Interesting article from IBD:
Four satellites launched last month offer further evidence that, within a year, globe-trotters will be able to make and receive calls on mobile phones virtually anywhere in the world.
Two satellite-based systems plan to be ready for service in a year. A third system is a year or so behind.
Though the rivals pitch the same service, they do business differently.
One player is Globalstar Telecommunications Ltd., a consortium backed by Loral Space & Communications and Qualcomm Inc. Its launch of the four satellites marked its first birds in space.
The $2.6 billion Globalstar system will have 48 orbiting satellites, sending calls through about 60 ground stations to end users. It will cater to business travelers and consumers in rural, developing countries who can't get a telephone line installed. Globalstar will install fixed units - much like public telephone booths - in remote areas.
Another player is Iridium LLC, owned by Motorola Inc., Lockheed Martin Corp. and Raytheon Co. It's targeting business people who want a mobile telephone that will work anywhere.
Forty-nine Iridium satellites are in orbit. Eventually, it'll have 66 birds. Iridium says it plans to have 42 million subscribers by '02. The company says it's spending about $5 billion for its system. Analysts peg costs closer to $8 billion.
The third player, ICO Global Communications in London, plans to offer satellite phone service in 2000. ICO is backed by International Maritime Satellite Organization, also in London, Beijing Marine Communication and Navigation Co. in China and VSNL in India. ICO plans to launch 10 birds. It hasn't said when.
But will these new satellite businesses fly?
One good thing about them, says analyst Robert Kaimowitz, is that the businesses only need a small percentage of the huge market to make money. He's with C.E. Unterberg, Towbin in New York.
Kaimowitz says Globalstar's operating cash-flow margin - earnings before interest, taxes, depreciation and amortization - could hit 90%.
With such potential profit, the race is on. Iridium has the jump on Globalstar, while ICO trails.
Iridium plans to begin service in September; Globalstar in first-quarter '99.
Analysts give the Globalstar service higher marks than Iridium's.
For one, it's cheaper. Its hand- held mobile phones will cost roughly $750. Iridium will sell a package that includes a cellular phone, satellite phone, pager, batteries and charger for about $3,000.
More than that, Kaimowitz says Globalstar will be able to charge less per call than Iridium. Others agree that Iridium will have a tough time matching Globalstar's prices.
''Iridium's cost structure is out of whack,'' said Marc Crossman, an analyst with Oppenheimer & Co. ''It will be difficult to get a return on investment.''
But Iridium is believed to offer more secure calls, which has helped it win at least one large government contract, says Crossman.
How many calls the systems can service without problems also is key.
''Globalstar is the easy winner,'' Kaimowitz said. ''They have more capacity.''
Globalstar has boosted capacity by using a ''bent pipe'' design. Calls are bounced off the nearest satellite, then to the ground stations and then through traditional land lines.
Iridium relies on intersatellite links. Calls are routed from satellite to satellite until the signal comes to a bird nearest the called party. Only then will the signal be bounced to a ground station and into public phone networks.
The Iridium system has one-seventh the capacity of Globalstar's, and its satellites have a shorter life cycle, says Kaimowitz.
But Iridium executives say they will provide more than enough capacity.
''We have a capacity to deliver 1.5 billion minutes of use annually worldwide,'' said John Windolph, executive director of marketing. ''That's a lot of minutes.''
Globalstar says its capacity is about 1 billion minutes a month.
Windolph says Globalstar's system, unlike Iridium's, will have some coverage gaps on oceans and near both poles.
True, says Globalstar. But it doesn't make economic sense to serve those sparsely populated areas, says Nick Moren, senior vice president and treasurer at Globalstar.
The bigger issue, say Globalstar executives, is to be able to provide service in all the areas where it's physically possible but politically challenging.
''How well we're going to be allowed to have portability into all the countries is the question,'' said Globalstar President Doug Dwyer. The system can cover the globe to the extent that ''social and political arrangements will tolerate,'' he said.
While Globalstar is strictly a satellite system, Iridium offers a system that combines satellite and conventional cellular service.
''The Iridium system combines the strength of (land-based) cellular with the reach of global satellite,'' Windolph said. ''A subscriber will have one number, one bill, anywhere in the world.''
Other projects also have much riding on the success or failure of Globalstar and Iridium. Their results could help or harm future satellite projects like Loral's Cyberstar and Motorola's Celestri. Cyberstar and Celestri will offer Internet connections.
''It will be significantly easier'' for Cyberstar and Celestri to raise money if Iridium and Globalstar succeed, says Kaimowitz.
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Copyright (c) 1998 Investors Business Daily, All rights reserved.
Investor's Business Daily - Computers & Technology (03/19/98)
Globalstar And Iridium Race For Big Mobile-Phone Space
By Genevieve Wilkinson
Transmitted: 03/18/98 20:28 (p0addi13) |
