From Forbes... Go figure...
While other satellite ventures crash, Orbcomm soars.
Iridium for truck trailers
By Daniel Fisher
THE SATELLITE BUSINESS is complicated enough,
what with rockets blowing up and delicate electronics
that fail in the harsh environment of space. So why
make it more complex than it has to be?
That seems to have escaped the backers of Iridium
and ICO Global Communications, two satellite-phone
ventures that have landed in bankruptcy court after
spending billions of dollars on technology without
sufficient regard to who would pay for it.
Scott Webster is determined not to make the same
mistake with Orbcomm. He heads the partnership
between Orbital Sciences Corp. and Canada's
Teleglobe and he's aiming at the low end of the
telecommunications market: things talking to things.
Orbcomm's network of 28 satellites handle short
bursts of data from things such as shipping
containers and electricity meters, the kind of
messages that can wait a few seconds until a
satellite is overhead and don't require elaborate
software to process.
It's not as exciting as connecting phone calls from
the summit of Mount Everest, but the numbers are
better. Where Iridium spent $5 billion on a
constellation of 66 satellites and the fiendishly
complex software to bounce phone calls among
them, Orbcomm built its entire network for less than
$500 million. And Webster is probably right when he
says the potential market for Orbcomm's service is
bigger.
Think of the communications market as a pyramid
with the globe-trotting, cost-is-no-object executive at
the top. Orbcomm is going for the broad bottom
slice. "There are a heck of a lot more things than
people," he says.
Orbcomm's biggest customer is Schneider National, a
Green Bay, Wis. trucking firm that owns 43,000
trailers. Schneider National hopes to outfit all of
them with Orbcomm communicators by the end of
next year. The battery-powered devices, about the
size of a videocassette, use Global Positioning
System technology to report where a trailer is
(Orbital Sciences also owns Magellan, the largest
producer of GPS receivers). The devices also can
signal whether the trailer is full, whether it is
connected to a truck and whether the doors are
open. The only alternative to the satellite is sending
employees out with clipboards.
"We have revenue-generating units that are sitting
idle that could be dispatched and we're not aware of
that now," says Paul Mueller, vice president in charge
of communications technology at Schneider.
Orbcomm has signed a similar deal with J.B. Hunt
Transport Services, with 21,000 containers, and GE
Harris Railway Electronics, a joint venture between
General Electric and Harris Corp. that tracks railroad
cars. Webster predicts the company will have
200,000 subscriber units installed and on order by
the end of the year, ten times as many as Iridium
signed up before it filed for bankruptcy protection.
While Orbcomm's devices don't generate nearly as
much revenue as Iridium's--Webster estimates
average revenue per unit of $20 to $30 a month,
compared with as much as $7 a minute for Iridium
phones--Orbcomm's break-even point is much lower.
Orbcomm has cash operating costs of about $90
million a year and should be hauling in revenue at
two-thirds that rate by the end of the year. Once
Orbcomm has 350,000 units installed, which could
happen by the third quarter of next year, says
analyst Paul Nisbet with JSA Research, it will be
covering not just its operating costs but its noncash
depreciation charges. Beyond that point it would be
coining money.
Operators of trucks and railroad cars aren't the only
users. Orbcomm is selling communicators to go onto
things like oil pipelines and electric meters.
Orbcomm's not alone in this business, but it has a
substantial lead on the competition. The biggest
threat may come from Vistar, a Canadian firm
backed by telecommunications giant BCE. Vistar uses
even cheaper technology--leased space on a
geosynchronous satellite that is in view of all of North
America--but its devices can't transmit as much data
per burst.
Webster, 47, learned about the risks of betting on
overly complex space technology more than a
decade ago, when he and two Harvard Business
School classmates dreamed up the idea of launching
commercial satellites with a rocket carried in the
cargo bay of the space shuttle. They raised $70
million for the project, only to have it cut short when
the government banned commercial payloads from
the shuttle following the Challenger explosion.
Orbital Sciences survived by developing a new rocket
launched from a far more reliable platform, a jumbo
jet. And when it came to putting Orbcomm together,
simplicity remained the order of the day. Orbcomm's
hockey-puck-shaped satellites cost just $3 million
apiece and stack eight to a rocket. Instead of trying
to maintain a constant stream of communications
with a subscriber, the satellites simply receive short
messages and zap them down to one of their ground
stations on earth.
"Compared to a telephone system in space, ours is
vastly less complicated," Webster says. "Short bursts
from dumb things. That's all we do."
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