take rate for paid Wi-Fi could still be considered low (up to 9%) but is expected to grow with the growing connectivity needs of passengers.
Consumption can greatly vary depending on factors such as the take rate or the average consumption per plane. The latter is usually closely connected to the pricing package given to passengers by the airline. The passengers’ demand in terms of bandwidth cannot be fully met today, and high pricing may allow an airline or a service provider to regulate the consumption. The decline of MB price should allow airlines to get closer to fulfilling the ever-increasing bandwidth needs of passengers.
The Maritime industry is divided into multiple sub-segments such as merchant, fishing, passenger, leisure and offshore, each one showing different dynamics. Overall, the Maritime industry is also showing strong interest in connectivity and drivers such as smart ship applications, and operational and passenger needs are driving bandwidth needs up. Of the more than 26,000 VSATs installed in 2018, the merchant segment contributed the lion’s share. Crew welfare and smart ship applications are expected to keep on driving demand to such an extent that the number of terminals in this segment is expected to double in the next five years. An important point to underline is the fragmentation of the maritime market into multiple segments with specific needs and requirements which makes this market hard to address in its entirety. For example, an offshore rig may require continuous CCTV video surveillance while it is in operation, which translates into constant and high bandwidth demand (tens of Mbps). A merchant ship may however be willing to run only a few smart ship apps to optimize its route and its operations, adding up to several hundreds of kbps.
Another important point to highlight is the fact that in the past couple of years, HTS has been a clear driver for the mobility market with a real shift in capacity usage. The growing availability of (low-cost) HTS capacity is considered a major enabler for market growth across all mobility segments. HTS capacity usage for mobility applications close to doubled in 2018 to an estimate of 27 Gbps leased during the year. This was favored by various factors including increasing use of Intelsat’s EPIC fleet and the strong take-up of Inmarsat FX solutions in the maritime market. In 2018, trials were also conducted by LEO constellation projects including by TelesatLEO. The latter collaborated with Global Eagle in optimizing the capabilities of Telesat LEO’s system to serve broadband requirements of maritime and aeronautical markets.
With the market expected to observe strong growth in coming years (10-year CAGR of 45%), both satellite operators and service providers are increasingly shifting their focus on HTS. On the service provider side, all leading players have committed to HTS capacity and are developing next-generation equipment solutions. The increasing amount of supply, the strong market push coming from planes/vessels for more bandwidth and the ongoing technical innovations, such as ESA (electronically steered antenna), confirm that the mobility market is poised for fast and sustainable growth.
On the satellite operator side, most operators with HTS satellites in their fleet or planned HTS satellites have pinpointed the mobility segment as a key growth target. This includes the sale of bandwidth but also increasingly the provision of services, with operators becoming more vertically integrated in the past couple of years. This includes managed capacity agreements such as the partnerships signed between Intelsat and Marlink and between Intelsat and KVH but also direct services that have started to be offered by satellite operators (e.g. SES to the cruise market via its Connected Cruises service).
The future of mobility by satellite seems bright with the sky (and sea) the limit. This bodes well for the satellite industry which is at the very beginning of a new era where a lot of questions remain unanswered. Satellite players are particularly well-positioned to benefit from the ever-increasing amount of bandwidth coming online and the new applications used by aero and maritime segments which are expected to foster the development of the mobility market.
COCKPIT CONNECTIVITY APPS
SMART SHIP APPLICATIONS
Dimitri Buchs is a Senior Consultant of Euroconsult, based in Montreal, Canada. He specializes in the satcom sector and has worked on several consulting missions focused on mobility markets.