A Missing Piece in Asia’s Wireless Backhaul Industry

In its recently launched Wireless Backhaul via Satellite, 7^th Edition report, NSR found the largest market potential unquestionably lies in Asia; however, the private sector (i.e. mobile service providers) have had difficulty justifying rural area investments due to narrow margins or achieving profitable return on investment (ROI). In essence, although the market potential is huge for Asia, ROI considerations have prevented the potential from being fully realized.

Indeed, the entire satellite industry has been hampered by ROI in provisioning wireless backhaul services while governments have mandated Universal Service Obligations (USO) in order to bridge the ever widening digital divide.

Basically, governments want to equalize telecom services in rural and urban areas, while the private sector wants to profit from the government initiative.  Somehow there is something missing in the equation.

Universal Service Funds (USF) may be the answer.  Indeed, the case of Australia where the government issued a request for proposal for a satellite broadband program, could serve as an example of how to best serve large geographic areas, in particular those not reached and likely will not be reached by terrestrial technologies. NBN Co Limited is the company established by the government to design, build and operate NBN, which will roll out the network and sell wholesale capacity at a uniform price to service providers, who in turn, will offer retail services to end users. The model is envisioned to be applied for fixed broadband access, but it could easily be applied to wireless backhaul services as well.

However, a recent report released by the GSMA found that most USF remain inefficient and ineffective. Of those funds studied, many have not disbursed any money (such as India, which has accumulated $3.9 billion in unused funds).  In total, Asia has over $5.6 billion in USF funds that are idle.  Australia (and New Zealand) noticeably had $0 unused funds.

The problem is basically legal and administrative rather than technological or having much to do with basic ROI metrics. The GSMA report found that the underlying legal framework for many funds were not well conceived from the outset (e.g., not technology-neutral or service-flexible, excessively bureaucratic, insufficient oversight, inadequate or ambiguous authorization to manage the Fund) as well as poorly-conceived legal frameworks.

In NSR’s report, the Asian market is forecast to reach close to $500 million by 2022 using a mix of technologies and solutions, notably a shift from traditional FSS to next-generation systems such as HTS and MEO-HTS (O3b) that offer better ROI.  Indeed, the entire forecast was based purely on a sustainable ROI model where NSR believes that private initiatives rather than government programs will drive growth.

Yet, it is certainly worth taking a close look at USF given that the Asian market for 2012 based on NSR’s research stood at a little over $200 million or 3.5% of the estimated funds available via USF.  India of course influences the market significantly, but taking out India’s $3.9 billion idle funds still leaves more than $1.7 billion of unused USF.  NSR’s 2012 estimated wireless backhaul satcom market for Asia translates to just 11.5% of the unused $1.7 billion USF.

Bottom Line

There is a large disconnect among ROI, USO and USF considerations. For USF, the problem primarily lies in administrative and legal frameworks.  Governments of course need to resolve these issues internally, and the transparency laid out by the GSMA is a step in the right direction in getting the problem resolved.

On the satellite industry’s side, it is already coming up with innovative and cost-effective solutions to address ROI considerations. However, it needs to do more in terms of getting USF to be spent on their technologies and services in order to fulfil the large market potential in the Asian region and other key regions of the globe, notably Africa and Latin America.

NSR does not have the answer in addressing government inefficiency and how the satellite industry can correct this. However, it does see opportunities on two fronts:

• Funding: Governments are beginning to dedicate funds for broadband access services, which could provide satellite service providers with cost advantages over terrestrial solutions and thus enlarge the satellite market base;
• Partnerships:
  • Satellite providers could partner with wireless, wireline or fixed wireless carriers to develop a comprehensive broadband service towards fulfilling USO obligations;
  • Satellite providers can partner with governments in establishing entities ala-NBN Co for provisioning broadband and mobile access to remote and underserved areas.