Teledesic undaunted by satellite setbacks
By Corey Grice
Staff Writer, CNET News.com
September 17, 1999, 4:00 a.m. PT
Teledesic, a futuristic satellite venture with equally astronomical financial
backing, is hoping to claim a sliver of the global data transmissions market with a
proposed $10 billion system orbiting the planet.
But the ambitious project is focused on an uncertain and moving target. Teledesic won't be
ready for commercial service until 2003 or later, while industry analysts expect that
competing high-speed technologies--namely cable modems and digital subscriber lines
(DSL)--will be widely available by that time.
Teledesic and some analysts say the company will thrive in niches not suited for these
more common "broadband" technologies, such as in places where it's too expensive to lay
cable or phone lines. Others aren't so sure, saying that the venture carries risks that seem
as high as the altitude of its satellites.
The recent track record of satellite phone ventures Iridium and ICO Global
Communications, both now seeking bankruptcy protection, bolsters concerns that
commercial satellite services may be too costly and slow to deploy.
Teledesic and other satellite data companies differ from satellite phone firms because they
use a spectrum of microwave signals that's more suitable for two-way data
communications. Iridium and its peers primarily offer telephony, paging, and fax services;
Teledesic and its rivals imagine a broader array of data services, possibly including email,
stock quotes, and other information streams.
Analysys, a consultancy based in the United Kingdom, estimates that potential satellite
data revenues will exceed $100 billion by 2011.
Still, data companies like Teledesic, SkyBridge, Spaceway, and Astrolink seemingly face
the same race against land-based high-speed networks as their struggling counterparts in
the satellite phone business. Satellite firms must also contend with high-speed fiber optic
ventures by companies such as Global Crossing and Qwest Communications International.
Founded in 1990, Teledesic was spawned seemingly eons before cable modems and DSL
lines became relatively well known. Publicly, the company remains optimistic that the
broadband market will be large enough to support satellite companies.
"We only need to serve a small fraction of the broadband market to be successful,"
Teledesic spokesman Roger Nyhus said. "We don't see Teledesic competing with fiber,"
he added, and land-based systems "will only drive demand for our service."
Steve Blum, president of satellite consulting firm Tellus Venture Associates, said
Teledesic and others like it will thrive by connecting far-flung remote offices, completing
unfinished land networks, and other niche uses created by the world's increasing appetite
for information bandwidth.
"It's not like you're looking for satellites to do the heavy lifting of trunk networks. It's going
to be used for specialized applications," Blum said. "It'll be more expensive bandwidth on a
per-bit basis when compared to terrestrial networks, but satellite can be very good at filling
in gaps in coverage which can justify those higher costs."
Jimmy Schaeffler, an analyst at The Carmel Group, agreed. "Land-based systems will
always be limited by the cost of deploying cable," he said. "There will always be smaller
markets where a portion of users can't get service. It's a lot cheaper to put up a bunch of
satellites, ultimately, than it is to wire the world."
The privately held Teledesic--which has backing by cellular phone magnate Craig McCaw,
Microsoft chief executive Bill Gates, Motorola, Boeing, and Saudi Prince Alwaleed Bin
Talal--will initially serve the large-business market in the United States. Eventually, the
company expects the majority of its business to come from developing nations, according
to Nyhus.
"You don't see people clamoring for fiber build-out in the developing nations because it's
too expensive, and it's just not practical," he said.
Yet satellite networks face challenges of their own. The first of some 288 satellites are not
set to launch until 2001--company executives admit they are considering reducing that
number--and service is not likely until a few years later.
"Teledesic is not supposed to launch until about 2003. By the time they get to market
there will be cheap DSL everywhere," said Iain Gillott, a wireless industry analyst at
International Data Corporation. "The problem with satellite systems is they take too much
money to build, and they take too long. By the time you do it the world has changed."
Gillott doubts that Teledesic ever will get off the ground--literally.
"I don't expect Teledesic to deploy," he said. "Teledesic is speculation. [McCaw and
Gates] can't afford not to bet on it because if it pans out, playing catch-up will cost much
more. It's a high-risk gamble."
The company contends that its backers are committed to the projects. "Even in the midst
of Iridium's troubles we've raised several hundred million in private equity in recent months,"
Nyhus said. "We're fortunate to have investors with a long-term vision."
There have been signs of internal friction, however. Motorola pulled some
engineering resources from Teledesic in May, though some analysts have
suggested that the move may have been politically motivated because Motorola did
not yet have a formal contract to design and develop the satellite network.
"The real question with Teledesic is: Is it a technology before its time?" Schaeffler
said. If, like Iridium, Teledesic faces tepid demand, "they're going to have to lower
their prices, or they're going to have to merge with somebody, or they're going to
have to go out of business," he added.
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