New satellite operators put pressure on incumbent telcos

The burgeoning growth of SpaceX’s Starlink service is creating substantial challenges for telecommunications companies. This discussion will cover the impact on the NBN and Telstra in Australia and, more broadly, the issues faced by the South Pacific Islands, as recently discussed at the Australasia Satellite Forum organised by Communication Daily in Sydney.

Starlink’s influence now extends well beyond consumer services and now also includes enterprise and cloud sectors, traditionally dominated by other players. The consumer-level impact on NBN and conventional telcos in Australia underscores the disruptive nature of Starlink’s business model.

In Australia, Starlink has now well over 200,000 customers, primarily in rural and remote areas previously serviced by the heavily subsidised NBN. This significantly impacts the satellite business model of the NBN, which relies heavily on revenue from these same areas. Other telcos, such as Telstra, are also feeling the disruption caused by Low Earth Orbit (LEO) satellite operators. Next year, Amazon’s Project Kuiper will begin rolling out services in Australia and New Zealand, targeting government and defense sectors. By that time, 1,226 of their planned 3,232 satellites will be operational. Amazon has already built two ground stations in Western Australia, with nine more planned.

In general, business services have ‘subsidised’ the market for telecommunications carriers who had to build expensive infrastructure into regional and rural areas. These new satellite services are now taking away the most profitable elements of their business.

This situation is even more dire in the South Pacific Islands. At the conference, former Digicel PNG CEO Colin Stone articulated these concerns. He revealed that some telcos in the Pacific have seen a 25% reduction in their top-tier customer base as these customers transition to Starlink. This loss is particularly troubling for telcos in smaller Pacific nations, where high-paying customers are crucial for capital investments and profitability. Stone pointed out that Starlink’s relatively affordable service, priced around $200 per month, attracts customers who otherwise contributed significantly to the revenue of local telcos.

This customer migration leaves traditional telcos with only low-revenue customers, exacerbating financial strain. For instance, many Pacific islanders have an average revenue per user (ARPU) of merely $4, making it infeasible for them to afford Starlink’s $100 monthly fees and $300 terminals. Furthermore, logistical issues such as the lack of proper addresses for shipping equipment further complicate the adoption of Starlink in these remote areas.

At the Forum, it was also stressed that the telcos will have to embrace the storm of Starlink’s and Kuiper’s disruption rather than attempting to block their operations. However, there needs to be a regulatory level playing field. Traditional (local) telcos and ISPs pay for licenses and contribute significant revenue to governments, while the unlicensed equipment of the LEO operators bypasses these financial obligations. It was suggested that collaboration between the LEOs and local ISPs could ensure proper revenue collection and fair competition.

At the same time, the arrival of the LEO operators could drive innovation and improvement within local telcos. There is the potential for telcos to enhance service delivery and address customer needs more effectively, viewing the disruption as an opportunity rather than a threat.

Nevertheless, the rapid expansion of LEOs in Australia, New Zealand, and the rest of the Pacific is disrupting and reshaping the telecom industry, posing significant challenges to traditional telcos. Industry leaders recognise the need for regulatory adjustments and strategic adaptations to navigate this disruption, aiming to harness the benefits of new technologies while ensuring sustainable and fair competition in the market.

Paul Budde

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