Satellite Bonanza Whichever Way You Look
The large satellite communications industry in the Washington region is positioned to profit handsomely from the LEO market, no matter which systems fly
roposals to launch satellite systems that transmit voice, fax, paging and data over a mobile phone from any point on the globe may have sounded like science fiction in the early 1990s. But the hardware, at least, is about to come down to earth.
And if satellite-based telecommunications services are a success, it will mean upward of $20 billion in business for the U.S. space communications industry, a market centered around the nation's capital.
Satcom companies flock to the Washington region to be close to the Federal Communications Commission, the agency that can give, and take away, their life-blood by deciding what American firms can put satellites around the Earth. The agency will decide at the end of January which firms proposing low-Earth-orbit, or LEO, satellite systems will be granted the grail.
Licenses will allow companies to begin constructing the satellites, antennas, hand-sets and other communication technologies the global systems require. Even though none of the systems are expected to be operational before the end of 1997, FCC licensing is likely to spark immediate business for satellite and information technology companies.
"Washington, D.C., has the highest concentration of LEO and LEO-related firms anywhere," said Jill Stern, general counsel for the International Small Satellite Organization. In fact, Washington is home to four of the six companies that plan to offer mobile-phone satellite communications systems.
The six firms proposing systems are Washington, D.C.-based Iridium; Globalstar of San Jose, Calif.; Odyssey Worldwide Services of Redondo Beach, Calif.; Constellation Communications of Fairfax, Va.; Washington, D.C.-based Mobile Communications Holding Inc.; and American Mobile Satellite Corp. (AMSC) of Reston, Va.
All the companies are expected to be given an FCC license this month, except for AMSC, which applied for a license later than the other firms and did not tell the FCC how it plans to pay for building and operating its system. It will have to wait at least a year to be considered for a license. But many industry observers say AMSC does-n't really plan to enter the LEO market at all.
They contend AMSC - a large chunk of which is owned by Hughes Communications Inc. - requested a license for spectrum allocation if it decides to expand a different mobile-phone satellite project it's working on. AMSC has an FCC license to provide domestic telecommunications services similar to those the LEOs have planned, but from a higher geostationary orbit of 22,000 miles above the Earth. AMSC had expected to launch its satellite last year, but technical problems delayed its liftoff until at least March 1995.
Geostationary satellites such as AMSC plans to launch are more expensive to construct and put in space, but they have greater coverage areas and need to be replaced less frequently. Medium-Earth orbit satellites, which TRW plans for its Odyssey system, fall between LEOs and GEOs in cost and coverage range, as well as in the sky.
Other proposed satellite systems designed to work from low-Earth orbit include the "little" LEOs, which will provide location tracking and monitoring, as well as messaging services. All seven of these firms seeking an FCC license have headquartered themselves in the Washington, D.C., region.
They are Dulles, Va.-based Orbital Sciences; CTA of Rockville, Md.; Final Analysis of Greenbelt, Md.; Vienna, Va.-based Interferometrics; Starsys Inc. of Lanham, Md.; Washington-based LeoOne USA; and the non-profit group VITA in Arlington, Va.
Teledesic Corp. is also planning to launch LEO satellites -- 840 to be exact. The $9 billion joint venture with Microsoft's Bill Gates and McCaw Cellular's Chris McCaw plans to provide video-conferencing,
interactive multimedia and real-time digital data flow by 2001.
All the mobile satellite systems combined will create markets valued at $11 billion for satellites, launches and user terminals, and yearly services revenues of $9 billion by the year 2001, according to a study by Leslie
Taylor Associates, which is a consultant to Globalstar.
The big LEOs systems such as Iridium and Globalstar are likely to spur the most satcom business -- and soon. With AMSC out of the near-term LEO picture, that leaves five firms eligible to receive the five licenses that the FCC has said are available for these systems. But even though all five are likely to be given a license, the success of each venture is still up in the air.
the ticket to success
Most agree only two or three systems will actually fly, partly because companies aren't willing to bet the bank on this new technology. "The biggest concerns are financing, regulatory issues, and construction, all three of which must proceed in parallel to achieve success," said Iridium spokesman John Windolf.
But, said an industry observer, "no one has their financial act together," and at least one company, Globalstar, is considering letting the public pour money into its system. Globalstar has set in motion an initial public offering, although rumors say the firm is considering calling it off.
"IPOs may become a viable funding alternative as people become more familiar with what satellite communications are doing for them," said Mike Miller, general manager of the Virginia Center for Innovative Technology. Satellite communications are coming down to earth, he said. "Look at the success of [Hughes'] DirecTV," which can't make enough box-top sets to meet the demand of customers who want to order television programming via satellite.
The successful LEO systems will have a stable business plan that prices services competitively, said ISSO's Stern. Also, companies in multiple relationships with international telecommunications service providers will be best off, she said. International partners will help the LEOs in their next battle -- securing foreign licensing.
Companies will need separate licenses for each country they plan to provide services in. The firms proposing LEOs expect to offer mobile services through existing telecom providers in different countries. The local firms would then take responsibility for helping secure that nation's license. LEO planners expecting to offer service in the next two or three years would be smart to start obtaining foreign licenses as soon as the FCC hands out the American rights -- considering it took five years for that to happen.
Reclusive countries like North Korea and China are cautious about letting their citizens jump on any information expressway, therefore guaranteeing rights to operate in these nations could take years.
Not everyone can be a winner
Iridium and Globalstar are probably the two systems most likely to succeed in the LEO market, say industry observers, partially because of the big industry names behind these projects. Motorola's $3.4 billion Iridium project appears to be the furthest ahead in financing, and in attaining contracts to build satellites and handsets. They also have rockets ready to send their satellites to space. But the system has changed since it was conceived in 1987.
Originally, Iridium was named after the 77th element in the periodic chart because the constellation had that number of satellites. Modifications have lowered the cost of the system and brought the number of satellites down to 66 -- but the firm has no plans to change its name to Dysprosium, which in Greek means "difficult to access."
Iridium is the system LEO competitors measure itself against, intimating that the Washington, D.C.-based venture is ahead of the pack. However, even Iridium carries no guarantees.
Iridium service is set to cost many times that of phone calls using the other systems, although Iridium says its competitors are underestimating the charges their customers will see on their bills. However, even at Iridium's $3 a minute, customers now paying Inmarsat $10 per minute for a basic ship-to-shore mobile phone connection should be happy.
It is this historically high cost for mobile-phone satellite communications that made these systems unacceptable for the wider potential market. But the advent of advanced satcom technology, component miniaturization and breakthroughs in digital voice processing has made mobile-phone satellite communications a technical reality.
But is there a market?
Globalstar estimates that by the year 2002 there will be 5 million customers seeking mobile-phone satellite communications. That figure jumps to 33 million by 2012. That's not far-fetched, considering 10 million people are already using cellular phones -- just 10 years after the first mobile communications system began to operate.
Many of these cell-phone users are expected to turn to LEO systems that will provide service in areas their current mobile phones don't reach. New handsets will work with cellular antennas and automatically switch to satellite communications when the phone wanders out of cellular range.
The technology Iridium plans to use is unprecedented and the most challenging of the LEOs. Its satellites are designed to do on-board processing; the system allows the birds to send messages through each other, without having to go through ground stations.
For instance, if one mobile caller in Africa used Iridium's satellites to call another mobile-phone user in Pittsburgh, the call could technically bypass all local service providers. But most calls involve only one mobile phone, so the majority of Iridium calls will go through service providers, like the other systems. Motorola would be the first to use this method -- originally developed like all the LEO technologies for the government -- in a commercial satellite system.
The other systems, including Globalstar, plan to use a traditional "bent-pipe" transponder to send messages from satellites to the Earth. Globalstar's simpler technology and its lower cost make it a great bet. But Loral Qualcomm, the system's top supporters, do not seem to have firm plans as to who will manufacture their handsets or launch their satellites, which are crucial elements for making any of these systems work.
If Iridium and Globalstar represent the best two chances of success, and three systems are expected to make it out of the starting gate, who will fill the third slot? TRW's Odyssey is a possible contender, although currently its only partner is Canadian telecom giant Teleglobe.
Actually, the answer to who will place third may not be any of the American firms.
London-based Inmarsat, which is a consortium of countries that offers ship-to-shore phone service, is in the early stages of
planning a $2.6 billion mobile-phone satellite system. Many industry participants predict Inmarsat will beat out many of the U.S. systems because of Inmarsat's current access to money and the market.
Motorola, TRW and other LEO firms have legally tried to stop Inmarsat from putting up a system, fearing that countries with a financial stake in Inmarsat would try to block U.S. companies from those markets. In response to pressure from the United States, Inmarsat is setting up an affiliate to develop the system, Inmarsat P, that would be 30 percent owned by non-Inmarsat members.
American firms, however, are still skeptical and want the U.S. government to threaten to shut Inmarsat out of the U.S. if all markets are not kept open to everyone.
If Inmarsat is not the third winner, "the Ellipso system may surprise us all," said one analyst. It has a unique architecture that will give more capacity to areas during daylight hours when most communications occur. With their "sunsynchronous" structure, they operate satellites from both the medium- and low-Earth orbits, which they say increases the system's efficiency. But Ellipso's supporters will not publicly reveal how they will finance the system, even though they say they have raised the entire $1.1 billion needed.
The other LEO that hasn't garnered much press coverage is the Constellation Communications system, which has industry giants Bell Atlantic and E-Systems on board. But Constellation won't discuss how much money they've raised and some industry observers say neither Bell Atlantic or E-Systems seem ready to invest a huge chunk of the $1.7 billion total cost of the project.
One thing that may shake up the list of LEOs that prevail is consolidation. As the market shakes out, it's possible some of the smaller firms will try to merge with big companies or each other, said Miller.
Just about everyone agrees the market will decide which of the LEOs bear fruit. Meanwhile, the Washington region's satellite communications business is likely to immediately benefit from any and all LEO plans, as firms proposing LEOs shift into high gear after the FCC's January license handout.