thestreet.com. Wireless Deals Are Bad News for Satellite Players
By Scott Moritz
Staff Reporter
9/27/99 7:00 AM ET
The frenzy of wireless deals means the world's going to be
easier to connect but satellite-telephone companies will not
see much benefit.
According to news reports, MCI WorldCom
(WCOM:Nasdaq) will grab Sprint (FON:NYSE). MCI
WorldCom and Sprint had been in informal talks for some
time but negotiations intensified as Bell Atlantic
(BEL:NYSE) and Vodafone AirTouch (VOD:NYSE) forged
their recent wireless telephone joint venture. MCI WorldCom
had been seeking a wireless partner for a while and Sprint's
Sprint PCS (PCS:NYSE) wireless business makes an
attractive addition.
Bell Atlantic and Vodafone AirTouch have signed an
agreement worth $70 billion to form the world's largest
wireless service with 20 million customers. In addition, AT&T
(T:NYSE) and British Telecom (BTY:NYSE ADR) formed
Advance, a transatlantic pact to provide customers of the
combined companies a "seamless" international service.
All the activity is bad news for satellite phones. Already in
Chapter 11, Iridium (IRIQE:Nasdaq) and London-based ICO
Global Communications (ICOFQ:Nasdaq ADR) now face
tougher competition, especially from transatlantic wireless
hookups aimed squarely at the global traveler.
The Vodafone service, for example, would allow a port wine
sales executive for the Dow Port house to make calls with a
Vodafone AirTouch phone in Lisbon, Paris and London. Then
she could fly to her U.S. office in New York, switch to a Bell
Atlantic phone, and call in sales orders to Lisbon, and have
all the calls billed to the same account.
The no-orbit wireless companies are essentially beating the
low-orbit satellite phone companies at their very own game.
Blame large debt, slow sales and high prices. In August,
Washington, D.C.-based Iridium declared bankruptcy after
only nine months of operation and after spending 12 years
and $5 billion to launch 88 low-orbit satellites. Two weeks
later, ICO filed for Chapter 11 protection. Now, say analysts,
Globalstar (GSTRF:Nasdaq) is perhaps the only
satellite-phone company able to carry on the "one world, one
phone" business.
But even Globalstar doesn't shine so brightly given the new
competition.
"AT&T and BT, for instance, are addressing a better solution
for the kind of person who is bouncing around the world,"
says Charles Drayton, vice president of network marketing
and business development for Nortel Networks (NT:NYSE)
in Richardson, Texas. "This is a key piece of the market the
satellite operators are trying to go after."
Others are more blunt.
Iridium is all but buried, says telecom analyst Gregory Miller
with Jefferies & Company, who does not have a rating on
satellite-phone companies. Jefferies has done no financing
for the satellite businesses.
"These alliances between cell phone companies allow them
to do now what Iridium had attempted to do. Now the
question is, how many people need phone coverage in the
Himalayas?" Miller says.
Satellite-phone companies once boasted of providing "one
world, one phone" service but increasingly are being pushed
to provide service to the outback.
Satellite companies put on a brave face. "Once we have a
smaller and cheaper phone, I think the business travelers will
be very keen on getting our service," says Iridium
spokeswoman Michelle Lyle.
But as the wireless carriers continue to align their competing
technologies, the niche markets will also be a target.
That hasn't stopped Iridium's fans from keeping hope alive.
"There is still a market for satellite-phone service. These are
markets that are not now served by wireless terrestrial
networks and not likely to be served," says ING Barings
analyst Steve Solazzo, who no longer follows Iridium.
Solazzo rates Globalstar a buy. ING Barings was an
underwriter of Globalstar debt offerings. The eight-year-old,
San Jose, Calif.-based company has launched 36 of a
planned 52 satellites for its $3.9 billion network and is
scheduled to start service by the end of this year.
Globalstar uses a more robust CDMA, or code division
multiple access transmission format. As opposed to Iridium
and ICO's TDMA, or time division multiple access
technology, CDMA is compatible with the largest number of
U.S. users.
Also, Globalstar has a formidable list of partners: Loral
Space & Communications (LOR:NYSE) owns 45%,
wireless chipmaker Qualcomm (QCOM:Nasdaq) has a 6%
stake and Vodafone another 7%.
Analysts estimate that Globalstar needs between 200,000
and 500,000 subscribers to reach break-even in cash flow by
the end of next year.
A conventional wire service signs up about 200,000
customers each quarter, but satellite-phone companies are
looking at an already small pool of far-flung business
travelers, offshore oil-rig workers and ship captains. Iridium
only managed to sign on an estimated 10,000 subscribers in
nine months.
For sure, there remains another major challenge ahead for
the satellite companies. The international wireless
community is trying to puzzle together a common language
or standard called third generation, or 3G, protocol that --
though years away -- intends to do for wireless phones what
the Internet did for computers.
"Satellite has such a small market and by the time it
becomes a big enough market, we will be at 3G," says
Bruce Kasrel, an analyst with Forrester Research, which
has done consulting work with numerous wireless and
satellite companies.
Looks like all the satellites may be converted into a theme
park pretty soon.
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