FSS Capacity Pricing and Supply Dynamics in Mobility Markets
In the years leading up to 2018, widespread oversupply conditions caused by strong net additions of both traditional widebeam satellite capacity and large-scale rollouts of more efficient, lower cost HTS capacity led to new, significantly lower, pricing references and ranges in most regions and vertical markets. From the perspective of mobility users, both aero and maritime markets have benefitted from the influx of HTS supply which has helped pushed reference (average) capacity pricing levels in the segment from above $2,000 per MHz/month to between $500-$1,500 per MHz/month as of 2019. The drop in capacity pricing has been identified as a key driver of improved value in VSAT-based mobility service offerings, helping spur higher penetration of addressable markets and migration from MSS broadband service offerings which can now largely be considered more limited in terms of both capabilities and value.
Looking forward, HTS supply additions, one of the primary culprits behind the unrelenting pressure on capacity pricing levels within data-oriented and mobility vertical markets, are poised to slow considerably in the short-term, reflecting the structural lull in GEO communications satellite orders of the past several years. To illustrate, after global annual net additions of GEO-HTS capacity peaked at between 400 and 500 Gbps in both 2017 and 2018, net HTS supply additions for both 2019 and 2020 will trend substantially lower in the range of 250 to 300 Gbps per year. A very similar dynamic is at play for regular (widebeam) capacity, wherein net additions are poised to grind to a halt over 2019-20 after averaging 10% supply growth over the past several years.
This slowdown in supply growth has helped the market regain a certain degree of equilibrium with demand growth, ultimately contributing to a stabilization of pricing conditions underway today as the annual double-digit (%) pricing declines commonly observed over the 2015-18 period have become more localized and rare - a trend which is likely to persist over the next two years. Further, scarcity of high-quality capacity in certain bands and regions has been reported, notably for key mobility hotspots and certain national markets.
Slowing supply growth is especially pronounced for Ku-band HTS capacity, which is heavily used by leading mobility VSAT service providers such as Gogo, Global Eagle, Panasonic and KVH. After a flurry of launches from Intelsat and SES over recent years. The recent failure of Intelsat’s IS-29e, which featured over a dozen HTS spotbeams over key oceanic areas such as the North Atlantic and Caribbean, is expected to support Ku-HTS price stabilization over the next 24 months due to limited supply rollouts and strong mobility demand. The failure has also helped stabilize pricing for regular oceanic Ku-band capacity in the same regions due to the need to restore service to prior users of IS-29e.
Over 2019 and 2020, most of the new Ku-HTS capacity entering the market will be supplied by APT Mobile’s APSTAR-6D satellite, which offers over 30 Gbps over mainland China and counts aero IFC service providers Panasonic and Gogo as pre-launch customers. Two recently ordered satellites, Eutelsat-10B and Hispasat’s Amazonas Nexus, will specifically address aero and maritime mobility demand by adding much needed GEO-HTS Ku-band capacity in the late 2022 or early 2023.
Maritime (Ocean) Supply to shift from relative scarcity to abundance
The short-term stabilization of levels of capacity pricing decline is unlikely to be a prolonged trend given the next wave of truly massive supply additions on the horizon. The upcoming launches of VHTS (very-high-throughput-satellite) systems from the likes of Viasat, Hughes and Eutelsat, paired with prospective NGSO (non-geostationary orbit) constellation rollouts from the likes of O3b (mPower), SpaceX, OneWeb and Telesat are expected to drive a ten-fold increase in global FSS capacity supply from ~2,000 Gbps in 2019 to ~20,000 Gbps by 2023.
As capacity from next generation VHTS systems and certain NGSO constellations is expected to carry a significantly lower cost per bit compared to current HTS and traditional widebeam capacity, achieved through scale and a multiplication of beams, the renewed influx of operational supply starting in 2021 is expected to have a disruptive effect on pricing conditions in data-oriented markets/applications. While fixed-data markets such as consumer broadband, backhaul, trunking, government and corporate networks are expected to drive demand for NGSO and VHTS capacity, a large spotlight will be focused on aero IFC and maritime markets as total supply over “ocean” (maritime) regions could reach over 6,000 Gbps by 2023. Considering that total capacity over these ocean regions is just 200 Gbps today, mobility-oriented capacity markets are expected to squarely shift from a situation of relative scarcity to one of abundance.
While a significant acceleration of capacity supply growth is expected post-2020, even if some NGSO constellations fail to materialize as expected, what is less certain is whether capacity pricing levels in aero and maritime mobility segments will fall sharply enough to help spur deeper penetration of addressable markets and improve profit margins of VSAT service providers. The alternative is that lower capacity pricing may simply serve to intensify already strong levels of competition that have recently contributed to stagnant or falling service ARPUs (average revenue per unit) in aero and maritime VSAT markets. In the absence of healthy, growing mobility VSAT service providers, questions about the sustainability of such a massive impending expansion of supply are certain to spread.
About the Author: Brent Prokosh is a Senior Affiliate Consultant of Euroconsult. Brent supports the development of the firm’s research reports as well as its consulting activities in satellite communications markets, services and applications. He is a main contributor to Euroconsult’s new research report on high throughput satellites. Prior to Euroconsult, Brent led various strategic consulting and market research missions for one of the largest financial co-operatives in North America and a Montreal-based non-profit organization. He also worked in wealth management for the Desjardins financial group. Brent holds a Master in Business Administration with a dual specialization in Economics and Strategic Management from HEC Montreal and a Bachelor’s of Commerce in Finance from Concordia University in Montreal.