Communication satellites for rural service: Problems and potentials

The author discusses three interrelated facets of the problems and potentials of communication satellites for rural development. The first concerns the nature of the needs for rural telecommunications, and their stmllarltles with and differences from urban telecommunications needs. The second facet is the technical and economic nature of satellites, compared to other technologies, as lt relates to the task of meeting rural needs within rather severe economic constraints. Finally, a set of policy issues emerges from the review of technical and economic characteristics in the context of rural needs.

Edwin Parker is Vice President, Equatorial Communications Company, 1294-6 Lawrence Station Road, Sunnyvale, CA 94086, USA. Tel 408-734-0421. A version of this article appears In Telecommuni- cations Policy Yearbook 1981. ed Jorge Schement. Marion Sirbu, and Felix Gutierrer. Praeger, New York, 1981.

Communication satellites for rural service

Problems and potentials

Edwin Parker

What are rural telecommunications needs? For purposes of this dis- cussion, I have chosen the term ‘need’ rather than the economist’s term, ‘demand’. ‘Demand’ implies a corresponding supply and an ability to pay. Both those implications may be false in many rural areas where there is no intersection of supply and demand and hence no supply at all. One of the characteristics of rural areas is that of latent or suppressed demand. People may be too poor, too few, or too geographically dispersed to have an aggregate demand in any one place sufficient to pay for current telecommunications technology at current prices. Technology designed primarily for urban or interurban telecommunications may be technically inappropriate or too costly (or both) to meet rural needs.

Given that situation, it is unlikely that the needs will be met soon, if we assume that we must wait until the economics of demand are sufficient. Fortunately, the long neglected supply side of the economic equation is more fashionable now, and that is where we must look for a resolution. Instead of waiting impatiently for rural demand to develop, looking at the supply side of the problem gives the activist something to do about it. The problem from this perspective becomes one of providing appropriate technology to meet the needs within the economic constraints. In economic jargon, how can we achieve the technological advances and productivity gains needed to increase the supply at a low enough cost to let the supply curve meet the demand curve?

The dominant feature of rural telecommunications needs is that they are basically the same as urban telecommunication needs. Just as urban people want video, audio and data services, so do rural people. Both rural and urban audiences want television access, whether it is Home Box Office in the USA or World Cup Soccer in Peru. Two-way video may be uneconomical for both urban and rural markets for a long time, but if it ever is established in urban markets, rural areas will want it also. Audio service, in the form of one-way radio broadcast or two-way telephony,

12 0306~5961/61/010012/06$02.00 R 1981 IPC Business Press

Communication sarellires for rural service

may be more essential for development (and maintenance of daily activ- ities) in rural areas than in urban areas where more substitutes exist. Data services, whether telex, telegraph, electronic mail, or multipoint data distribution to business teleprinters or home computer terminals, are needed in both rural and urban areas. Rural areas need weather information, commodity market price information and supply availability information via telecommunications perhaps more urgently than urban areas.

The differences between rural and urban telecommunications are not primarily in the nature of the service needed, but in the different environmental and social contexts of the needs. The greater distances involved in rural service lead to a greater demand per capita (or at least willingness to spend a larger percentage of income) for telecommunications because the alternatives (such as transportation) are more costly in rural than in urban areas. When terrestrial technologies such as wire, cable, and microwave are utilized, those greater distances also mean higher costs. In rural areas power supply may be less reliable or more expensive, although labour costs may be less expensive. Environmental differences cut both ways also: in some senses the rural environment may be harsher, although it may also have less vandalism, less electromagnetic interference and lower land costs.

Because rural areas are distinguished from urban areas by virtue of the small concentration of people, there is much lower aggregate demand in any given rural location. This lower aggregate demand is further com- pounded by the lower economic status of rural areas which reduces their ability to pay. Therefore, rural communications are different from urban primarily because of the lower volume required in any given location. In other words, rural telecommunications can be characterized as low- volume, ‘thin-route’ communication.

Satellite techology and economics

Appropriate or affordable terrestrial communication technology for thin- route locations is not the same as interurban high traffic corridor microwave or urban underground cable. In rural locations needs can be met with VHF radiotelephone or wire strung on poles. Similarly, appropriate satellite technology for rural telecommunications is not the same satellite technology that is a substitute for high-density interurban microwave or undersea cable. In satellite technology, as in terrestrial technology, it is necessary to examine the kind of technology appropriate for the thin- route tails of the network as opposed to the dense-route corridors.

Since most existing satellite technology is designed for high-density corridors, we must consider instead the potential of different satellite systems appropriate for thin-route applications. Otherwise, we would be driven to the obvious conclusion that urban and interurban technologies, in space or on the ground, may be inappropriate and too expensive for thin-route environments. Thin-route satellite applications require a re- thinking of the trade-off between space segment and earth segment. Interurban applications require a small number of large earth stations. Thin-route applications require a large number of small earth stations. The space segment appropriate for a large number of small earth stations is likely to have higher transmitter power and greater amplification of received signals than space segments designed solely for large earth stations.

TELECOMMUNCIATIONS POLICY March 1981


Large fixed costs

The dominant economic characteristic of communication satellite systems is the very large fixed costs. The costs per telephone circuit may be very small, but one cannot launch single circuits into orbit as needed. Instead, $lOOm to $ZOOrn may be needed to place a large amount of capacity in orbit. Countries like Peru, who may need the capacity of one quarter of a satellite transponder, cannot afford the high fixed costs of a dedicated satellite system providing as much as 72 transponders of capacity. The thin-route nature of rural telecommunications when combined with the high fixed costs of satellite systems makes it unlikely that even a country as large and as rich as the USA will even have a satellite system dedicated to rural telecommunications. Just as in the USA the economics of TV distribution by satellite made it possible to have satellite capacity for rural telephony, so in other parts of the world satellite capacity for rural telephony will depend on sharing the high fixed costs of the space segment with other services.

Small variable cost

The characteristic that complements the high fixed cost feature of satellites is the potential for small variable costs. A virtue can be made out of the necessity for high fixed costs by increasing even more the space segment costs (for example by higher power requirements), thereby making possible very low costs for earth stations. The low variable cost for an additional small earth station in a thin-route rural location is what will make it possible for rural thin-route locations to be served at affordable costs. With large earth stations, there must be a large volume of traffic in the same location to share the expense. With small low-cost earth stations it can be economical to provide service to communities needing only one long-distance telephone circuit. The high fixed cost of the space segment can be shared by users in widely dispersed geograph- ical locations and by different services.

Average v marginal cost

A factor in the technical design of many satellite systems is the fact that satellite engineers tend to design on the basis of average co.st, while system users make their utilization decisions on the basis of marginal cost. The economists and marketing people in satellite companies may understand that distinction well, but they may not understand satellite system engineering enough to insist on different engineering design as a consequence. For example, satellite engineers may design systems to achieve the least cost per bit transmitted on the average. The result is likely to be a system appropriate for the very small number of locations needing more than six million bits per second of data transmission. That kind of system will be too expensive for all but the few large corporations with data transmission requirements approaching six million bits per second. Such a system is not affordable at the large number of locations where a smaller data communication requirement exists. Similarly in voice telephony, low average costs can be achieved when a group of 12000 voice circuits is needed at the same place. But such a system has no market in communities where far fewer circuits are required. Satellite engineers have seldom addressed the problem of finding the least marginal cost for providing one voice telephone or one 30 character per second data channel, even though their corporate marketing

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department could tell them there are more locations with smaller requirements than with larger.

Another factor in the technical design of satellite systems is that satellite engineers usually assume the task of optimizing the distribution of costs between space segment and earth segment, as if the number of earth station locations were a predetermined number to be paid for by the organization paying for the space segment. In most satellite systems, both assumptions of that widespread engineering practice are false. The entity offering the space segment service (eg Intelsat for international service, RCA or Western Union for US domestic service) is seldom the entity supplying the earth stations.

The market for the space segment is dependent on users paying for earth stations. The number of such earth stations to be purchased by many different users cannot be accurately predicted in advance. To make the space segment economically viable a large number of potential users must have marginal investment costs small enough to induce them to make the earth station investment decision.

The marketing department could tell the engineering department to engineer the system for least marginal cost earth stations in order to induce more people to use the system. But the engineers will usually resist because such strategies, while they are rational to economists and marketing people, appear irrational to engineers. The engineers are steeped in trade-off analyses based on known numbers of locations and average costs. In the real world, the number of locations is unknown in advance, and is a function of the marginal cost of adding earth stations. Each additional earth station added to a system helps defray some of the fixed cost of the satellite, thereby making the economics of the entire system more attractive. Unfortunately, few engineers understand that type of marginal cost analysis. The people who do, may not be in a position to intrude on what engineers consider to be their domain. Unfortunately average cost engineering analyses discriminate against potential rural users.

Community v individual reception

The careful legal distinction between direct broadcast satellites for individual reception and point-to-multipoint fixed service satellites for community reception is not as sharp in practice. Already in the USA, people living in rural locations are installing small earth stations for individual TV reception. Later, when direct broadcast satellites beam television signals to individual home receivers in urban areas, poorer rural communities may choose to share one satellite receiver among several homes. Especially if the ‘broadcast’ satellite capacity also permits low-cost rural telephony, it will be appropriate to share an earth station on a community basis. The economic trade-off between individual home versus shared community earth stations will be very sensitive to the costs of local distribution loops, which will be different in rural and in urban areas. To achieve low-cost rural service we will need to avoid strangling rural areas in an elegant set of urban distinctions.

Policy concerns Sharing among services

Sharing of satellite capacity between rural telecommunications and other uses is essential if the potential of satellite technology is to benefit rural

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Communicalion satellites for rural service

users. Given the thin-route, low-volume nature of rural telecommunications, enough demand for an entire satellite for that purpose is unlikely. However. rural telephony can easily be one of the uses of multipurpose satellite systems that also provide television and interurban telephony. Rural people want video, audio and data services. They are unlikely to be able to afford duplicate systems, one for video and one for voice and data. In rural Alaska, for example, the same small earth stations provide television, radio and telephone service.

A major issue at the 1979 World Administrative Radio Conference (WARC) was separate frequency allocations for broadcast satellites (video distribution) and fixed service satellites (primarily telephony). The technical basis for the distinction was homogeneity of power levels to achieve efficient use of the orbital arc. If both high-powered and low- powered satellites share the same frequency, then the high power in one orbital location can cause interference to a low-power satellite system utilizing the adjacent orbital position. It was assumed that broadcasting satellites had higher power than fiied service satellites. In general, the assumption may be true because most fixed service is interurban telecommunications utilizing large earth stations. When both kinds of satellites are in orbit, however, the kind most appropriate for rural telephony (whether or not shared with television) is the broadcasting satellite, because the higher power levels permit lower-cost earth stations. The outcome at WARC was a fragile compromise in which the issue was only partially resolved. It will be re-examined in later International Tele- communication Union conferences mandated by WARC.

If the attempt to prohibit fixed service on broadcast satellites (and vice versa) prevails, several consequences will result. One is that rural telecommunications costs will be unnecessarily high because rural areas will be blocked from access to the least-cost technology. As a corollary, in-place terrestrial investments in higher-cost technology will be protected. Similarly, fixed service satellite systems will be protected from economic competition from higher-powered ‘broadcast’satellite systems.

It is risky to speculate about motives behind such policy distinctions between kinds of service. My speculation is that the US purpose was to insist on the distinction in an attempt to avoid preplanning of the fixed service orbital arc, as was already committed for broadcasting service. If fixed service was prohibited in broadcasting bands, perhaps fixed service planning could be avoided. The issue of planning the orbital arc will be won or lost on other grounds. In my opinion, it would be most un- fortunate to sacrifice the potential for lower-cost rural telephony to such a cause. At the very least, rural satellite service should get the same benefits of economies of sharing that the Federal Communication Com- mission (FCC) permits for terrestrial service through the waiver of cable television and telephone cross-ownership rules for rural communities. Unfortunately, the right to have that flexibility in the USA could be given away in international negotiations, leaving the FCC without the flexibility in rural satellite service that it has for rural terrestrial services. US insistence on preventing fixed satellite service use ofsatellite bands could cause greater economic harm to other countries that differ from the USA in not having a rural communications infrastructure already in place.

Planning the orbital arc

It became clear at WARC 1979 that developing countries are very likely to use their power of numbers in the ‘one country one vote’ forum of the

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International Telecommunication Union to insist on preplanning the orbital arc at a series of now scheduled planning conferences. US opposi- tion to prior planning, besides being a defence of the first come, first served policy that has served the USA well in the past, was based on the fact that planning could result in inefficient use of the scarce orbital resource.

Now the USA is faced with a real policy choice. Either it can acquiesce to the inevitable and accept some form of planning, or it can help developing countries to acquire satellite systems they can use. The reason why Latin American countries do not have satellite systems now is twofold. First, no one country needs or can use an entire satellite system, at least initially. Therefore, some form of international sharing arrange- ment must be devised. Second, there is the difficulty of raising the initial capital for the high initial fixed costs of the space segment. If the USA were to use its ingenuity to help resolve those twin problems, it is likely that the negative consequences of planning feared by the USA could be avoided. Given the choice of access to a real satellite system or the rhetorical victory of empty slots in orbit, developing countries are likely to choose what they really want and are afraid of being blocked from: acquiring access to satellite systems appropriate for their domestic use.

FCC deregulation

The FCC’s 1979 deregulation of receive-only earth stations removed the primary regulatory barrier to economically viable receive-only satellite services to rural areas of the USA.

A similar, although not as dramatic, effect is possible for transmit- receive services. The Commission could delegate to its staff the authority to license routinely (and quickly) all transmitting earth stations of what- ever size that meet the technical interference regulations. All other licensing requirements could be removed. The frequency coordination requirements could be made much less cumbersome, and much less expensive, for small earth stations. Currently the procedures are identical for powerful large earth stations (for which the rules were designed) and for the 4 ft dia, 1 W transmitters proposed by Comsat for remote rural data collection. The coordination radius within which the small 1 W transmitter could potentially interfere with other services is in fact much smaller than the conventional, large earth stations.

Conclusion Satellite technology provides the opportunity to achieve the lowering of costs necessary to enable rural telecommunications needs to be met at affordable prices. Nevertheless, the potential of this technology for rural communication is not yet well understood. The ability to serve thin-route needs at costs that are insensitive to distance makes satellites ideal in principle. Both technical and policy changes may be required to achieve that goal in practice.

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Communication satellites for rural service: Problems and potentials

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