I highlighted in my previous article on LEO satellites the capacity that will come online within the next few years. In 2024, the capacity supply from LEO satellites could be 24x of what GEO satellites offer today. Such a rapid increase in capacity over a short period of 5 years could have great consequences on many telecom incumbents. Here, I highlight the LEO satellites threat to three telecom segments that could face sever consequences.
The GEO Service Providers
This is the most obvious segment because of high threat of substitution given the similar nature of services, business and operation models (wireless vs wireless). Three key advantages of LEO over GEO are:
- Fast response: LEO provides 1/5th the signal latency of GEO networks – <100 msec vs. 500 msec – enabling fast response for many data applications used today including voice services.
- Global services: LEO offers a global network with services around the globe in contrast with GEO regional services.
- Better performance & quality: LEO’s proximity to earth reduces the path that signals travel anywhere between 30 – 90x that of GEO. This has a big effect on data-path resource management built on top of packet communication protocols. LEO will provide better Layer 2 and Layer 3 performance than GEO networks.
The LEO satellite threat could be devastating to GEO service providers as broadcast revenues shrink and Internet managed services become a larger part of their revenue. Think of paging when cellular wireless services came to market!
The Submarine Cable Operators
The global nature and latency performance of LEO satellite networks will compete with submarine services for long-haul services. However, the nature of this competition is more nuanced, as it is usually the case where wireless intersects with fiber.
Among the factors that support submarine communications include:
- Capacity: Submarine cables provide tera-bit capacity and are easier to augment than space-based networks.
- Availability: Environmental conditions that impact satellite communications (e.g. rain, snow, sand) don’t affect cables. Cable would have on average better availability.
- Complementarity: Space networks will need land-based fiber, including submarine, for connectivity between landing stations and Points-of-Presence. One network can act as backup for the other.
On the other hand, there are advantages to satellite networks:
- Speed: Signals travel 33% slower in fiber as they do over the air. Latency will depend on the specific route a signal takes over fiber and satellites. Some LEO constellations are building intra-satellite optical links to minimize communication with earth, and consequently minimize the time between two remote points.
- Global coverage: Satellite networks provide global coverage unlike submarine networks where no single company has global coverage. Prices can vary greatly on submarine cables depending on the route. Satellite promise a streamlined business model and pricing for global service.
In short, the LEO satellite threat to submarine cable operators will be selective and dependent on routes, services and regions among other factors.
The Wholesale Service Providers
The competition vs. the wholesale service provides mirrors that of the submarine cable operators. LEO networks will require land connectivity to operate, but will also substitute incumbent long-haul services. Typical of wireless vs. fiber, there are complementary as well as competitive aspects. This makes the LEO satellite threat case dependent: long-haul wholesale service providers with international operations will face direct challenge from a LEO alternative.
A Final Thought
The OTTs such as Amazon, Facebook, Google (Loon) are heavily investing into LEO satellite networks. Some of these OTTs already own extensive terrestrial fiber networks used to connect their hyper-scale data centers. The balance sheets of these companies support the cost of building LEO networks. This increases the potential impact on traditional terrestrial players.
Finally, the OTTs have long eyed the telecom sector for disruption to grow their revenues by reaching the unconnected. From this perspective, LEO becomes a strategic play for the OTTs and the LEO satellites threat to incumbent networks should include this perspective.
Note: Xona Partners has been active in the LEO satellite space as well as submarine, wholesale and wireless segments on technology strategy and business strategy. Contact me if we can be of help.