Forbes Orbcomm article!!!
kramc
September 28, 1999
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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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