It's no wonder there's so much confusion when it comes to broadband access: there's a slew of options for consumers to gain high-speed access to the Internet. Just consider, for example, a consumer walking into a Best Buy consumer electronics retail store. He or she would find DSL from MSN HighSpeed and Flashcom; cable television and high-speed cable Internet access from AT&T Broadband; satellite from DirecPC; and fixed wireless from Sprint (NYSE : FON). Choice is great, but it does have downsides, especially when it's hard to decipher the pros and cons.

And there are plenty of points to keep in mind when trying to determine whether a satellite dish is a better choice than DSL or a cable modem. As a last-mile solution, satellites bring the ability to reach areas outside the normal range of terrestrial landlines. Satellites also have a track record for proven security, but much of the technology is still considered young when it comes to delivering data.

With that mix of strengths and weaknesses, some analysts are projecting big growth for satellites over the next few years. Broadband satellites are expected to garner 30 percent of the Internet-access market by 2007, with 50 million users generating $15 billion in annual revenue by the end of the decade, according to Pioneer Consulting, a market research firm in Cambridge, Massachusetts.

Currently about 50 percent of broadband users get service through DSL, 25 percent through cable modems, and about 10 to 15 percent through fixed wireless technology, says Roland Van der Meer, a general partner at Comventures, a Palo Alto, California, venture capital firm that invests exclusively in communication technologies.

The remainder, about 10 percent, is expected to be filled by satellites, primarily due to their accessibility in the last mile. (For a definition of "last mile" and other high-speed-Internet-access terms, see "Special delivery.") Satellites offer the best solution for rural areas of the United States that are not yet equipped with cable or telephone infrastructure; it's not economical to run landlines to the majority of end users in nonmetropolitan areas.

PIE IN THE SKY

Satellites can reach areas that do not have existing infrastructure. Cable is limited by where the cable company has placed wire. DSL is limited to 12,000 to 18,000 feet from the phone company's central switching office. "Those who live beyond terrestrial access provide a strong customer base for the satellite industry," says Edward Sloot, a partner with the venture capital firm Sofinov. "We see it as a strong, dynamic industry with good science."

His company has explored backing at least three satellite startups, and the recurring challenge he encounters is finding a way for the satellite system to fit into the current terrestrial system. "The business model must come from a commercial perspective," says Mr. Sloot. "They need to look first at what a community needs and then how satellites can provide it."

Satellite companies have also fought to overcome the perception that they are a solution solely for rural markets. Most analysts consider satellite delivery a good match for urban and suburban settings, not just remote areas.

In the early days of dish TV, satellite was thought of as strictly for rural communities. Now it is prevalent in more densely populated areas. "This 'rural market only' perception is one that satellite companies must shrug off to earn a stake in the larger markets," says Sam Baumel, senior director of marketing for Hughes Network Systems's Consumer Division.

And much of the excitement surrounding satellites delivering last-mile Internet access can be attributed to the success over the past 25 years of very small aperture terminal (VSAT) satellite technology used in gas stations for verifying credit cards.

SKYROCKETING COSTS

But there are concerns about using satellites as the last-mile technology -- chiefly cost, but also technical issues like weather interfering with signal transmission. Consumers pay $600 to $1,000 to install a satellite dish and other equipment, says Mr. Van der Meer, adding that he doesn't believe the market for satellite Internet access is large enough to lower the price point to that of cable or DSL.

But those cost economics might be changing soon. A recent study by the Phillips Group, based in London, says new two-way satellite technology could boost the potential for satellite services being widely accepted. But the time lag in entering the market will prevent satellite technology from dominating, as both cable TV and DSL will already be well entrenched, with cable having captured the residential users, and DSL the business users.

Launch costs are yet another large expense that figures into the economics of satellite delivery, but companies like Skybridge are willing to shoulder these costs to develop their broadband distribution network. Skybridge, a company led by Alcatel (NYSE : ALA) that has headquarters in Bethesda, Maryland, is trying to deploy 80 satellites by 2003, at a cost of $6.1 billion. Of that, $2.9 billion is for the space segment, while $1.4 million is for satellite launch services and insurance. The remaining $1.8 billion is earmarked for ground and system integration.

Critics and competitors say satellite transmissions suffer from rain fade, snow load, and wind conditions. In severe snowstorms and heavy rain, for example, users may experience signal fade. What's more, heavy winds can also damage rooftop dishes.

COMMUNICATION BREAKDOWN?

Besides the day-to-day technical risks in operating a satellite network, there's also the likelihood that satellites could go offline completely or burn up in the atmosphere. In November 2000, a PanAmSat (Nasdaq : SPOT) Galaxy 7 backup satellite valued at $130 million permanently ceased transmission after an onboard system failed. That happened just days after the November 21 launch failure of a $60 million Quickbird 1 satellite, which would have provided images for the Pentagon's National Imagery and Mapping Agency and other customers. The launch was conducted by the Russian Space Agency.

Another downside of satellite technology is the inherent latency built into the transmission and reception of data signals. This is the same delay often heard when phone calls are patched through satellites, and this delay can slow data-transmission speeds.

"Whoever wins the last mile -- if they get it right -- wow, will they have the ability to sell multiple services," says Eric Hartley, founder and CEO of SatcomX, an Atlanta company that provides broadband IP content delivery and application-service-provider connectivity by satellite.

Mr. Hartley should know. The 30-year-old onetime Aspen River guide has two desktop computers, one that accesses the Internet over Asymmetrical DSL (ADSL), and the other over satellite connections. This arrangement also provides him with a lablike environment for determining what these technologies can actually deliver. Mr. Hartley says he uses the StarBand system, which began operations last April, with the assistance of strategic partners Gilat Satellite Networks (Nasdaq : GILTF), Microsoft (Nasdaq : MSFT), and Echostar Communications (Nasdaq : DISH). StarBand beams data continuously back and forth from Mr. Hartley's 36-by-24-inch rooftop dish to a satellite orbiting 22,300 miles in space. His other computer brings in broadband through a MindSpring ADSL connection. Keeping tabs on speed through simple AnalogX software, Mr. Hartley says the systems are comparable.

He has seen StarBand upstream speeds as high as 90 Kbps, with an average of 20 to 50 Kbps. Downstream speeds, Mr. Hartley says, have been as high as 1.1 Mbps, with an average of 400 to 500 Kbps. As for his ADSL line, it runs consistently at 1.2 Mbps in each direction.

By the end of 2000, Hughes Network Systems was expected to release fourth-generation technology that offers broadband return through satellites, Mr. Baumel says. It builds on the company's DirecPC system, which delivers downstream broadband by satellite and upstream broadband through phone lines. Other satellite companies that are aiming to deliver broadband include Hughes's Spaceway, Lockheed Martin (NYSE : LMT)'s Astrolink, Teledesic, and Cyberstar.

Make no mistake, demand for broadband will continue to grow. But in order to compete, satellite companies must continue to drive price points downward so the technology is as fast and affordable as DSL.

Write to ronald.recinto@redherring.com.

ADDITIONAL RESOURCES

A Columbia University professor's class on "last mile" technologies and a basic primer on broadband delivery.

Links to a trade organization that supports space technology.

Links to other trade magazine stories about satellites and the "last mile."