Satellite Calling

Patching in new link to revenue

Its the data, stupid.

The stunning collapse of satellite telephony provider Iridium and the financial troubles of its competitors, Globalstar and ICO Global Communications, spotlight the limitations of a business plan weighted heavily toward voice. But satellite-based mobile communications companies wised up quickly and have begun to hone in on lucrative data services.

Data connections have become far more important since satellite communications companies were launched five years or more ago. In particular, e-mail and Web access have made data communications at least as important as the phone to most world travelers.

As a result, the handful of satellite-based mobile communications operators are scrambling to either add new data offerings to their voice-oriented systems or improve their existing data communications options.

"Its data thats really driving the market," says Stephen Rogers, spokesman for Inmarsat, the London-based granddaddy of the industry. "The demand for data connections has accelerated over the last four years. Our customers want bandwidth."

Late last year, Inmarsat launched 64-kilobit-per-second ISDN service, and in June, the 22-year-old company announced the rollout of the first global Internet Protocol-based data service, which also can run as fast as 64 Kbps, far exceeding the throughput offered by most other providers.

Earlier this year, both Globalstar and the reformed Iridium Satellite announced new data services. In the longer term, New ICO and Teledesic both say they plan to provide worldwide satellite broadband data links within the next three to five years.

Chicago photographer and Web entrepreneur Mike Hettwer, a member of an archeological project in Chinas Gobi Desert, found a remote data connection to be far more important than the ability to make a phone call.

Hettwer and his group, led by University of Chicago researcher Paul Sereno, used Inmarsats ISDN link to send photos of the groups dinosaur discoveries to newspapers, magazines and research organizations, and to upload images and text to Dinosaur Expedition 2001s Web site. Via e-mail, the group negotiated publication contracts and other deals related to its work. Hettwer, for example, sent digital pictures of the dig to National Geographic from the remote camp in the Gobi.

"There are things that never, ever would have been done without our data link," Hettwer says. "We lived and died by e-mail."

While data is certainly becoming an increasingly important means of communications, satellites still cost a bundle to launch and there are only so many people who need or can afford such network connections. The original Iridium, for example, only attracted about 50,000 customers worldwide.

As a result, all satellite mobile communications companies are targeting similar niche business markets which have a strong need for remote communications and are capable of paying for the service, including maritime, heavy construction, oil and gas development, and aviation operations.

While these are promising markets, the total pool of possible customers just isnt big enough for more than a couple of providers, says Eric Rasmussen, a senior consultant at TeleChoice.

"Mobile satellite communication companies will have their niche applications, but its still a pretty small market," he says.

In an interview last January, Dan Colussy, the entrepreneur who organized the purchase of Iridiums assets, said the new Iridiums lower operating costs will make it possible to offer a service at a price people will be willing to pay.

Colussys group spent only $25 million for Iridiums network of 66 satellites, which cost more than $5 billion to build. As a result, his company can offer voice and data services at less than $1.50 per minute. But even at that rate, people might find the price of the services not worth the limited capabilities.

Most data services are being retrofitted to systems that were never designed with data in mind. As a result, throughput tends to be very low and systems are difficult to use. Iridiums dial-up connection, for example, operates at only 2.4 Kbps.

Inmarsat charges $3 to $4 per megabit transferred, while Globalstars data rates top out at 9.6 Kbps and run 15 cents per kilobit-second.

Competition Ahead

Existing players also face the specter of new competition from much more powerful satellite-based data networks.

ICO Global Communications, which filed for Chapter 11 bankruptcy reorganization in July 1999, emerged as New ICO late last year, backed by wireless communications pioneer Craig McCaw.

The resuscitated ICO plans to offer data services as fast as 144 Kbps, as well as voice services, all based on third-generation (3G) wireless telephone technology.

Michael Johnson, New ICOs director of corporate communications, says his organization planned to offer just voice services, but the spectacular failure of Iridium and the troubles at Globalstar prompted the company to rethink its strategy and focus on data.

Of course, theres also McCaws other satellite operation, Teledesic, which is building a broadband "fiber-like" low-earth orbiting network of satellites.

The system will reach nearly anywhere in the world and users will have two-way connections that provide up to 64 megabits per second on the downlink and up to 2 Mbps on the uplink. Teledesic, however, does not plan to offer the service until 2005, at the earliest.

Certainly Inmarsat seems aware of the approaching competition. Rogers says his company already has plans to introduce a "better than 3G" data service in 2004, which will provide feed rates of 432 Kbps.

But as Globalstar, Iridium and the rest of the industry have discovered, the easy part is setting up the network.

Satellite services have been hampered by large or awkward handsets. Also, communication requires a direct line of sight between the base station and the satellite — customers therefore cant transmit from inside buildings.

And now, of course, cell phones can reach far more areas of the globe than they could five years ago, greatly reducing the number of locations where satellite phones might prove necessary.

Certainly, advertising mobile satellite communications services to customers scattered across the globe is no easy task.

"The tough part of our business is reaching potential customers," says Mac Jeffery, a spokesman for Loral Space & Communications, an owner of Globalstar.

Ken Dulany, vice president of mobile computing at Gartner, says companies such as Iridium, Teledesic and others were conceived when cell technology was far less ubiquitous, powerful and accessible. An oil rig, for example, can now set up its own cellular antenna for communications.

"Ten years ago it looked like satellite communications was a necessary piece of the networking pie, but now it doesnt look quite so necessary," he says.