EETimes. Scarce subscribers put space commerce at troubling crossroads
eet.com
By Loring Wirbel and Margaret Quan
EE Times
(04/09/99, 5:53 p.m. EDT)
NEW YORK — The move to commercialize space platforms for remote imaging and telecommunications is
going through a painful adolescence this spring following a 1998 filled with launch mishaps and setbacks in
system deployment. The drag effect on investors from Iridium LLC's lackluster record in signing up
subscribers worries aerospace giants and startups alike, and the tense mood was evident at both the recent
National Space Symposium in Colorado Springs, Colo., and at an investors' conference in New York this past
week. One executive at a telecom-satellite company mused that "our industry has hit a troubling plateau."
Still, the concerns were counterbalanced by the prospect of a bright future for launch services, as
underscored by the SeaLaunch consortium's successful March 27 launch of a modified Zenit rocket from a
sea derrick at an equatorial Pacific Ocean site. Indeed, the privatization of launch capabilities is proceeding at
a rapid clip, and a host of new concepts for launching birds via air-towed rockets, Nevada Test Site pads and
so-called "scramjet" (supersonic combustion ramjet) airplanes is waiting in the wings.
Rotary Rocket Co. and other companies are on the frontiers of a new commercialization of space technology.
The success of the SeaLaunch consortium, led by The Boeing Co., is fueling hopes among launch startups
such as Kistler Aerospace, Pioneer Rocketplane, Kelly Space and Technology, and Bristol Spaceplanes Ltd.
for low-cost, reusable options that bypass traditional launching pads. NASA and the Air Force are answering
the cry to lower launch costs by privatizing large parts of the Canaveral and Vandenberg complexes.
Further, the animosity with which the intelligence community greeted imaging and communication startups a
few years ago has all but disappeared, to the point where both the Defense Department and intelligence
agencies now expect to be the largest customers of many commercial space networks. The National
Reconnaissance Office (NRO) confirmed this past week that it will invest more than $1 billion over five years
in helping private imaging companies, and Defense Secretary William Cohen said the Pentagon will increase
its acquisition of commercial imaging by more than 800 percent in that period.
At the same time, however, Congressional response to the Loral Space Systems scandal concerning satellite
sales to China — namely, placing satellite licensing under the State Department's International Trade in Arms
Regulations (ITAR) — has been cause for almost universal dismay. The State Department is delaying almost
all international satellite projects, including collaborative efforts with Canada and NATO nations, a trend that
could stop some telecom networks cold.
An added fear is that the customer base for new services could be too small to recoup initial investments for
satellites and launch services. Iridium, which changed chief financial officers two weeks ago, has blamed
software problems and a lack of Kyocera handsets for its financial doldrums. But a more fundamental
problem may be that its subscriber base is growing too slowly for this 66-satellite low-earth-orbit (LEO)
network to break even in four years, as planned. Revenue would have to exceed $8 billion in that time,
implying several hundred thousand subscribers — and Iridium has yet to break 10,000 subscribers.
At the Satellite Broadcasting and Communication Association's SkyForum Conference in New York, Iridium's
vice chairman and chief executive, Edward Staiano, reported that its global mobile satellite-telephony network
is performing better than expected. However, he said, Iridium has encountered "the same frustrations of any
startup business" in the five months since it launched its phone service.
Downplaying recent reports of financial difficulties, a shortfall of subscribers and other woes that sent the
company's stock to a 12-month low earlier this month, Staiano told several hundred satellite-industry
executives that business "has been developing a little slower than we expected — it's been difficult training
marketers and distributors, and difficult getting products out and available. But there is no lack of demand
from subscribers."
Missed deadline
Staiano said Iridium will break even on cash flow and sign up 100,000 subscribers by the fourth quarter. He
also promised a new "plan" for the business that does not require substantial additional investment but may
well, according to analysts, entail cost-cutting measures and revising revenue and subscriber projections.
As things stand now, Iridium will not make the original April 30, 1999 deadline for revenue and
subscriber-level targets it set when it secured $800 million in funding from investors. The current subscriber
total is less than half what Iridium had forecast for the first quarter.
Staiano said Iridium is delivering high-quality service with more than 95 percent of calls established and a
drop-call rate of 4 percent. In its first five months, Staiano said, the satellite network has enjoyed greater
reliability than the ground network.
Back in Colorado, meanwhile, Troy Ellington, vice president for planning at Loral, one of the partners in the
Globalstar LEO coalition, told the National Space Symposium that the loss of 12 Globalstar satellites last fall
due to a rocket failure at the Baikonur Cosmodrome in Kazakhstan underscores the vulnerability of industry
plans to use one large rocket for multiple launches.
On top of that, Ellington said, few recognize how deeply the Asian financial crisis has rocked the space
industry. The currency crashes and accompanying economic slowdown have "significantly lowered demand
for many communication services, teaching us that not everything in the communication industry is up, up and
away," he said.
As a counterpoint to such uncertainty, industry players were brimming with enthusiasm over last month's
SeaLaunch success. Boeing and its partners — Kvaerner Maritime AS (Oslo), RSC Energia (Moscow) and
KB Yuzhnoye/PO Yuzhmash (Ukraine) — already have contracts for 16 launches, to begin this summer.
Peter Diamandis, president of the airborne Internet-access company Angel Technologies Inc., is leading a
foundation that hopes to spur more reusable-launch concepts through The X Prize, a $10 million award
promised to the first private team that builds a vehicle capable of carrying three adults to an altitude of roughly
62 miles, returning to earth and turning around for another launch within two weeks. Diamandis said that
although the foundation's goals focus on human flight, the advances in launch concepts will help both manned
and unmanned launches.
Slated for test flights in the next two years are such concepts as the Roton vertical rotary rocket from Rotary
Rocket Inc. (Redwood City, Calif.), which uses helicopter blades for vertical reentry after launch; the Kelly
Space Astroliner horizontal-take-off space plane; and a variety of passive-tether systems that have the
potential to swing satellites from LEO to geosynchronous orbits.
The cost of conventional rockets, meanwhile, is expected to come down as next-generation reusable launch
vehicles like the Boeing Delta 4 and Delta Atlas 5 come online. Maj. Gen. Gerald Perryman, commander of
the 14th Air Force, said new launch vehicles will take over pads at Patrick/Canaveral formerly devoted to the
Titan 4, until up to one-third of the base is earmarked for commercial launches. The Air Force also plans to
dedicate runways at Canaveral and Vandenberg to future space planes.
The idea of government riding industry resources has some space startups breathing easier, but the move is
something of a double-edged sword, according to observers at both conferences. The main question: Will
military or intelligence interests get priority over commercial ones?
The publication Space News, co-sponsor of the Colorado symposium with the U.S. Space Foundation,
disclosed Monday (April 5) that the NRO and National Imagery and Mapping Agency have pledged to help
out such imaging companies as EarthWatch Inc. (Boulder, Colo.), Orbital Imaging Corp. (Dulles, Va.) and
Space Imaging Inc. (Thornton, Colo.) in order to gain high-resolution images from these startups.
Communication resources also will be dominated by military requests. Stan Sloane, vice president and general
manager of network-systems development at Lockheed Martin, said that by the middle of the next decade, 75
percent of Defense Department communications will use commercial satellites.
The commercial-satellite companies may find that the military is their "anchor tenant," Sloane said, a trend
borne out in the latest Iridium announcement. Staiano reported at the New York meeting that the Defense
Information Systems Agency has awarded Motorola Worldwide Information Network Services a contract for
Iridium portable products and related voice and paging services. The deal is worth an estimated $219 million
over three years.
Policies for dual use of such systems will be one of the stickiest issues to resolve, said Gil Klinger, director of
policy for the NRO. Klinger wondered what the director of Central Intelligence might do if CNN showed
images of air strikes with 0.8-meter resolution, and came up with analysis of the imagery that was different
from what the Pentagon was saying. "Talk about competitive analysis," he said.
Herb Satterlee, president and chief executive of EarthWatch, said his company would sell CNN and the
Pentagon the same imagery, with analysis preattached.
Setting priorities
Jeff Harris, a former director of the NRO who now heads Space Imaging, said that similar problems will arise
over what kind of priority military agencies will receive over civilian users. Harris said that when he was in
Washington, the Army was in the habit of demanding guaranteed use in times of crisis. Otherwise, it would
not use a communications frequency at all.
Harris and Vice Admiral Herbert Browne, deputy commander of the U.S. Space Command, agreed that the
new concepts of bandwidth shaping and quality of service will give military and intelligence agencies the right
to pay for "premium" service, and that they'd better be happy with that. Harris and Browne said the United
States should also prepare itself for more problems with other nations, in venues such as the World
Administrative Radio Council, as it seeks exclusive use of frequencies.
But no issue raised more hackles at the Space Symposium than the State Department's tough line on ITAR
licensing for satellites, enacted in response to Congressional restrictions in defense authorizations enacted to
counter perceived Clinton administration "looseness" in dealing with Loral's satellite sales to China.
Henry Sokolski, executive director of the Non-Proliferation Policy Education Center, said he suspected the
State Department was deliberately playing a hard line with Europe and Canada to prove what a burdensome
restriction Congress had imposed. "If State is indeed trying to pull chains," said Sokolski, "that is silly and
self-defeating."
Clayton Mowry, executive director of the Satellite Industry Association, went further, saying that the United
States seems to assume all commercial launches can be U.S.-based. But that will not be possible even with
new launch options coming in, he said, adding that State "should be ashamed of its behavior in ITAR
licensing."
Richard DalBello, vice president of government relations for ICO Global Communications, put blame on both
branches of government, saying "What Congress did is ridiculous, and how State implemented it is
unacceptable."
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