*SJMercury. Globalstar takes phones into space
Posted at 12:00 noon PDT Saturday, September 11, 1999
BY JON HEALEY
Mercury News Staff Writer
ITS $3.3 billion satellite-phone network nearly complete,
Globalstar Telecommunications of San Jose is about to test
whether there is a market for a pocket-size phone that can stretch
the boundaries of telephone service.
Its pioneering predecessor, Iridium, is in bankruptcy. So is a
second planned network, ICO Global Communications Ltd.,
which ran out of money before it could complete its satellite
constellation.
Nevertheless, Globalstar chief Bernard L. Schwartz, who also runs Globalstar's New York-based
founding partner, Loral Space & Communications, argues forcefully that there is a huge, untapped
need for a satellite-phone service. Iridium was not a true test of the market, Schwartz says, in part
because its prices were sky-high.
Globalstar's fate is critical to the 290 workers in the San Jose area who run the company's
satellite-control center and do engineering, administrative and marketing work for the project. In
addition, its primary U.S. partner, Vodafone AirTouch Satellite Services, has close to 100
employees at its headquarters in Walnut Creek.
Unlike Iridium, Globalstar is integrating its service closely with AirTouch and other land-based
cellular networks, allowing users to avoid the more costly satellite charges when they're in cities.
It's also expecting to charge $1.50 to $2 per minute for satellite calls, compared to Iridium's initial
prices of $2 to $8 per minute.
More important is the difference in its target market. Iridium initially aimed for globe-trotting
executives, but Schwartz sees much more fertile ground among workers in underdeveloped and
undeveloped areas -- for example, a Brazilian businessman with clients on the outskirts of Sao
Paolo, or a rancher whose range extends far beyond the reach of cellular networks. That's where
most of Globalstar's customers will be, Schwartz said.
Some of that business will be in satellite phone booths and desk phones, not just the portable
handsets that cost upward of $1,000. For the estimated 50 percent of the world without phone
service, adding Globalstar would be an easier way to connect to the global economy than building
a land-based phone network, company officials claim.
Tough sell
Most world cities served by cellular
Still, the company cannot escape the fact that, like Iridium and ICO, its satellites and ground
stations cost billions of dollars to build and operate. With land-based wireless networks
spreading, dropping in price and developing common standards, some analysts argue that any
satellite-based service is a very tough sell.
``The biggest problem,' A. Michael Noll, a communications professor at the University of
Southern California, wrote in Tele.com magazine, ``is that the metropolitan areas of the Earth are
already well served by terrestrial-based wireless cellular systems. There simply is no market for a
high-cost extraterrestrial wireless system.'
Schwartz answers such critics by asking how much it might be worth to business people outside
those metropolitan areas to be able to make calls wherever they go on their sales or delivery
routes.
``Telephones at any price will be used,' he argued. ``There's never been a time . . . since
Alexander Graham Bell when telephone demand hasn't been greater than supply. It's one of the
basic rules, like sex or food.'
Schwartz will start testing that assumption soon. The last 12 of Globalstar's 48 initial satellites,
along with four spares, are scheduled to be launched by the end of the year. The system, which
can handle up to 7.5 million customers, will begin operating commercially this fall.
Coverage will be phased in over the coming year as Globalstar's operating partners -- major
telephone companies like Vodafone AirTouch and France Telecom -- complete work on the
ground stations needed to connect the satellites to phone networks on earth. Nine of the planned
ground stations are done and 20 more are under construction, with close to 60 needed for full
global coverage, the company says.
The partners will buy service from Globalstar at 35 to 65 cents per minute, officials say. A markup
of $1 or more per minute is expected to cover the cost of the ground stations, marketing, sales
and support.
In the United States and Canada, AirTouch has two ground stations built and is finishing a third. It
expects to begin tests later this year, said marketing director Andy Radlow, but it won't sell the
service to the public until next year.
Two decades in development, Globalstar's system works much like a land-based wireless
network. The phones -- a 13-ounce model from Qualcomm for the U.S. market, a slightly lighter
one from Ericsson for the rest of the world -- transmit signals electronically to the nearest receiver,
which relays them to the nearest regional switching point. From there the calls travel over the
global public phone network to their destination, whether it's 20 miles down the road or halfway
around the world.
The difference is that the receivers are on one or more satellites 900 miles overhead, not on a pole
a few thousand feet away. And the satellites are moving at 18,000 mph. But users won't notice
those things, Globalstar says, because the satellite is close enough to the ground to avoid any
audible delay.
Users will notice that the satellite phones don't work inside buildings or under a heavy canopy of
trees. Their high-frequency transmissions require a clear line of sight to the satellites overhead.
Analog compatible
Customers can use cellular networks
To address the in-building problem -- and save users a significant amount of money when they're
in areas with cellular coverage -- the Globalstar phones are built to work on both the satellite
network and land-based wireless networks. The Qualcomm model is compatible with all U.S.
analog and selected digital networks, and the Ericsson model works on the most common form of
wireless network overseas.
If all that sounds like an engineering marvel, consider what the 66-satellite Iridium network does.
There, international calls are passed from satellite to satellite before being relayed to the ground
station closest to the party being called. That way, the caller avoids the fees that the public phone
network applies to long-distance and international calls.
Globalstar's simpler approach means it requires fewer and less costly satellites. It also reflects how
different Globalstar's view of the market is from Iridium's: Globalstar saw the need for a regional
solution, while Iridium's plan was to provide a phone for global travelers.
In the late 1980s, when Iridium was on the drawing board, that didn't seem like such a bad idea.
Cellular networks around the world were spotty and incompatible with one another.
Today, however, there is much more extensive coverage from terrestrial wireless networks, with
new digital systems augmenting the older analog ones. And rather than spending $1,500 or more
for an Iridium phone, you can buy a multi-network cellular phone for $300 that will work in almost
any city with cellular coverage.
Said analyst Ray Jodoin of Cahner's In-Stat Group, ``In the 10 to 12 years it took the thing to go
through the gestation period, a hell of a lot in the industry has happened, and Iridium never caught
up with it.'
Global reach
Target market not U.S., but world's rural areas
The same high-cost argument applies to Globalstar's phones. But Schwartz noted that you don't
have to drive far outside of many cities today before your mobile phone goes dead.
``Remember that the U.S. is not our (main) market,' Schwartz said. ``That's where the facilities
for the telephone infrastructure are most concentrated. . . . Our main customer base is beyond that
market.'
The customers he envisions include small manufacturers, distributors, retailers, health organizations
and security businesses in rural or underdeveloped areas. ``In a town of 20,000 (or) 30,000 that
does not have telephone service, you can imagine the requirement for communications in a modern
business environment,' he said.
``But it does not preclude the individual who is middle-class or wealthy . . . in places like India
and China, South Africa, Australia. There are an enormous number of people who fit that
category.
``Remember this: Our bogey is 7.5 million customers. That's what our capacity is worldwide.
When you break it down by individual areas, those are not daunting numbers.'
Eddie Hold, a senior analyst at Current Analysis Inc., a research and consulting company, said he
thinks Globalstar has a better chance than Iridium, but he questioned whether either one would be
a practical solution in underdeveloped areas.
``That comes down to a pricing issue,' Hold said. ``Two or three dollars (per minute), you're not
going to be calling on a regular basis.'
Schwartz countered: ``France Telecom, Vodafone, AirTouch, ChinaSat, China Telecom,
Elsacom, DACOM -- they think that this is priced right, in the service area that they are now
selling telecom services to. We did not begin Globalstar in the vacuum of the marketplace.'
Schwartz also faults Iridium for launching a major advertising campaign before the service was
available, and for selling a phone that was difficult to use. Instead of having a built-in ability to
work on land-based cellular networks, Iridium requires users to modify their phones with special
cassettes or plug-ins.
``There was absolutely no test of this market by Iridium,' Schwartz said. ``It was a failed
introduction of a product that was not ready to be there.'
In one sense, AirTouch isn't fully ready with its Globalstar product, either. Radlow said that for the
first year or so, AirTouch will have to assign two separate numbers to the Globalstar phones: one
for satellite calls, one for cellular calls. That means two separate voice mailboxes, too, until the
satellite network is fully integrated with the land-based wireless one.
Data communications
Offerings lag cellular capabilities
Analysts say it's critical the satellite phones be able to do what cell phones can do, and Globalstar
is lagging a bit on the data-communications side. The hefty, 7-inch-long Qualcomm phones will
initially include voice mail, short text messaging and position location, to be followed in 2000 by
fax and Internet-related capabilities.
Schwartz admitted the expanding capabilities of land-based wireless phones put pressure on his
company to keep up. In the works are upgrades to increase the amount of data that can flow over
the satellite network, enabling it to function as a higher-speed Internet link -- not as fast as a wired
connection on Earth, but good enough as a secondary channel, Schwartz said.
In the meantime, Globalstar is planning to launch four satellites a month for the rest of the year,
completing its constellation three to four months later than planned. The delay stems from a
disastrous launch last year in which 12 Globalstar satellites were lost.
Once it begins service, Globalstar will have to compete with the struggling Iridium, at least one
regional satellite project, and efforts by land-based wireless providers to extend their coverage to
underdeveloped areas. That doesn't bother Schwartz, who sees 30 million potential customers for
his service.
He expects the company, which needs no additional financing to complete its network, to break
even by the fourth quarter of next year. The satellites have a useful life of about seven-and-a-half
years, Schwartz said, and replacements will be phased in as the demand for the service grows.
To analyst Hold, the key for Globalstar will be getting customers to spend more on their
Globalstar accounts than the $40 to $50 per month average for cell-phone subscribers. ``I think
you've got to be looking around $100 as a hopeful average revenue per customer,' he said.
Schwartz, who recently increased his personal stake in Globalstar by $8 million, said it won't be
long before the results are in. ``In the year 2000 I will be reporting income. This is not a long-term
play. This is not a pie-in-the-sky proposition.'
Contact Jon Healey at jhealey@sjmercury.com or (877) 727-5005.
¸1999 Mercury Center. |
