Trouble in the skies?
A pack of providers are wagering upwards of $50 billion on emerging voice and data satellite services, but who's buying?
By Charles Bruno
Network World, 1/19/98
Vandenberg Air Force Base, Calif. - It's a chilly dusk in November on Vandenberg Air Force Base, the last remnants of a spectacular sunset slowly fading from a palette of orange to night. Suddenly, a blaring horn breaks the picturesque silence, warning base personnel of the launch of a Delta II rocket five miles away. A crowd milling about a nearby weather station breaks into anticipative chatter.
On this night, a pristine white Boeing Co. Delta rocket will ferry five Motorola, Inc. Iridium satellites into a low-earth orbit (LEO), joining 34 others at the core of a space-based telecommunications infrastructure that promises to bring new voice and data services to users worldwide.
Motorola's Iridium LLC is reportedly sinking almost $5 billion in its 66-satellite constellation phone system, while competitors such as Globalstar, L.P., are plunking down $2.5 billion for a 48-bird endeavor. All told, dozens of providers are committing more than $50 billion to establish telecom systems in space.
A loudspeaker crackles, ''One minute to launch, one minute.'' The crowd hushes and waits. A magnificent ball of yellow erupts. The Delta rocket pauses as it fights gravity, then streaks skyward with blazing speed. Five seconds into launch, the low rumble of the engines washes over the crowd.
All eyes in the gallery of spectators are locked on the heavens. Oohs and ahs fill the air along with enthusiastic applause. White contrails paint the darkened sky, and two minutes into flight, the rocket is little more than a speck, twinkling with the stars.
Motorola may be enjoying ovations for its launches now, but the real question is whether Iridium - and a gang of other emerging satellite services - will command the same type of attention from corporate users.
Considering the reaction from dozens of itals//Network World// readers, Iridium and other LEO satellite service providers have their work cut out for them.
''We haven't identified any business need,'' says Sally Grant, assistant vice president of network development at USAA, a large financial and insurance firm in San Antonio, Texas. ''How could this change our business?''
''I don't have any clue about these services,'' says Brian Beatson, manager of data communications at Riggs National Bank, in Riverdale, Md. Beatson's comment echoes the sentiments of many users - either they don't know about emerging LEO services, or they don't view them as a strategic technology.
Voice a big bust
On the voice side, telephony services offered by Iridium, Globalstar and others are shaping up as a big bust in corporate circles, with a few exceptions.
The services will mostly be transparent to users, says Bob Egan, director of the Gartner Group, Inc.'s Network Services unit in Stamford, Conn. Iridium and Globalstar will forego direct sales of their LEO satellite services to users, instead selling capacity to franchised carriers and Internet service providers. The reason for that strategy, Egan says, is that LEO providers are trying to curb their operational costs because they are sinking billions into their celestial infrastructures.
The satellite services will allow telephony carriers to provide uniform quality of service across the globe, Egan says. When you call Bell Atlantic Corp., for instance, the carrier may choose its preferred international transport mechanism - which could be an undersea cable or a satellite pipe. Participating interexchange carriers could sell the service as a local loop bypass to connect to their points of presence.
However, satellite telephony is likely to wind up as a fringe offering because its most immediate application is for mobile salespeople and other executives who frequently travel globally. The integration of satellite phone with existing cellular services is a sound fit for that niche, but initial pricing may scare off all but the most bleeding-edge users.
''There are too many good [rate] deals for existing services,'' says Gerald Sallee, manager of network architecture at Kellogg Co. in Battle Creek, Mich. ''These satellite services are just too iffy at this point.''
Iridium is estimating initial handset costs for its network at $3,000 and airtime service costs ranging from $1.75 to as much as $3 per minute. Ouch. Globalstar is keeping handset costs down to $750 and expects to wholesale airtime to carriers for a low of 30 cents per minute, but carriers will likely charge $1 per minute domestically and perhaps $1.25 per minute in other parts of the world.
And Iridium may not be able to guarantee uniform rates globally because franchisees are allowed to control rates in their own territories. Iridium is exploring the possibility of uniform global rates for multinational companies, but ''we have to make sure all our franchisees are in agreement,'' says Craig Bond, executive director of terrestrial services.
That doesn't bode well, especially given the aggressive competition in the market for personal communications services, according to David Berndt, program manager in the Wireless Mobile Group at The Yankee Group consulting firm in Boston. ''[LEO service providers] will commit suicide if they make a run at the domestic market,'' Berndt says. ''The real market for these companies is the international traveler, period.''
One user who is taking an interest in Iridium is John Abrams, manager of research in the systems group at fast food magnate McDonald's Corp. in Oak Brook, Ill. ''We're excited to see those launches,'' he says. But McDonald's interest initially will be in Iridium's paging service, not its satellite voice offerings. With so many executives and other personnel traveling to McDonald's sites in 103 countries, Abrams says it's not uncommon for a single user to be followed by five or more paging bills.
''We're looking for one company that can centralize all that and let us bargain for discounts,'' he says. He adds that if Iridium proves it can solve the integration of cellular voice services and provide unified billing, ''we'd like to have their phones in our pockets as well.'' But he just does not see much need for the company's satellite telephony services.
There's another reason satellite phone services may well bomb in corporate America - LEOs have problems serving urban canyons. A user in New York, Chicago or other metropolitan areas may experience signal shadowing off buildings, which amounts to signal distortion or loss. Even within a building, if you're not within line of sight of the satellite, you may be out of luck. And, if you work in a building with metallic glass, odds are the signal won't penetrate.
''Are you going to tell your CEO you paid $2,000 for a satellite phone he has to go out onto the lawn to use?'' The Yankee Group's Berndt says. Subhed:
Broadband a winner
As much as satellite telephony services appear to be a bust in corporate networks, broadband satellite services could well be the next boon in wide-area data services.
The networks are spearheaded by such companies as the enormous Teledesic Corp. venture financed by Bill Gates and Craig McCaw, and Motorola's Celestri business unit. The services will offer bandwidth on demand ranging from 64K bit/sec to 155M bit/sec pipes and beyond.
''Broadband access via satellite is a big deal,'' says Russell Daggat, president of Teledesic. There is a ton of fiber available today, largely in trunking networks, and 73 countries have no fiber at all, he says. ''For a lot of users, it will become more economical to pay for bandwidth on demand, and that's what we'll deliver,'' he says.
McDonald's Abrams agrees. ''The next wave [the broadband nets] is quite a bit more appealing for a lot of reasons,'' he says.
For one, such celestial nets will enable users to bypass local loop carriers, many of who drag their feet to offer high-speed data services. More importantly, though, broadband satellite bandwidth-on-demand service will ''signal the second coming of frame relay,'' Abrams says.
Basically, you'll be able to buy an aggregate amount of bandwidth and apply it as needed, Abrams says. ''What we'll see is the frame relay concept - taking a small pipe and bursting it - taken to a more intense level,'' he adds. That means you won't have to nail up permanent connections to remote sites, but instead allocate your aggregate bandwidth to points that need timeslices of bandwidth.
Such services provide another major benefit by redefining service provisioning times for local loop and interexchange services. Instead of waiting three days to provision a frame relay circuit in California or a month in London, McDonald's can ''eliminate the local loop headache, remove the provisioning headache and drop a box in a store and bring it online in literally hours,'' Abrams says.
The big drawback is that broadband satellite data services are a good four or five years away from availability. The other current unknown is pricing - neither Teledesic or Celstri have said much about service costs except that rates would be determined by resellers.
Speaking at NetWorld + Interop 97 last fall, noted economist and author George Gilder said hefty private-line prices at local exchange carriers will allow Teledesic to compete head-on initially, but ''once those T-1 rates collapse, Teledesic will become a premium service.''
Kellogg's Sallee doesn't think initial satellite rates will be competitive with frame relay. ''There are real good frame [relay] deals out there,'' he says.
Sallee also is wary for another reason. He notes that LEO providers have a tough road ahead striking international deals with carriers and ISPs to provide uniform global coverage and support. ''It's yet to be seen how these relationships will work out,'' Sallee says. ''I prefer to wait and see how it's being used.''
The LEO providers' reluctance to deal with telcos instead of directly dealing with users frustrates McDonald's Abrams. The carriers have an investment in copper and fiber that may well be encroached, he says. ''You don't have a line of carriers at Motorola's door saying please do this,'' he says.
Anxious users such as Abrams are willing to prod carriers, but LEO champions are a scarcity at the moment. To succeed, the Motorolas, Teledesics and Globalstars will have to embrace the user community and then turn them loose on carriers to demand satellite service.
If the LEO providers don't take that route, they may well end up with voice and data services that don't fly.
Jeff |
