New York Times article
i was poking around this weekend and found the following March 30, 1998 article of interest:
The Hand-Held Satellite Phone Comes to the Third World
By STEVE LeVINE
New York Times
ALMATY, Kazakhstan -- Alex Lesser, a former New York lawyer whose practice now has him based in the expanses of this resource-rich and entrepreneur-filled
Central Asia nation, has some choices if he wants to phone his uranium mining
clients in London, Toronto or Perth, Australia.
He can dial -- very, very slowly -- on his office phone and pray he succeeds by
the third or fourth try. Once he is able to connect, Lesser takes the risk that
his conversation will sound like he's inside a washing machine. Or if he's
traveling he can use his cell phone -- unless he happens to be outside a few
select urban areas of the former Soviet Union, in which case it won't work.
In short Lesser is a perfect client for Iridium LLC, a Washington company that
is betting heavily that there is such huge demand in poorly served places like
this for its pricey new gadget -- the first truly hand-size satellite phone,
usable anywhere on the globe on a single number.
"I'll probably be one of the first customers," said Lesser, who is 38. "Whether
I'm on a mountain in Mongolia or a mountainside in Tajikistan, I'll be linked
to Perth."
In the next few years a number of companies including high-technology
luminaries like Bill Gates and Craig McCaw plan to introduce versions of a
technological breakthrough that analysts call the "world phone," but Iridium
and its rival, Globalstar LP, based in San Jose, Calif., are likely to be the
first. All in all, it is expected to cost them a combined $7 billion on
competing versions of the phone.
They are gambling on swiftly profiting from globe-trotting business people and
local users in vast, underdeveloped regions such as the former Soviet Union,
Latin America and China, which have recently opened to miners and oilmen but
lack modern communications.
Opinion is sharply divided on the wisdom of this bet. Industry critics and some
regional wireless providers say the companies have far inflated demand for an
advanced phone costing up to $3,000 -- with per-minute charges that can range
from more than $3.50 to more than $4.50 -- especially when cheaper conventional
cellular services themselves are going global.
Among the most vocal critics is Herschel Shosteck, whose communications
consulting company in Wheaton, Md., has conducted seven market studies on
Iridium.
"Will there be a business for Iridium? We can't conceive of it," Shosteck said.
"A few years after the launch they will have to shut it down. Globalstar will
hang around longer. Its costs are lower.
"I am dubious squared for Iridium," Shosteck added. "For Globalstar I am just
dubious."
If you listen to Iridium and Globalstar, there are loads of potential clients
among the fast-growing club of 250 million people around the world who already
use cell phones.
Citing its own surveys, Iridium claims 42 million potential customers --
current cell phone users who travel internationally and earn sufficient income
to afford the gadget.
Iridium and Globalstar project 3 million clients each by the end of 2002.
Iridium says it needs 750,000 to break even. Globalstar projects 250,000
clients in the former Soviet Union within three years.
But some industry analysts say the customer base is far smaller. And there are
rival technologies. In the coming months, American travelers will be able to
buy a single cell phone compatible with the most common standard used in much
of the former Soviet Union and Europe, called Global System for Mobile
Communications, or GSM.
Still, both Globalstar and Iridium are finishing the final stages of their
systems, comprised of rings of low-orbiting satellites linked to earthbound
receiving stations.
Iridium -- managed by Motorola, which has a 23 percent stake -- will launch its
last satellite next month from Kazakhstan's Baikonur Cosmodrome. Its service
should start in September, eight months before Globalstar's.
Wall Street has endorsed their optimism. The price of Iridium stock has soared
from $20 a share when it went public last June; it closed at $65.875 on Friday.
Globalstar went from $10 in 1994, to $66.25 on Friday.
"Sixty percent of the world doesn't have a phone. That is billions of people,"
said Phillip Redman, a financial analyst with the Boston-based Yankee Group.
"If you can hit a small proportion of that market you can have a nice
business."
To be sure, there are maddening conditions for almost anyone trying to place a
call from the nations around the energy-rich Caspian Sea. Relying on the
rundown local phone system, foreign investors can devote much of their
deal-making efforts just to calling around for appointments. Many of the remote
oil-bearing regions where foreign oilmen actually work have no international
telephone service at all.
Wireless companies have thrived in this captive market, particularly in Russia.
Bee Line and Moscow Cellular, Russia's biggest wireless companies, claim
320,000 clients in the sprawling nation. In Kazakhstan, the monopoly provider
Altel, a joint venture of PLD Telecom Inc., based in New York, and Kazakh
Telecom, has 12,000 clients despite high start-up fees and a 48-cent-a-minute
surcharge for all calls.
But there are enormous gaps in the region's cellular service. For one thing,
cell phones work only in a few urban areas in the Caucasus and Central Asia.
And because of differing standards, a phone bought in Kazakhstan works in
Kyrgyzstan and Uzbekistan, but not in Azerbaijan or most parts of Russia --
nor, certainly, in New York or London.
It is this void that the world phone seeks to exploit.
In doing so, the technology has had to eclipse services now provided by
companies like the Comsat Corp. of Bethesda, Md., whose $3,000 Planet 1
telephone works anywhere, using three Inmarsat satellites.
A disadvantage the world phone exploits is that Planet 1 forces a traveler
already burdened with other baggage to lug around a 4.5 pound personal
computer-size case containing the phone. Another irritation is the
quarter-second delay before one hears or is heard. (That is how long it takes a
spoken word traveling at the speed of light to reach Inmarsat, orbiting at an
altitude of 22,300 miles, and return to Earth.)
Iridium and Globalstar claim to overcome both problems. Users will pay $750 to
$3,000 for a basic kit -- a 10-ounce, six-inch-tall phone.
Meanwhile, both companies are trying to sign contracts with wireless providers
around the world -- called "roaming agreements" -- so they can compete with
less expensive cellular services.
But it is when clients leave wireless zones that the world phone is meant to
transcend ordinary cellular. The world phones are designed to work off of
satellites orbiting 437 miles above Earth -- for Iridium -- and 881 miles up --
for Globalstar. The lower altitudes eliminates voice delays. And Iridium can
cut the price of a call by letting a signal bounce from satellite to satellite
without the cost of using ground networks. When the call nears its destination,
it touches down at a receiving station and enters the conventional phone
system.
But the technological model may be more workable than the business model. Rex
Power, a director of Kazakhstan's Altel, said he recently met with a Globalstar
vendor based in Moscow who was offering local rights to market the system.
Power would have had to buy a receiving station capable of picking up signals
from as far away as 2,500 miles, and give three years of projected telephone
revenue in advance. In all, he would have to come up with some $15 million. The
trouble, in Power's view, was that the salesman's projections seemed four or
five times too high. He said no.
"They were thinking that within three years there could be 20,000 to 25,000
users here," Power said. "I think that is hopelessly optimistic."
Indeed, Inmarsat, which is based in London, is for now the only satellite
telephone service; it has only 108,000 customers worldwide.
Andrew Ivey, Inmarsat's marketing manager, said the company had been "filled
with amazement" at the sales projections by their world phone rivals.
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