NEW YORK-The successful launch May 5 of the first six of 55 planned Iridium Inc. low-earth-orbit satellites is a good omen for the fledgling global mobile satellite service industry.
The success of that initial deployment after several delays would be an important but preliminary milestone in a marketplace for wireless communications that is largely untested, said Richard Smithies, director of the Space Technology & Telecommunications Group of BZW, the investment banking division of Barclays Bank plc, New York.
Smithies was a speaker May 1 at a “Space and Satellite Finance” conference sponsored by the Institute for International Research, New York. The Iridium launch, which already had been postponed several times from earlier this year, was scheduled to occur May 2. During the latest scheduled launch period, lift-off of the Delta II rocket was delayed for three consecutive days until last Monday’s deployment.
“Tomorrow is critical for Iridium and the others,” said Kenneth Leon, senior vice president of satellite equity research for ABN AMRO Chicago Corp., New York, on May 1. “Any further delays will change cash flow analyses.”
Each of the three LEO consortia-Globalstar L.P., ICO Global Communications and Iridium-is projecting 3 million subscribers by 2002, he said.
“The question is whether demand really will be in the 4 million to 10 million range by 2002,” Leon said. “There will be rapid growth in 1999 after the systems are operational at the end of 1998. This is a new communications tool-voice driven, handheld-but the public doesn’t know it yet. It will be an even more eloquent solution for mobile data, with bi-mode or tri-mode handsets to stay in touch.”
There are four hurdles to be cleared, he said: financing, regulation, deployment and the business case. Business strategies vary, with Iridium staking a claim as a provider of a premium service while Globalstar pursues the role of a wholesaler whose services complement cellular telephony in local markets.
“Rollout of a global mass market isn’t easy to do quickly,” Smithies said. “There is a market, but I am skeptical about the speed of the ramp-up and I don’t believe all [the players] will make it.”
There is a fourth LEO player on the horizon-Odyssey Telecommunications International Inc. But to date, Odyssey’s proposed system is the only one that hasn’t yet passed through the financing stage, Leon said.
“In the mobile business, in terms of what’s important for success, it’s low prices similar to cellular,” said Roger Rusch, a creator of Odyssey who now is president of TelAstra Inc., a satellite consulting firm in Palos Verdes, Calif. “If you want to provide services in countries where they are most needed, they’re also where people are least able to afford them.”
Iridium is proposing a wholesale per minute rate of $3, while Globalstar and Odyssey plan to charge $1 per minute.
“Today, the average cellular user spends $800 a year; Globalstar’s and Odyssey’s rates mean they are two-to-four times as expensive to the end user,” Rusch said. “The World Bank has said, for basic phone service, the rates should be 10 cents (per minute) or less; I think you must get down to the 30-cent range.”
However, a key difference between cellular telecommunications and mobile satellite systems is that the latter require far fewer customers in order to survive financially, said Smithies of BZW. “The break even point is 250,000 to 500,000 subscribers.”
Additionally, mobile satellite systems may garner a competitive advantage relative to terrestrial cellular systems when it comes to treatment and liability for purposes of state and local taxation, Robert Geppert, national director of telecommunications local and state tax practice for KPMG Peat Marwick L.L.P., Seattle, told RCR in a separate interview.
