Posted: 10/2001
Trading Desk
Online Satellite Trading Gives New
Meaning to the Word 'Cyberspace'
By Tara Seals
Satellite bandwidth trading platforms, like all capacity exchanges, were conceived as places to trade, sell and buy excess bandwidth in an efficient fashion with as few barriers as possible. The difference is satellite exchanges capitalize on high-margin services for a broad market that ranges from rural services to sports broadcasting.
The Exchanges
The first satellite market mover was the London Satellite Exchange. The online trading company works with more than 80 percent of the world's satellite operators. Customers include ISPs, telcos, enterprises and military worldwide. About 2 percent of the world's satellite capacity flows through the exchange every day.
The online platform shows pricing, while its neutral traders help make deals. Engineers are employed as brokers. They obtain requirements, prepare technical surveys, open the bidding, prepare the link budget, pre-negotiate the contract terms and finally bring the two interested parties together. They also act as consultants, advising on ground segment hardware and teleport service procurement, performing industry due diligence on business productivity, satellite capacity analysis, system design for VoIP and VSAT networks, and referrals to hardware manufacturers, integrators and installers.
SatCap BV also is a neutral, global Internet marketplace for satellite capacity, and it is focused on the broadcast market. Buyers and sellers subscribe to the SatCap website and post offers and requests on bulletin boards. Interested subscribers select a posted offer or request to review the details and, if desired, submit bids.
SatCap, which was founded in late 1999 as a brokerage firm for satellite and mobile services, does not provide total solutions as an integrator. The company launched its online trading platform last April.
Swedish online satellite capacity trader iacto also targets the broadcast industry as buyers, and it provides an anonymous platform that gives buyers access to a worldwide bank of service providers. Barely a year old, iacto boasts 500-plus members, including ABC Newsfeed and Reuters. It also was named "startup of the week" in Time magazine Europe this year. It offered free services until Oct. 1, but now restricts the site to paying members.
iacto network members receive an e-mail when a company requests a quote for broadcasting services and automatically are invited to offer a quote for the job.
"Before there was no forum where sellers and buyers could easily reach each other, creating huge over-capacity in the industry, [but] now we provide this forum," says Jan Eliasson, iacto's sales director.
"We act as an agent where sellers can easily find information on buyers' needs and where buyers can easily access information on what sellers are offering," he adds. "With yesterday's traditional methods, buyers and sellers would have to call and fax their contacts one by one and perhaps they could find an appropriate buyer or seller."
The Markets
The Satellite Industry Association conducted a 900-company survey this spring. The survey shows the commercial satellite industry generated $81.1 billion in revenue in 2000. Satellite services were the largest and fastest growing segment of the industry, with $39.5 billion in revenue, according to the study.
"Impressive growth in subscription satellite services is the highlight of this year's survey," said SIA executive director Clayton Mowry when he released the figures.
London Satellite Exchange CEO Frank Genin says the satellite bandwidth portion of the market is about $10.5 billion in size, smaller than earthbound markets. Satellite capacity, unlike terrestrial routes, is maintaining its margins, which make it lucrative for traders.
"Fiber prices for some routes, like London to New York, have been falling quite rapidly," adds Sandham. "By contrast, our market is much more stable, and therefore it seems like an attractive market for a number of the terrestrial exchanges to get involved in."
Earlier this year, the London Satellite Exchange signed an alliance agreement with RateXchange Corp. for the fulfillment of tandem satellite and fiber requirements. The companies have expanded their product offerings by allowing customers to package total bandwidth requirements for applications such as broadcast streaming. The integration should increase liquidity in both marketplaces, the companies say.
RateXchange and the London Satellite Exchange also are cooperating to publish indexes for satellite and terrestrial bandwidth.
Market maker Enron Broadband Services also trades satellite in addition to its core business of terrestrial bandwidth. It's a good bet the move will pay off as a number of markets for satellite capacity, such as enterprise broadband and broadcasting, continue to grow.
"The number of players in this market tends to be larger than expected," says David Sandham, the London Satellite Exchange's director of communications.
"[They are] not just satellite operators; there are telecommunications companies and large broadcasters with significant holdings and they often wish to sublease that when it's not being used by them," he adds. "So, actually, there's quite a varied and large market -- a secondary market where subleases are involved."
Traders say IP traffic is the fastest-growing satellite market segment. "Customers using the Internet over terrestrial links are plagued by congestion and delays," says Sandham. "By using satellites, ISPs can leapfrog this congestion. This cuts out the tangle, and therefore can yield faster throughputs and better quality of service."
And, says London Satellite Exchange's Genin, demand for applications like streaming video and content delivery over satellite is increasing by 40 percent annually.
Under-served areas are prime targets. British Telecommunications plc (BT) has expanded its high-speed Internet service options to include satellite connections for small businesses in remote areas. BT's beaming of broadband connections from satellites to small customer location dishes is set to launch this month. Initially, it will serve the Scottish Highlands and Northern Ireland, locations unable to receive BT's asymmetric DSL (ADSL) Internet service.
The London Satellite Exchange says strong demand is coming from emerging markets without a large developed infrastructure, such as Southeast Asia, South America and Africa. The demand dovetails with the VoIP market, according to research firm Frost & Sullivan, which reports the VoIP over satellite services market generated revenues of $30.44 million in 2000, and is projected to reach $278.82 million by 2007.
"The biggest opportunities for VoIP over satellite are in areas with no infrastructure or outdated systems," says Frost & Sullivan industry analyst Christopher Brown. "China is the largest potential telecommunications market in the Asia-Pacific region, with the market leader logging over 300 million minutes of VoIP traffic in its first year."
Enterprise broadband is another growing market, analysts say. Northern Sky Research expects accelerated growth in the arena in the next five years. Satellites, it reports, reduce network costs by offering enterprises a more cost-effective way to distribute IP content and tie in remote sites.
"The enterprise market continues to represent an attractive opportunity for broadband satellite companies," says Christopher Baugh, principal analyst and founder of Northern Sky. "With IT budgets, networks already in place and a known number of users tuned to content, enterprises will likely represent the most stable market for broadband satellite companies over the next five to 10 years."
iacto caters to a large market for production assistance and satellite time for broadcasts. In television niches such as sports events and news programs, there is a demand to be able to quickly offer TV pictures on short notice and for a short amount of time. Northern Sky says the IP multicasting and content distribution market will grow from $150 million in 2001 to $2.1 billion in 2006.
The Future
"The main business drivers behind the exchange are the inefficiencies in the market," says SatCap's CEO Dagobert Weeda. "The price mechanism will change from being cost driven to demand driven."
All this demand is well and good, but are these exchanges truly trading commodities or is this simply Internet-facilitated brokering?
Sandham says one barrier is the engineering requirements to set up a satellite link; they are complicated and not easily automated. "We have here databases of information that our traders use, when they are preparing solutions, but typically the human brain is an essential part of the process," he says.
Sandman says that in the future, parts and contracts may become standardized but, for now, "you need a human being with experience, otherwise the buyer could end up buying the wrong piece of capacity for what they need.
"So [satellite bandwidth] probably has further to go towards commoditization than terrestrial bandwidth does," he concludes.
On the other hand, SatCap is trading in financial derivatives such as futures and options, a hallmark of a liquid market, and exists only online. Weeda is confident that true trading will appear soon. "There are no barriers," he says.
"Generally [satellite trading] is developing well," adds Weeda. "It takes time for the idea to sink in. What is important is that there is a lot of interest and that users often are familiar with the Internet."
