The success of wireless communications presents a double-edged blade for mobile satellite service. On one hand, the continued acceptance of wireless communications and the development of wider applications represents large potential demand. On the other hand, the growth of terrestrial cellular systems reduces the direct need for a satellite link.
The question remains, how will this new industry fair in an increasingly competitive market? Based on the research conducted by Malarkey Taylor Associates-Economic and Management Consultants International Inc., mobile satellite service will not compete directly with cellular, but instead serve niche markets and provide complimentary services to cellular. These next-generation networks will offer a wide range of regional and global services at a much lower cost than traditional satellite communications.
Next-generation MSS
True to the nature of the aerospace industry, mobile satellite service providers are thrusting themselves into the wireless communications industry with nearly $50 billion in planned capital expenditures. By MTA-EMCI estimates, these mobile satellite telephony systems will expend an additional $40 billion constructing the ground stations necessary to serve subscribers throughout the world.
Three providers, Optus, Solidaridad and American Mobile Satellite Corp., or AMSC, already have launched satellites bringing the next generation of satellite communications into orbit. By the end of this decade more than 20 systems around the world may offer satellite-based telephony to mobile users. These satellite networks will offer a wide range of services, from niche products to broad business communications tools. Applications include:
Global satellite telephones
Voice and telemetry systems for trucking
Handheld two-way messaging devices
Dual-mode satellite/cellular telephones
Fixed telemetry services
Private networks
Fixed telephony
Maritime telephone and data systems
Airline telephones.
User terminals for early satellite systems were the size of a briefcase at best, and cost thousands of dollars. The next-generation handsets are expected to be only slightly different from cellular phones, but will cost two to four times as much. Service fees also are expected to decline from $2 per minute to as little as 50 cents, with monthly service fees at around $30. Users of some systems will have coverage around the world for both voice and high speed data communications. Several systems, like Celsat, plan to offer dual-mode terminals to provide users access to terrestrial cellular as well.
Developing terrestrial wireless
Ten years ago cellular systems covered less than half of the U.S. population and served only a select market who could afford the high price of service and equipment. Since then, cellular coverage has more than doubled and prices have fallen dramatically making service affordable to a much wider class of consumers and businesses. In the last decade, subscribers increased from one million in 1985 to 28 million in 1995.
The same forces at work in the United States also are at work around the world where cellular systems serve an additional 40 million subscribers. In Europe, cellular subscriber growth has averaged 62 percent per year and now serves 18 million users. Asia, and the Pacific Rim in particular, have been a hotbed of cellular activity, currently serving 15 million subscribers, which MTA-EMCI anticipates will grow to 79 million by 2000. Worldwide, average handset prices have fallen more than 50 percent in the last decade. In addition, the development of new digital technologies and regional standards like GSM (Global System for Mobile communications) in Europe have improved the quality of cellular service and facilitated faster growth in the industry. Next-generation satellite telephony must find a niche in a competitive, flexible and low-cost service environment.
Target markets
While cellular coverage grows, MTA-EMCI has estimated that some 40 percent of the world’s population will be left uncovered by the year 2000. For this reason, populations not covered by cellular represent the largest segment of potential demand.
For instance, MTA-EMCI projects the top 5 countries with populations left uncovered by cellular to be, Vietnam, 84 percent; Bangladesh, 83 percent; Cambodia, 83 percent; Zaire, 80 percent; and India, 70 percent. While the majority of areas left uncovered by cellular in 2000 will be of low population density and low income, other demographic and telecommunications statistics indicate reasonable demand potential. Countries like the United States and Japan, with high percentages of covered populations, still represent significant demand potential from those areas. In addition geographic areas not covered by cellular also will represent significant demand by users traveling in these regions.
An analysis of the critical issues facing the mobile satellite industry, including market conditions and technology, reveals that mobile satellite telephony will be most successful in markets where it is complementary, not competitive with cellular.
MSS providers will use the flexibility and ubiquitous coverage of their systems to develop niche markets for users with demanding communications needs. The feasibility of successfully developing such target markets has recently been demonstrated by Qualcomm Inc. After an initial plan to offer general mobile data service, Qualcomm began to market an end-to-end solution for the trucking industry, where today eight out of the top 10 haulers use Qualcomm’s OmniTracs service.
Distribution of demand
While MTA-EMCI projections indicate that demand will be led by the highly developed nations such as the United States and Japan, these countries are not typical of satellite demand. Two of the top five countries for satellite demand will be China and Mexico. The reason for the diversity of country demand is the high adoption rates for radio telecommunications and the demand from the trucking industry in the developed countries, and the large populations not covered by terrestrial mobile radio systems in developing countries. Indeed, Globalstar, MCHI and Teledesic have all stated they will focus on service activities in developing countries.
Worldwide, MTA-EMCI calculated demand by region, by country and target market under two scenarios. Under the base case, total demand will reach 9 million subscribers by 2004 and 15 million under the high demand scenario. Therefore, competition among mobile satellite service providers will be quite keen. For instance, in the Asia-Pacific region, users may have a choice between as many as 15 operators; five geostationary systems in addition to the 10 systems planning global coverage. Given the high cost of launching a satellite system, relatively limited demand, and the high degree of competition, MTA-EMCI anticipates that some systems will not reach fruition.
While satellite telephony and cellular may not compete head to head, their coexistence in the market provides the basis for considerable synergy. The ubiquitous coverage and flexibility of satellite communications will encourage cellular to develop new technologies and expand coverage. Mobile satellite telephony faces many challenges ahead, but the increasing demand for mobile communications provides the incentive for pushing forward.
Andrew Roscoe is chief executive officer of MTA-EMCI, while Daniel Ernst is a consultant for the market research and analysis firm focusing on wireless markets.
