WSJ. GM's Hughes Plans Spending For Spaceway Satellite System
March 17, 1999
By JEFF COLE
Staff Reporter of THE WALL STREET JOURNAL
LOS ANGELES -- Hughes Electronics Corp. is infusing an initial $1.4
billion into its new Spaceway satellite system in a move that the General
Motors Corp. unit hopes will put it in the lead among U.S. rivals that want
to field similar systems for high-speed, two-way communications direct to
companies and consumers.
The investment, which has been approved by GM's board, allows Hughes
to start building three high-powered satellites to provide such broadband
networks "on demand" for video-conferencing, data transfer and other
purposes in the U.S. beginning in the first quarter of 2002.
The funding decision essentially commits the satellite maker and service
provider to spend a total of $4 billion on the larger first phase of the
project, Michael T. Smith, Hughes's chief executive, said in an interview.
That phase will position a total of eight high-orbit satellites to serve most of
the world by the end of 2003.
With the move, Hughes becomes the first company to commit financially to
such a project. More than a dozen companies have received Federal
Communications Commission licenses to operate in a newly opened
high-frequency part of the radio spectrum called the "Ka-band," which
allows for instantaneous communications and high volumes of data to be
exchanged between two or more locations.
'First Out of the Box'
"We're the first out of the box saying we're fully funded," said Mr. Smith,
adding that Hughes "also will be first to market."
Spaceway promises constant voice, image and multimedia communication
between two or more parties, enabling services as diverse as global
medical teleconferencing and high-speed Internet access in developing
nations.
Hughes will face competition. As Hughes prepares to unveil its decision
this week, Lockheed Martin Corp.'s global telecommunications subsidiary
also appears near a decision to proceed with its own $3.5 billion,
four-satellite Astrolink project. A mid-2002 service start is planned. That
system also deploys a small number of big satellites in higher orbits, though
Astrolink is expected to include outside investors from the onset.
Teledesic LLC, started by Microsoft Corp. Chairman Bill Gates and
cellular-phone industry executive Craig McCaw, plans a $9 billion system
with a service start in 2003. That project, which includes as partners
Motorola Inc., Boeing Co. and Matra Marconi Space, a joint venture of
Britain's General Electric Co. and France's Lagardere Group, calls for 288
smaller satellites in lower orbits.
While Hughes plans a pure satellite-based system for now, some of its
competitors expect to combine their systems with owners of
fiber-optic-cable systems, foreign telephone companies and content
providers. The Cyberstar system proposed by Loral Space &
Communications Ltd. expects to offer certain services on a limited scale
over another part of the spectrum known as the Ku-band by next year.
Skybridge LP, a planned $4.5 billion system of 80 low-earth-orbit
satellites backed by Alcatel SA of France, expects to use the same
spectrum to offer broadband service beginning in 2001.
Linking Systems
Each competitor, including Hughes, is considering some sort of linkage
combining high-orbit and low-orbit systems. Hughes expects its two
operating U.S. satellites will generate more than $1 billion a year in
revenue. Hughes's third U.S. satellite will be kept as a spare for back-up
use.
Hughes first will offer the new video and other high-data-rate services to
corporations via small-dish networks, a logical step since the company
already is the largest provider of such systems to manufacturers such as
Ford Motor Co. and retailers such as Wal-Mart Stores Inc.
The company also is considering other markets such as small-business
services and consumers who want two-way video and voice
communications. Mr. Smith projects prices for two-way
video-conferencing could fall to about 10 cents a minute.
The latest decision by Hughes, operator of the DirecTV satellite network,
continues an expansion into service markets set in motion two years ago
when the company sold its defense-related lines to Raytheon Co. for about
$9.5 billion. The proceeds that went directly to Hughes totaled about $4
billion. In recent months, Hughes has spent more than $3 billion acquiring
other satellite-to-home assets.
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