Looking at the satellite Industry for the past year evokes images of great progress, energetic debates and trade show hijinks. While we often parallel the broader telecommunications market, the satellite market has its own unique set of challenges and approaches to the issues before our customers and us. The outlook in this article is a review of some of the major market trends established in the satellite equipment segment of the satellite industry during 2007, and how these actions will likely progress into 2008 and beyond.
Over the last ten years, the satellite industry, in general, and the equipment providers, in particular, have been through some serious, short-term expansions and dot-com style crashes. In the past two years, however, there has been a steady pace of increasing business based on a solid economic foundation. While 10 to 14 percent growth in the satellite equipment market pales in comparison to some new industries, this growth rate is quite respectable for a mature business, especially considering the average price per unit of most satellite equipment is lower today than it was just 12 months ago. Thus, the unit growth is much larger than revenue growth.
There were a number of macro market factors having a positive influence on the satellite equipment market in 2007. Some of those influences include a more favorable adoption of residential services than planned with services from providers such as WildBlue Communications, HughesNet, IPSTAR and others. Another macro factor providing headlines was the continuing use of satellite equipment in the military market for in-theatre and long-term strategic use. However, I believe there were three major long-term drivers that aided the broader overall market in 2007:
Completion of the cycle to IP-centric networking
Only a few years ago, the dominant satellite network equipment technologies, with the related RF chain supporting this equipment, were based on legacy network protocols. With the leading VSAT manufacturers all delivering IP centric equipment today, the service providers and private network architects made significant new investments in 2007, while completing the long-term cycle by discarding the older, less efficient and unreliable (for broadband) products of the past.
Major new technical advancements
For both the satellite video and the satellite data networking markets, the long awaited DVB-S2 standard began making serious inroads, with deliverable products in 2007 and phenomenal payback periods for users of the new technologies. Nevertheless, for data networking traffic, DVB-S2 only optimizes the physical layer of the network. When combined with a new generation of acceleration and bandwidth optimization products at the network layer of the link, “early adopters” and “pragmatic buyers” were rewarded with drastically lower cost per bit ratios over the last 12 months, despite some increases in satellite capacity costs. Thus, forward-looking customers were quite confident in making large capital investments during 2007 to obtain years of operational paybacks into the future. We expect that trend to continue with increasing amplitude in 2008 and beyond.
Emergence of the broadband mobility market
One of the great historical strengths of satellite technology is wide and ubiquitous coverage. For decades this has served the narrowband/MSS equipment manufacturers and service providers extremely well. Now, with the emergence of a common networking protocol and efficient use of spectrum, broadband applications are economically reaching the masses at both fixed (predictable) prices and on a variable price basis. In 2007, this dual dynamic resulted in significantly higher market adoption rates for maritime broadband, aircraft Internet access and military satcom on the move (SOTM). This has led to creative use of the latest satellite equipment technologies and establishment of new service providers that did not compete in broadband access prior to these developments. A good example of this phenomenon is ARINC’s (Aeronautical Radio, Inc.) positive emergence in the private aircraft broadband services market using both new types of technologies (i.e. XipLink XE Embedded Acceleration) and a sound economic operating model for delivering these services at a profit.
“Our focus on satellite networking is an overriding benefit to our clients compared to other technologies that focus first on terrestrial connectivity. In 2007 our activities in the transportation sector also underscore our drive to support the market as broadband data connectivity expands to new markets.”—Charlie Younghusband, XipLink Founder
From an internal company perspective, this past year was especially significant for XipLink in many ways. As one of the first SCPS development mavericks in 2000, it was rewarding to see the first commercial acceleration applications being rolled out over the last few years and, more recently, to witness the mandated use of the SCPS acceleration standard for key military deliveries in 2007. We have seen the market mature to the point that in July, our former parent, aerospace company Xiphos Technologies, conducted a spin-off of the SCPS acceleration technology into an independent company called XipLink, Inc. As part of that new independence, we obtained a significant round of capital and are doubling our staff size by the end of year.
“With SCPS standard acceleration taking hold in certain markets, and being mandated in the military sector, this will undoubtedly lead Service Providers to offer a standards-based acceleration option at their teleports, as a managed service, since most users will have access to a SCPS compliant client in their remote device.”—Jack Waters, XipLink CEO
Another major milestone for XipLink in 2007 was the development of three distinct product families for the marketplace. This segmentation into an Embedded Acceleration Software product line (XE), an industry leading SCPS acceleration appliance (XA) and a satellite efficient secure VPN appliance (XS) allows our customers complete flexibility in deploying productive broadband access to the marketplace. Lastly, and most importantly, XipLink delivered a new feature-rich release of our core software, incorporating all the efficiencies developed over the last seven years, into release 2.5 of our signature product, allowing us to double our base of customers in 2007.
“Our latest 2.5 release of XipLink is an exciting evolution of our TCP acceleration technology”, said Charlie Younghusband, Vice President of Product Management and founder of XipLink. “Release 2.5 permits 100% utilization on TDMA networks—which is very important for external accelerators used on military networks. It also permits us to field a new line of network acceleration products at a cost effective price point for the enterprise satellite communications market—something that hasn’t happened on a significant level previously. We continue to complement the existing SCPS standard TCP acceleration with significant advances in integrated data compression and enhancements to bandwidth management.”
What will occur in 2008? In our business segment, which is wireless acceleration equipment within the broader space of bandwidth optimization systems, 2008 will be an exciting year. The overall bandwidth optimization market is pegged to grow more than 40 percent. While XipLink plans to more than double revenues during this same period due to constriction—if not an outright lack—of space capacity, the most significant impact will be the emergence of new applications for the XipLink acceleration technology. For pragmatic bandwidth users, the argument is compelling to incorporate new technologies to maintain competitiveness. Many of the new applications moving forward will use acceleration on small profile hardware, such as PC-104, to reach highly mobile markets. Or, the applications will be embedded into existing infrastructure to enhance overall performance without managing additional appliances, as in the case of mobile aircraft cited earlier.
We look forward to further evolutions in the satellite market for 2008!
Mr. Waters is Chief Executive Officer of XipLink, Inc., a network communications software company with head offices in Montreal and the Washington, D.C. area. XipLink is the leader in standards-based acceleration technology for optimizing bandwidth over satellite and terrestrial microwave networks. In July 2007, XipLink was spun-off from the aerospace company, Xiphos Technologies, and new capital invested into the company. Mr. Waters was selected to lead the XipLink team due to his long-term success in data communications technologies.
Most recently, Mr. Waters was Senior Vice President of Global Sales at iDirect Technologies, Inc., where he helped the company become a leader in the IP Broadband VSAT business with sales in 2006 of over $120 million. Mr. Waters is a graduate of Michigan State University and holds a B.S. in Accounting—he was also named Captain of the MSU Ski Team in 1979.