Traditional satellite service business models are evolving. As a result, Managed Capacity, or Managed Satellite Services, are generating great interest as a new offering.
Managed Capacity is buying satellite capacity purchased as an IP cloud and selling it in the form of Mbps rather than in the traditional MHz model. In this model, the provider packages satellite capacity with network infrastructure to make IP capacity available.
Purchasing capacity in large quantities allows providers to aggregate demand across a large subset of market segments and sites, support a more diverse range of requirements and simplify rolling out IP VSAT (Very Small Aperture Terminal) networks.
However, is this really a new business model? If so, then why are we are talking about Managed Capacity as a service? How does Managed Capacity differ from the traditional Satellite Service model?
The Managed Capacity model has existed in the form of outsourced contracts by customers who could not operate and maintain a network on their own, but who need a turnkey network rollout as opposed to buying individual circuits. In other instances, telecommunications companies that did not want to operate satellite network infrastructure have executed satellite managed capacity contracts with remote terminal installation and support.
Typically, these models have been limited to large committed contracts and restricted to singular requirements. The Managed Capacity model is a derivative of these earlier models. It provides more flexibility to address a larger set of market segments, customers, and channels. It also allows for rapid expansion of service revenues by resorting to a wholesale model for bandwidth.
FSS Or HTS?
There is discussion within the satellite industry as to whether Managed Capacity contracts (Mbps) will be the way High Throughput Satellite (HTS) capacity is sold. Hughes Network Systems believes this scenario is not limited to satellite providers; service providers, too, could evolve their business models to offer IP VPN-like services, as well as Managed Capacity to aggregate greater bandwidth demand. By aggregating demand, service providers would be in a better position to negotiate bandwidth (MHz) pricing.
Typically, a Managed Capacity provider offers wholesale amounts of IP capacity and leaves end service offerings, as well as the day-to-day operations of the network and customer interface, to channel partners, systems integrators, and even VPN or MPLS providers.
Hughes also recognizes that the Managed Capacity model is not limited to HTS. Even FSS capacity could be easily available under this model. Let’s take a brief look at the factors driving the adoption of these models.
Managed Capacity: Trends Driving The Change
As most industry reports indicate, satellite capacity over the Asia Pacific region is increasing. There is an increasing need for HTS and FSS bandwidth as more data is sent over the Internet and enterprise networks.
New players and capacity are also emerging, as traditional players look to expand into new geographies and frequency bands. In general, capacity availability creates pressure on MHz prices. To extract higher value, operators may begin to offer Managed Capacity to change the price from MHz to Mbps, and by providing IP capacity, lower the barrier to entry for customers.
Service providers who were once restricted to serving a limited number of customers are forming marketing partnerships where they can offer a Managed Capacity model, leverage their infrastructure, and gain access to new market segments.
For example, a USO service provider acquires a greater number of sites and achieves lower service pricing by bidding directly and by supporting smaller operators who stand a chance of winning contracts. This is known as “white labeling” the network service to gain the aggregation needed to achieve a price advantage.
In certain instances, service providers are unable to sell circuits or priced bandwidth models and compete with terrestrial providers. Providing Managed Capacity and enabling the enterprise to leverage the larger IP bandwidth cloud can deliver increased value to chief technology officers who can then decide how to allocate bandwidth across their applications and sites.
In essence, a Managed Capacity model offers advantages when entering a new, highly competitive market. Aggregating demand helps achieve economies of scale, and when there is a strategic goal to acquire customers in new market segments beyond those associated with traditional service providers.
An Evolutionary Step Forward
While customers would continue to purchase capacity in MHz, Managed Capacity models can play an important role in the market’s evolution. Smaller operators do not need to purchase, operate, and maintain their own ground systems. Managed Capacity models can provide a simpler, and better, cost model for them. This would help them retain customers in a competitive market and provide the capacity to grow their businesses.
Aggregating demand brings economies of scale, increasing providers’ ability to compete with alternative technologies. This is the most likely step in the evolutionary process as operators try to achieve maximum revenue from their infrastructure investments and acquire more customers.
There are also technical benefits from aggregating demand. Rather than having multiple forward DVB-S2 channels, aggregating demand into a single forward channel can unlock transponder power allowing the network to squeeze more bits by running a higher modulation, or coding, or both. That often sparks demand consolidation and reduces risk for satellite operators. Faster adoption of fresh capacity will likely also prompt operators to deploy Managed Capacity models as they enter new geographical areas.
Ground Segment Choice For Managed Capacity Providers
The success of the Managed Capacity model depends largely on the ground systems’ capabilities. This makes choosing the right system as important as choosing the correct marketing model. Some of the capabilities necessary in a ground system are:
1. Network Management Systems (NMS) that support and run all types of VNO (Virtual Network Operator) models. A Managed Capacity provider should be able to extend the NMS easily to multiple customers. The NMS needs to be robust and able to target a diverse set of networks simply and efficiently, and to support a large number of remotes.
2. Scalable architectures capable of growing seamlessly without encumbrances of software or throughput licenses. Lights-out operation is important to enable remote maintenance and allow the infrastructure to be operated from any physical location.
3. Flexible architectures that allow selling IP capacity to a mix of end customer requirements (e.g., 3G/4G mobile backhauling, ATM and branch banking, maritime customers, in-flight broadband, consumer/small-to-medium enterprise broadband).
4. Billing systems that can connect to different providers’ OSS/BSS systems or a cloud-based OSS/BSS for those without their own systems.
5. Support for multiple layers of Virtual Network Operator models. Creating VNO models should be possible without procuring multiple NMS systems. All ground system features should be accessible within the VNO and able to support various hierarchies.
Managed Capacity models have been around for years. Yet the evolution of the Satellite Service model and of the marketplace have prompted the emergence of Managed Capacity as a means to deliver greater value than is typically possible from a pure MHz model or CIR circuit-based approach.
A Managed IP Pool offers customers flexibility, allows for faster adoption and more sites in the network. Broadband satellite solutions provide operators the ability to implement a mix of business models simultaneously, without the encumbrances of software licenses. Ultimately, this gives operators the opportunity and the means to expand their own business offerings.