Polar Markets are Calling

One head-turner relating to Polar markets were comments by LeoSat in 2015 about their Polar aspirations, a business plan analyzed by NSR in our previous Polar bottom line post. However one of the more interesting discoveries of the Polar Regions is the significant Polar FSS demand coming from Legacy Telephony & Carrier applications and the Video markets.

NSR’s newly released report, Polar Satellite Markets, shows that out of ~80 transponders of combined FSS C- and Ku-band Polar demand, 23% is used solely for Legacy Telephony & Carrier applications, a share which is projected to increase to 34% by 2024. 80% of this capacity demand comes from Canada, Alaska and Russia combined, with the rest coming from islands in the north Atlantic Ocean (Iceland) and the Nordics. Interestingly, this growth in Polar bucks a global trend of downward demand for Legacy Telephony & Carrier, as noted in NSR’s Global Satellite Capacity Supply & Demand report, which states that Legacy Telephony & Carrier will decrease from 460 TPEs globally in 2014 to 280 TPEs in 2024 on C-band, with similar declines on Ku-band.

Outside the Arctic, Telephony & Carrier carriage is shifting to fiber based communications, or in some cases microwave or other terrestrially based technologies. Likewise, communications are shifting to IP-based links due to cost considerations and consumer trends migrating to OTT voice standards.

However in the Polar Regions, due to extreme remoteness and inhospitable climates, fiber rollout remains challenging. With limited governmental budgets moving forward, and in many cases “short term” thinking, fiber penetration isn’t expected to improve much over the short to medium term. It is also unlikely that governments in the north will ‘pull the plug’ on these populations, and due to the unpopularity of such a move should it take place, the logical ‘Band-Aid’ solution will continue to be utilizing satellite capacity for connectivity in remote areas in Canada, Russia, Scandinavia and islands in the Arctic. While the Polar Regions may appear sparsely populated, there remain at least 10 cities with populations over 30,000, the largest being Murmansk and Noril’sk in Russia, which have populations over 100,000 each. These cities will continue to drive satellite capacity for their telephony requirements long-term, with no changes expected, over the foreseeable future.

While other applications will feel the impact of GEO-HTS and LEO-HTS capacity pushing down demand for legacy FSS capacity, Legacy & Telephony will hold onto, and grow satellite demand in the Polar Regions. Percentage share will grow too as other applications in general shrink their demand requirements on FSS capacity as more and more demand shifts to HTS based solutions. The main other holdout is Video, which also encounters strong demand in the Arctic.

However, all demand seen in the Polar Regions is effectively spillover demand from Russia, Canada, and Scandinavia. DTH platforms such as Tricolor primarily target populations at lower latitudes, but beams do cover areas of the Earth—and populations, however sparse—which are beyond 65 degrees North. Due to the fact that low look angles cause issues, larger satellite equipment is required to receive video broadcast signals in these regions. And while broadband access remains fairly costly in these regions, the price of DTH services remains at a much more reasonable level and will continue to enjoy strong demand longer term, especially with new UltraHD services around the corner. While video demand will remain essentially of the legacy FSS type, there is expected to to be some limited demand for satellite contribution and occasional use television over GEO-HTS, such as through Telenor’s Thor-7 in Northern Europe, and on ViaSat-2 after launch.

Bottom Line

While LEO-HTS services will impact the Polar market significantly across some applications (most notably broadband access and VSAT mobility), there remains a strong legacy FSS market across other applications – most notably Legacy Telephony & Carrier and the Video markets. These two applications are responsible for keeping fill rates relatively high in the Arctic, with limited additional capacity becoming available from decreasing demand from other applications. Overall, FSS C-band and Ku-band are expected to remain a stable, but a niche market in the Polar Regions long-term.

However, there is the prospect of a game change where LEO-HTS with 100% Polar coverage could offer solutions bundling telephony, broadband access and video, running on an all-IP platform in the form of VoIP, high-speed Internet access and OTT, which could diminish, if not remove, the value proposition of FSS for Legacy Telephony and Linear TV.  At the writing of NSR’s polar study, however, prospects for LEO-HTS are still highly speculative and the Arctic may be seen more as opportunistic rather than core for revenue generation.