Sorting through the satellite voice market.
Providing satellite voice service in underserved areas
could be a good pick
[Weird article with many errors. No G* mention and uses easy I* comparison. More comments appreciated. djane]
americasnetwork.com
July 15, 1999
By Larry Swasey
ith the supposed demise of the Iridium global voice system, most
industry watchers were starting to doubt the global voice market. Furthermore,
everyone from component manufacturers to those involved in the design,
manufacturing, launch and implementation of satellite systems had to respond to
the never-ending questions concerning the viability of the satellite-based
market, particularly the voice segment.
Iridium is a large, expensive, low earth orbit (LEO) satellite. It's not a relatively
inexpensive geosynchronous earth orbit (GEO) satellite that gives investors a
33% longer life to realize return on investment.
When comparing Iridium with the slew of regional voice systems, you are
essentially comparing apples and oranges.
Calling Iridium
Iridium is a large-scale, technologically advanced system that was conceived
many years before the cellular infrastructure was widespread. Iridium's
audience was also like no other. The company focused on the high end.
Perhaps, that focus may not have been completely apparent to the company
itself until the realization came that prices must be lowered.
There's more bad news for Iridium. The company was given until June 30 to
meet its debts after receiving a 30-day extension from its lenders on the
obligation for 27,000 subscribers. This was the company's second debt
postponement; the first was a two-month period handed out in March.
One major distributor, US Digital Communications, has already fired its Iridium
staff. US Digital cited the international sales of the phone as one major
stumbling block to success with an Iridium product line.
Some hopeful signs that the company might make it out of its early funk include
the departure of several high-priced executives and the hiring of Donaldson,
Lufkin & Jenrette to restructure its debt and reduce its financing costs.
The restructuring of the company, as well as the firing and resignations of
high-salaried executives, were moves taken during the first reprieve. The real
hurdle — expensive minutes — was not rethought until the second extension
was allowed.
The first indication that Iridium was undergoing price restructuring came with an
announcement by Seven Seas Communications. Seven Seas, a service
provider for Iridium North America, said at the beginning of June that it would
begin discounting the monthly access fee from $69 to as low as $19. The
service provider also offered air prices ranging from $1.59 to $4.29 per minute
(the high-end for international calls). Such prices were down from an
approximate charge of $2.00 to $7.00 per minute.
Handset prices also decreased to about $1,000 (its initial price ranged from
$3,000 to slightly more than $2,000 at many distributors). Iridium will no doubt
focus on lowering prices and find innovative means to get handsets to the
well-heeled and talkative, as well as their poorer cousins.
The bad news must be taken in stride. It has been apparent since 1996 that the
system would not be deployed with the ease claimed by Iridium officials. Major
glitches — such as blown-up satellites, delayed launches and handset shortages
— were to be expected. The company also had the largest marketing
campaign known that led to a nonlaunch of commercial services.
It's now the first inning of a long ball game. It seems that banking officials
would allow Iridium to play the system they have already paid for — at least a
few years before closing shop. Iridium has barely put its international marketing
scheme into place, although they have signed contracts with many foreign
distributors. It will not be until 2001 when Iridium truly knows if the distribution
channels are correct and the proper people are in charge of running those
systems. The year 2001 is about the bottom of the third inning.
The GEO Satellites
Many Wall Street mavens had priced Iridium as a $100 stock, with
confidence. The investors should have been looking at a much less glamorous
market that actually matched the needs of those it hovered over — the regional
satellite voice market.
Currently, there are a number of regional voice systems in the air that offer
commercial service. But these systems represent a different generation of
services than those expected at the end of 1999, when the Asia Cellular
Satellite System (ACeS) begins its commercial service. Currently, America
Mobile Satellite Corporation (AMSC) and TMI Corporation's Mobile Satellite
(MSAT) system have been serving the U.S. and Canadian markets,
respectively, with identical GEO satellites. INMARSAT has also been serving
customers globally. All of these systems have been first generation and have
handed their customers brief case-size handsets that work only after being
fixed. More recently, the terminals have been downsized to the equivalent size
of a laptop computer.
These systems serve markets that seem sufficiently covered by infrastructure,
particularly in the case of AMSC and MSAT. MSAT does well outside the St.
Lawrence River "hockey corridor," where it connects most of its customers.
Although INMARSAT covers areas of the world without infrastructure, access
(through price point and offerings) to this system has been reserved for
government employees and high-valued company executives. INMARSAT
also covers traditional "out-of-reach" markets, such as oil rigs.
<f>
Table: Cost of satellite system - Amorized total by year, day, minute and
second
Total
Cost
Lifespan
Yearly
Cost
Daily
Cost
Per
Minute
Per
Second
System
($ Billion)
($ Millions)
($)
Cost ($)
Cost ($)
Global Voice
Constellation
1,155
5
231,000
632,677
439
7.32
Ellipso
1,000
5
200,000
547,945
381
6.34
Globalstar
2,200
5
440,000
1,205479
837
13.95
ICO Global
3,500
12
291,666
799,087
555
9.25
Iridium
5,000
5
1,000,000
2,739,726
1,903
31.71
Odyssey
3,200
15
231,333
584,475
406
6.67
Regional Voice
AMSC
0.550
15
36.666
100,457
70
1.16
ACcS
0.700
15
46.666
127,854
89
1.48
APMT
0.900
15
60.000
164,384
114
1.90
MSAT
0.550
15
36.666
100,457
70
1.16
SatPhone
Int'l
0.850
15
56.666
155,251
108
1.80
Thuray
0.750
15
50.000
136,986
95
1.59
Little LEOs
Final
Analysis
0.160
5
32.000
87,671
61
1.01
GE Starsys
0.250
5
50.000
136,986
95
1.59
GEMnet
KITComm
0.010
5
2.000
5,479
4
0.06
LEO One
0.250
5
50.000
136,986
95
1.59
Orbcomm
0.250
5
50.000
136,986
95
1.59
Broadband-on-Demand
Astrolink
4.000
15
266.666
730,594
507
8.46
Cyberstar
2.000
15
133.333
365,297
254
4.23
Echostar
0.340
15
22.666
62,100
43
0.72
GE-Star
3.000
15
200.000
547,945
381
6.34
KaSTAR
0.550
15
36.666
100,457
70
1.16
M-Star
6.400
5
1,280.000
3,506,849
2,435
40.59
Millenium
3.000
15
200.000
547,945
381
6.34
Morning Star
0.822
15
54.856
150,291
104
1.74
NetSat28
0.600
15
40.000
109,589
76
1.27
Orion
Atlantic
0.241
15
16.066
44,018
31
0.51
PanAmSat
0.390
15
26.000
71,233
49
0.82
SkyBridge
3.900
7
557.142
1,526,419
1,060
17.67
SpaceWay
3.200
15
219.333
584,475
406
6.76
Teledesic
9.000
7
1,285.714
3,522,505
2,446
40.77
VisionStar
0.207
15
13.833
37,900
26
0.44
VoiceSpan
4.300
15
286.666
785,388
545
9.09
</f>
Source: Allied Business Intelligence Inc.
Beginning of Regionalization
When ACeS deploys, it will offer service to the most underserved areas of the
world — the Asia-Pacific Rim. Officials of the system have immediately
targeted Southeast Asia, which includes the needy areas of China, India and
Indonesia, which has a total eligible audience (those between 15 and 65 years
of age) of 1.7 billion. Meanwhile, the rest of the world has an eligible audience
of 1.2 billion.
ACeS has a total cost of $900 million, which is nothing when compared with
Iridium's price tag of $5 billion. For 20% of the cost, ACeS is getting 59% of
the world's potential eligible audience.
With two GEO satellites, ACeS can only carry about 11,000 mobile calls and
20,000 fixed and mobile calls simultaneously. It will still be able to sign up 2
million users comfortably. Even while charging $0.25 per minute, the system
can still expect to be profitable.
Let's assume ACeS has two million users signed up by the third year of
operation. Each user utilizes 40 minutes of air time per month (a low estimate
when considering fixed, primary access devices). Approximately $240 million
can be expected each year minus the 4.5% of the cost of the system, leaving
ACeS with a yearly profit of $200 million. Given the ten years (15 years minus
the generous 3-year wait for subscribers) and the profit, the $900 million
investment will realize a $2 billion profit. The $200 million is not even invested
in this scenario, so the real profit has a bottom line of $2 billion.
Even if ACeS falls short of two million subscribers, one million subscribers, for
example, would still produce a minimum profit of $1 billion, uninvested, at the
end of the system's life cycle.
More To Come
ACeS will be followed by Asia Pacific Mobile Telecommunications Pte. Ltd. in
2000 (cost of $900 million); Thuraya (cost of $600 million to $800 million) in
2000; and possibly Euro-African Satellite Telecommunication system in 2001
(cost $750 million).
All of these systems will serve areas that need access — the Asia-Pacific
region, Africa and the Middle East. Their estimated profit margins are similar to
the profit margin of ACeS. Quite likely, all of the aforementioned systems will
peacefully coexist and be profitable. With the potential of one or two dropping
out of the regional voice race, prospects become even greater for those
remaining in the game. The systems will be successful, despite the
479-millisecond to 558-millisecond delay.
Make sure the apples are sorted from the oranges when comparing expected
outcomes in satellite technology. In the long run, both may seem like the juicy
offerings they were originally advertised to be.
Larry Swasey is vice president of communications research practice at
Allied Business Intelligence Inc. (Oyster Bay, NY).
July 15, table of contents
Copyright 1999 Advanstar Communications. Please send any technical comments or
questions to the America's Network webmaster.
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