The Maritime VSAT Advantage: A cost analysis of VSAT broadband versus L-band pay-per-use service

Maritime companies worldwide are recognizing that VSAT broadband networks are a strategic investment toward improving crew welfare and increasing business productivity. The reasons are clear: VSAT networks provide global broadband coverage for voice and data communications. And they can do so at a dramatically more cost-effective rate than typical pay-per-use L-band services offered by carriers such as Inmarsat, Iridium and Thuraya.

It’s no surprise that the adoption of VSAT technology is projected to jump by more than 400 percent through 2012, according to the Comsys Maritime VSAT Report. Yet before maritime companies upgrade to VSAT, they must compare its costs and benefits to their current communications infrastructure. To do this, they need to ask several important questions: How much does it cost to install a VSAT system? When does VSAT become the right fit based on data usage? How much can I really save per month? What is the payback period? What is the return on investment?

This document outlines the business case for upgrading to VSAT broadband communications. It compares the associated costs of an L-band pay-per-use model to an always-on VSAT broadband model based on a wide range of IP communications profiles. The conclusion: Even for the most basic daily requirements, VSAT networks are the most cost-effective choice for the large majority of maritime fleets.

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No matter how a maritime company decides to modernize its communications systems, there is widespread agreement that the industry needs to shift to broadband. Broadband networks deliver the high data speeds required by rising communications needs. They can reliably support a range of critical onboard applications such as real-time business applications, Virtual Private Networks, Voice over IP (VoIP), Internet access and more.

Broadband increases business productivity.

Broadband networks can transform vessels into high-functioning remote offices integrated with business applications and fast-paced operations back on land. They enable crew to maintain greater contact with headquarters to share business and operational data; with vendors to order supplies; and with port authorities to speed up pre- and post-arrival reporting. ERP systems can collect and send more information between ship and shore in real-time to provide valuable insight into operations. Additionally, broadband networks can facilitate video surveillance and provide medical support with onshore doctors.

Broadband reduces the cost of vessel management.

As vessels are spending more time at sea, this leaves less time in port for maintenance, repair and the exchange of information. With broadband, crew can utilize voice and high-speed Internet connectivity to consult with experts, receive support in real-time and solve a host of mechanical and technical problems. Alternatively, these issues would need to be addressed during an extended stay in port or by an expensive visit from a specialist brought in from shore.

With a broadband connection, critical vessel management tasks can now be handled from shore, decreasing the need to have specialists onboard. Professionals on land have a greater line of com-munication to vessels at sea so they can improve engine performance monitoring and resolve problems more rapidly. This also extends to IT systems management, with benefits including remote computer access, IT trouble shooting and software upgrades.

Broadband improves crew welfare and retention.

Crew today demand greater access to email, phone and Internet for entertainment, managing personal affairs and staying in touch with family and friends on land. Newer generations of communications-savvy crew are even harder to please and the costs of replacing crew lost by attrition continue to rise. Broadband brings greater levels of communication onboard to address this critical issue. With a broadband network, ongoing training of crew can also be performed while at sea, improving competency and professional development.

Broadband decreases fuel costs and lessens delays.

Weather and routing setbacks carry major costs implications, and tighter schedules leave much less margin for error. Broadband networks keep vessels running at a faster clip. They can deliver real-time, accurate weather and navigation data via the Web. This saves not only time, but fuel – heavy costs which can far outweigh a vessel’s communications spend.

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Broadband Connections

VSAT broadband can integrate a vessel at sea with business operations and daily life back on shore.

Remote office: Broadband establishes onboard VPN ♦

networks that cover entire fleets and connect ships to shore. This connectivity supports critical business applications, carries VoIP traffic and increases a ship’s access to the information and people it needs to run a tight operation.

Remote home: Broadband delivers regular access ♦

to the Internet for email, file sharing and instant messaging; more reasonable voice rates; and other benefits. Crew can stay in closer contact with friends and family, manage personal affairs and enjoy entertainment content.

Remote management: Broadband facilitates instant ♦

communications with technicians, vendors and other skilled workers to address mechanical and technical issues in real time.

Why broadband?

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There are many different ways to procure a maritime broadband network onboard a vessel. Each has its advantage in cost, coverage, signal strength and ease of installation.

C-band

C-band VSAT systems have traditionally been the choice for vessels that follow trans-oceanic routes and have significant communications requirements. C-band beams provide global coverage and meet broadband speeds. While they require large antennas and a couple of days in port to install, they have become an absolute necessity for many major vessels today. C-band connectivity is typically provided on a flat-fee basis and can reach data rates exceeding 4 Mbps.

Ku-band

Ku-band systems are an increasingly popular choice for broadband connectivity. Ku-band beams cover coastal shipping lanes, and maritime service providers are integrating these beams into expansive regional,

even quasi-global coverage areas. Ku-band equipment is less costly and easier to install than C-band systems. Ku-band beams provide a very strong signal. And today, Ku-band is capable of covering deep water areas and new technology overcomes rain fade challenges. Ku-band service is also provided on a flat-fee model and can reach data rates exceeding 4 Mbps.

L-band

L-band systems represent the industry’s incumbent technology and are already installed on most vessels. They are largely limited by narrowband data rates, but newer models can nearly reach broadband speeds. However, L-band networks are typically pay-per-use and cannot economically handle the traffic requirements of many vessels today. In addition, L-band networks are often subject to congestion in high-traffic areas. L-band can reach data rates of up to 432 Kbps.

C-band Ku-band L-band Antenna size 1.8m - 2.4m .6m - 1.8m .6m or lower

Frequency 3-6 GHz 12-18 GHz Less than 2 GHz

Data rate Up to 4+ Mbps Up to 4+ Mbps Up to 432 Kbps

Beam coverage Global Coastal, regional, near global Global

Typical pricing model Flat-fee Flat-fee Pay-per-use

Future direction Required for large vessels Emerging choice for majority Incumbent technology, but crossing deep ocean waters of small to large vessels becoming relegated to vessels with minimal communications Weaker signal than Ku-band, Smaller beam footprints, requirements, or as a back up but has a larger coverage but can be overlapped to VSAT to accommodate most vessels routes

Maritime Network Options

What are the options?

Before considering the respective costs associated with C-band, Ku-band and L-band systems, we first need to look further at the major differences in capabilities between VSAT and L-band technologies. Both L-band and VSAT systems are marketed with what appear to be a shared set of features and benefits. Yet, VSAT is based on an entirely different business and technology model than L-band systems. As a result, VSAT broadband offers several clear advantages.

VSAT is faster.

Today, L-band systems can approach broadband speeds, but they top out at 432 Kbps, just short of 512 Kbps, which is widely considered to be the minimum broadband rate. VSAT systems commonly reach speeds of 4 Mbps or higher when required.

Another limitation of L-band service is that the advertised data rate can decrease depending on how many vessels need to access a specific L-band satellite beam. L-band satellite capacity must be shared by every vessel that is currently within a specific beam’s footprint. It cannot be segmented by service providers, and often the result is network contention and service degradation in high traffic areas.

By contrast, VSAT capacity is leased to service providers according to a fixed carrier size. VSAT service providers can guarantee data rates because they can control the number of vessels accessing their capacity.

VSAT is always on, not just always available.

One of the traditional benefits of a pay-per-use system is that you pay for only what you use. But today, usage is exactly this model’s primary challenge as bandwidth requirements rise significantly. Pay-per-use L-band can quickly add up to unacceptable amounts that are far more than flat-fee VSAT services.

Even with newly upgraded, faster L-band systems, the economics of this service model cannot cost-effectively support the ongoing, daily communications demands onboard many vessels today. While additional bandwidth is always available at an added cost, many vessels are forced to use the system intermittently and restrict access after a cost threshold has been met. With VSAT broadband, vessels are always online, and crew do not need to watch the bandwidth meter throughout the month.

VSAT enables a more cost-effective use of satellite capacity.

The maritime industry first experienced VSAT broadband in the form of Single Channel Per Carrier (SCPC) connectivity, which provided each vessel with a dedicated satellite link. SCPC links were costly and inefficient since each connection had to be over-dimensioned to guarantee reliable connectivity in worst-case scenarios. Maritime companies with small- to medium-sized fleets could not afford dedicated SCPC connectivity and were forced to rely on pay-per-use services as their only alternative.

Today, however, VSAT broadband service offerings are typically built on IP-based Time Division Multiple Access (TDMA) systems, which are much more efficient and cost effective. TDMA networks dynamically allocate bandwidth to multiple vessels over a shared platform based on each vessel’s real-time needs. A vessel is guaranteed a Committed Information Rate (CIR), but can also tap into the broader pool of available bandwidth, bursting to a much higher Maximum Information Rate (MIR).

TDMA networks provide VSAT service providers with greater flexibility in how they tailor Service Level Agreements. For example, they can enable a vessel to burst to a higher data rate at no cost when extra capacity exists, especially in a situation where a sub-segment of bandwidth is shared across a single company’s fleet. On an L-band network, bursting to a higher data rate usually means switching to a distinct type of service where a streaming data rate is guaranteed for a period of time. While this service guarantees a higher CIR, it normally comes at an additional cost per MB, which can be more than 1,000 percent higher than standard usage fees.

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Why VSAT?

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To choose which type of network is right for your operation, you must consider two primary expenses: equipment costs and monthly service fees. In general, VSAT hardware is costlier than L-band hardware, and installation may take longer. This can create a perception that VSAT coverage is more expensive than L-band coverage. Yet today, equipment costs have fallen significantly. Antenna sizes are smaller and less expensive, and installation times are much quicker.

On the other hand, VSAT service fees are often dramatically less expensive than the fees most vessels now accrue on L-band systems. So when VSAT hardware costs are amortized and combined with monthly service fees, the result can be much lower costs than L-band systems.

Hardware costs

The below chart depicts typical Manufacturer’s Suggested Retail Price (MSRP) data per vessel comparing C-band, Ku-band and L-band communications hardware – satellite antenna, installation costs and satellite network costs including remote satellite router and typical proportioned hub costs per vessel. The hardware costs below are amortized over 36 months, which represents the typical length of a broadband service contract. In addition to the below costs, a VSAT service plan may include additional monthly hardware costs based on a number of criteria such as data usage profile and network size.

C-band (1.8 m) Ku-band (1 m) L-band (.5 m) Satellite antenna $96,374 $54,374 $19,200and router

Installation $15,000 $5,000 $2,000

Cost per month $3,094 $1,649 $589when amortizedover 36 months

Typical Hardware and Installation Costs

Comparing the costs: hardware

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Bandwidth costs

After hardware and installation, the largest expense for maritime connectivity is the monthly bandwidth fee. In the chart below, we have calculated typical costs per MB based on C-band, Ku-band and L-band coverage. The rates are spread across a price range that is determined by different usage profiles.

Based on a usage level of 145 MB per month, L-band connectivity may cost approximately $11.00 per MB. If usage increases to more than 2,000 MB per month, the fee can drop to $4.50 per MB. In between these ranges, one can expect fees that are likely to be $8.50 per MB at around 400 MB per month and $6.00 for approximately 1,000 MB per month of usage.

We have also calculated a price range for VSAT bandwidth since the actual cost per MB decreases as usage increases, even though the service is offered at a monthly flat fee. The base price for VSAT is estimated using average satellite capacity costs of $4,000/MHz/month for C-band and $5,000/MHz/month for Ku-band.

The fluctuation, though, is derived from a more complex calculation. Space segment charges vary based on data rates (Mbps) and the number of vessels that the Mbps rate is being shared amongst.

Depending on the usage profiles, one can fit more vessels with low MB consumption into the same data rate pool than with higher MB consumption. That is very advantageous since satellite operators generally charge according to bandwidth commitment.

Also, when calculating the satellite space segment costs for a particular data throughput (measured in Mbps) one needs to understand that space segment is priced based on power equivalent bandwidth. C-band, while less expensive, consumes more power to reach the same data throughput as Ku-band, which needs less power. Therefore, in our example the Ku-band and C-band fees are approximately the same.

When we compare the space segment costs for one vessel with low MB usage (regardless of how many vessels can be pooled together to take advantage of bandwidth bulk rates) to a vessel with high MB consumption and calculate the per MB space segment price, the price for low MB consumption is generally higher. In our example, when Ku-band or C-band usage is based on 145 MB per month, Ku-band and C-band connectivity may cost approximately $2 per MB. If usage increases to more than 2,000 MB per month, the fee decreases to $0.75 per MB.

C-band Ku-band L-band Space segment $2 per MB (at 145 MB/month) $2 per MB (at 145 MB/month) $11 per MB (at 145 MB/month) to $0.75 per MB (at 2,133 MB/month) to $0.75 per MB (at 2,133 MB/month) to $4.50 MB (at 2,133 MB/month)

Bandwidth Cost per MB

Comparing the costs: bandwidth

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How does this measure up to today’s communications requirements?

We now need to compare the hardware and operational costs established above to a vessel’s typical monthly usage patterns based on total MB of IP traffic. In the profiles below, usage is calculated based on everyday use of applications like email, voice calls and Internet access. We have determined four categories:

Very Low, Low, Medium and High. Based on these profiles, we can easily determine an approximate level at which VSAT becomes more cost-effective than L-band, and vice versa.

What’s most important to consider in these profiles is the total MB of IP traffic per month. Different vessels may be running a different mix of applications and at various data rates.

Average Days/month Usage hours/ Usage hours/ MB/month Bandwidth day month

Email 5 KB 30 1 30 67.5

Internet browsing 10 KB (steady stream) 10 0.5 5 5.6

VoIP (inc Skype) 16 KB or 32 KB 5 1 5 72

IM (P2P or client/server) 28 KB - 128 KB 0 0 0 0

Streaming audio 32 KB - 64 KB 0 0 0 0

Streaming video 256 KB 0 0 0 0

TOTAL 40 145

Very Low Usage

Average Days/month Usage hours/ Usage hours/ MB/month Bandwidth day month

Email 10 KB 30 1 30 135

Internet browsing 10 KB (steady stream) 20 1.5 30 135

VoIP (inc Skype) 16 KB or 32 KB 15 0.5 7.5 108.5

IM (P2P or client/server) 28 KB - 128 KB 2 0.5 1 3.15

Streaming audio 32 KB - 64 KB 2 0.5 1 3.6

Streaming video 256 KB 0 0 0 0

TOTAL 69.5 385

Low Usage

Average Days/month Usage hours/ Usage hours/ MB/month Bandwidth day month

Email 10 KB 30 1 30 135

Internet browsing 10 KB (steady stream) 20 1.5 30 135

VoIP (inc Skype) 16 KB or 32 KB 20 0.45 9 132

IM (P2P or client/server) 28 KB - 256 KB 10 2 20 252

Streaming audio 64 KB 5 0.5 2.5 72

Streaming video 350 KB and above 2 1 2 315

TOTAL 93.5 1,041

Medium Usage

Bandwidth usage profiles

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At this point, we have identified the core data we need to determine which type of maritime communications service is the most cost-effective given usage levels. To calculate this, let’s combine amortized hardware, installation, monthly bandwidth and operating costs, and apply them to the above usage profiles. When we do this, we get the chart below.

In this chart, we have calculated bandwidth fees for each usage category based on the price range established earlier and added a small operating fee. For example, the cost per month for L-band at the Very Low Usage level is represented by 145 MB multiplied by $11.00 per MB. This equals $1,595. When added to the $589 amortized cost of L-band hardware and installation, the total is $2,184 per month.

Similarly, the monthly cost of $2,213 for Very Low Usage Ku-band is reached when we multiply 145 MB by $2.00 per MB, which equals $290. Then we add $1,649 for amortized hardware and installation expenses, plus additional hardware costs (calculated in this case to be $274) that typically accompany smaller usage profiles.

The next step is to plot these numbers on an X/Y graph to determine the break-even point. This represents the point where the monthly costs for an L-band service would be equivalent to monthly costs for a VSAT service. Once the break-even point has been reached for a specific VSAT band, L-band charges exceed VSAT charges.

Very Low Usage Low Usage Medium Usage High Usage (145 MB/month) (385 MB/month) (1,041 MB/month) (2,133 MB/month) L-band $2,184 $3,853 $6,835 $10,187

C-band $3,657 $3,821 $4,126 $4,690

Ku-band $2,213 $2,376 $2,681 $3,246

Comparative Costs per Month based on Usage Level

Average Days/month Usage hours/ Usage hours/ MB/month Bandwidth day month

Email 10 KB 30 2 60 270

Internet browsing 30 KB (steady stream) 30 1 30 405

VoIP (inc Skype) 16 KB or 32 KB 20 1 20 288

IM (P2P or client/server) 28 KB - 256 KB 10 2 20 252

Streaming audio 64 KB 5 1 5 288

Streaming video 350 KB and above 4 1 4 630

TOTAL 139 2,133

High Usage

The break-even point

Very Low Usage(145 MB/month)

Low Usage(385 MB/month)

Medium Usage(1,041 MB/month)

High Usage(2,133 MB/month)

$9,000

$8,000

$7,000

$6,000

$5,000

$4,000

$3,000

$2,000

$1,000

0

Costs Per Month

Usage Per Ship

L-band

C-band

Ku-band

The Break-Even Point

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The chart reveals the following break-even points for Ku-band and C-band systems:

• Ku-band=150MB. For Ku-band systems, the break-even point is reached at 150 MB per month. This equates to a Very Low Usage level.

• C-band=380MB. For C-band systems, the break-even point is reached at 380 MB per month. This falls in the Low Usage profile.

In the Very Low Usage category, a Ku-band VSAT system can cost less than an L-band system. In a Low Usage scenario, both Ku-band and C-band can be less

costly than L-band, with Ku-band being considerably cheaper. In a Medium Usage scenario, L-band has significantly surpassed VSAT costs. And in a High Usage model, L-band can be double the cost of C-band service and triple the cost of a Ku-band service.

The break-even chart shows that the L-band model follows a very different trajectory than VSAT broadband. In a VSAT model, greater usage of the network drives greater ROI. By contrast, in a pay-per-use L-band model, greater usage drives up monthly charges. And in today’s maritime environment, these costs can be hefty.

The break-even point

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Calculating the payback period

Another way of calculating the return on investment of a VSAT broadband network is to determine the payback period compared to the cost for an L-band service. VSAT equipment may be leased or purchased outright. In the latter case, it is important to know how long it takes to recoup the upfront hardware and installation costs. The chart below calculates typical payback periods based on hardware and service costs and usage levels. In general, higher usage accelerates the VSAT investment payback period.

For Ku-band, the payback period for Very Low Usage is 38 months. This means that in a 36-month lease cycle, both Ku-band and L-band are comparably priced. Above this level, Ku-band service can deliver a higher ROI than L-band. For C-band service, comparable prices to L-band service are evenly matched at the Low Usage level, with higher ROI as usage increases.

It’s important to note that the average lifespan of a C-band or Ku-band antenna is 10 years, and the average lifespan of a VSAT router is five years or more. That means if an antenna is purchased, not leased, the ROI for VSAT service is even greater after three years until a vessel requires a hardware replacement.

The VSAT advantage

As you can see in this analysis, VSAT networks can be a much more cost-effective communications choice for the large majority of maritime fleets, even for the most basic daily communications. For maritime companies, upgrading their communications systems is more critical than ever as they continue to grow their operations and work to recruit and retain talent. Investing in VSAT broadband can cut communications costs dramatically, boost network performance to handle greater voice and data traffic, and bring onboard a smart technology ready for business.

Very Low Usage Low Usage Medium Usage High Usage Payback for 87 months 36 months 17 months 11 monthsC-band VSAT

Payback for 37 months 15 months 7 months 5 monthsKu-band VSAT

Payback Period Based on Usage Level

The payoff

As this paper outlines, there are several options for bringing broadband connectivity onboard a vessel. Here are brief guidelines on how to assess your own needs and make the right decision regarding network technology and service plan options. When you do your homework in advance, you can make a more informed and cost-effective decision.

Examine your existing communications costs.

This is the primary consideration and often the easiest to measure. Start by reviewing your monthly communications invoices. Are they trending higher? Do they fluctuate greatly? How do they compare to the numbers presented in this paper? If you’re spending on average more than $2,000 per month, you may be a prime candidate for VSAT broadband. VSAT service may also be a smart option if you want your communications costs to be a more predictable part of your operating budget.

Understand your opportunity costs.

If your monthly charges are low or show little change, determine whether you are capping service fees at the expense of crew welfare or business productivity. Do you have onboard restrictions in place on Internet and phone use? Are they too prohibitive? Are you deferring plans to run critical business applications onboard because you cannot afford the bandwidth to support them?

Plan for the future.

No matter what your current onboard communications infrastructure looks like, chances are you will soon need to support expanded communications access to and from shore. Are you planning to run new business applications onboard that will increase your monthly usage rates? Can you support multimedia content – pictures, movies, etc. – that your crew may be demanding? Make sure limited connectivity will not be a barrier to future growth.

Consider a fleet-wide Service Level Agreement.

A service plan shared across a fleet of ships is often more economical than providing coverage for a single vessel. Greater usage drives down per MB bandwidth costs. And with an integrated network, a maritime company can craft a Service Level Agreement that allows individual vessels to reach higher data rates by tapping the fleet’s surplus capacity.

Map out your geographic coverage needs.

A final consideration is geographic coverage. Both C-band and L-band support global service plans. Ku-band service providers can reach near global coverage. Making the right choice is a combination of coverage, signal strength and vessel size.

Know your service providers.

In the past few years, a large number of service providers announced new broadband offerings for the maritime market. A majority of these are built on TDMA VSAT networks, and some even offer multiple bands to create a global coverage plan or to support primary and back-up networks. Certain solutions come out of the box, but have limited capabilities. Higher end solutions are often accompanied by systems integrations and 24/7 customer support. Many service providers market more than one solution, so you can expect them to closely match your specific needs and plans.

To find a service provider in your area or to receive more information about iDirect maritime solutions, please send an e-mail to maritime@idirect.net

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What’s right for you?

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