The promise of a wireless world-- A catalyst for satellites?
When Iridium filed bankruptcy last August and was quickly followed by ICO Global Communications filing for bankruptcy protection under Chapter
11, the media compared the space industry to bankers poised to jump off buildings during a market crash.
But a funny thing happened: Investors and technologists began looking at the space industry for what role it could play within the
rapidly growing digital, wireless, mobile environment, rather than just being enamored with its technology.
The failure of Iridium was due to several factors. The main torpedo was that the market had changed over time but its business plan
hadn't. Iridium had targeted the business traveler to major cities around the world.
If the firm had raised money in the late 1980s when the system was first proposed, Iridium might have succeeded. Business travelers
had no other option prior to the billions spent to connect local cellular systems.
Today, however, cellular not only reaches major cities in the United States but recent press releases have announced plans to expand
service for U.S. customers to Europe and beyond.
**********Money that was flowing into mobile satellite system communications (MSS) projects slowed dramatically as investors
started to take a wait-and-see attitude on whether Iridium's problems would be indicative of the entire MSS sector. As of early May,
Globalstar's (GSTRF) stock -- a company that provides mobile communications via satellite -- is near its 52-week low as investors
wait for positive news regarding subscriber enrollment.
Satellite revolution
While the media focused on Iridium, a revolution began. International Internet service providers were experiencing problems with data bottlenecks.
Satellites were seen as a strong, reliable answer, speeding the delivery and caching of popular websites around the world. Satellite television in the United
States, offered by DirecTV and the DISH network, surpassed more than 10 million subscribers and was seen as an ideal means to reach consumers
directly for digital entertainment and Internet access.
The more people looked, the more they realized that satellites could fill a vital niche in the data and multimedia markets. In fact, unlike Iridium, whose
service costs greatly exceeded competitors' ($3,000 for a phone and $7 per minute for service), Internet via satellite is available at comparable costs and
speeds to DSL and cable.
According to the Gartner Group, Internet via satellite costs about $30 per month for the first 25 hours for speeds of 300 Kbps to 2 Mbps (shared).
Investors haven't been shy in expressing their belief in this trend. According to the upcoming 2000 State of the Space Industry, more than $9 billion has
been raised for space and satellite ventures in the last year and more than 20 IPOs are expected in the next 24 months.
Leading the way are satellite transponder providers such as Loral (LOR), Intelsat and PanAmSat (SPOT), which are experiencing tremendous growth
servicing Internet customers. Firms such as Interpacket, Tachyon, NetSat Express, I-Sky and Cidera are all pursuing the satellite data revolution and
are expected to be among those filing for IPOs.
Microsoft (MSFT) and America Online (AOL) are also putting their resources into satellites. Microsoft has joined with Gilat Satellite Networks to offer
"Gilat-to-Home," a high-speed Internet access service to consumers. America Online's satellite strategy includes a $1.5 billion investment in Hughes
Space & Communications, enabling it to offer AOL TV, a blending of television and the Internet.
A white knight?
But what about ICO Global Communications, a satellite phone service provider that filed for bankruptcy protection last year in order to reorganize its
operations?
Unlike Iridium, ICO had the capability of providing medium-rate data services. In bankruptcy proceedings, four groups competed for the right to bail out
the firm. Eventually, Craig McCaw, the cellular pioneer, and his investment firm, Eagle River Investments, bought ICO for $1.4 billion.
With overall telecommunications traffic expected to become 90 percent data, 10 percent voice within the next two years (from 90 percent voice, 10
percent data only a few years ago), the capability of ICO to offer data services was a major decision factor. ICO will now be a stepping-stone for the
eventual launch of Eagle River's Teledesic Internet-in-the-Sky venture.
Globalstar is not doomed, either. Its business plan, unlike Iridium's, is to target remote users, such as those on cruise ships and oil platforms, and to expand
the reach of cellular systems. The system and its planned upgrades also include data options that will help meet the burgeoning demand for mobile data
communications.
As the movement toward satellite-delivered broadband builds, the industry is finally able to show the tremendous business opportunities that space and
satellites represent. Satellites have become the means to reach customers and businesses, challenging the perception of how we can reach markets and
revolutionize existing ones. With an expanding number of companies relying on the unique capabilities that satellites and space represent, no one venture
truly defines the space industry. -- Scott Sacknoff |
