With the Nov. 1 commercial activation of Iridium L.L.C.’s satellite-based global mobile phone network, the mobile satellite services industry proved it is technologically possible to extend cellular communications to virtually any point on the planet.
With this validation behind it, the industry faces another, equally difficult and important challenge-marketing and distributing its product to recoup the billions of dollars invested to date.
Just as it took a massive effort to overcome the technological obstacles of building a satellite constellation to encase the globe, so is it an equally humbling prospect to sell it.
“The riskiest factor is the proper implementation of a well-organized marketing and distribution strategy,” reads a report by SoundView Financial Group Inc. “The system that offers a distribution network that best complements its strategic positioning and has strategic partners capable of keeping the projects on schedule will succeed.”
Backing up this view is a report from research firm Ovum Inc., which has been widely quoted for its prediction there is a shrinking window of opportunity in the MSS voice market. Although MSS carriers to varying degrees dispute its findings, all admit the marketing and distribution efforts greatly will impact a company’s ultimate success or failure.
“I think once you get through the technology, that’s definitely the key to success,” said Craig Bond, Iridium vice president of market development.
With this in mind, Iridium has begun a decided shift in emphasis from technology to marketing.
“We held meetings for two hours every day for four or five months regarding technology, until six to eight weeks ago. What’s happened now is a meeting every day on the marketing side of things.”
Think globally, act locally
Rather than trying to sell services worldwide from one central location, MSS operators have partnered with local providers in different regions to do much of that work for them.
“A lot of the distribution is not global at all, but national distribution,” said Richard Wetenhall, vice president of global market segment at ICO Global Communications. “We don’t believe it’s possible to sit at the center of a global operation and dictate the efforts of operators worldwide.”
About 60 of ICO’s investors are local telecom providers in different countries that collectively hold about 25 percent of the global cellular market. ICO hopes many of these operators will become MSS customers as well.
Iridium depends on its 12 gateway partners to extend distribution agreements to the local providers in those 12 regions. These gateway providers have their own marketing and sales departments and are the entities that negotiate roaming and distribution agreements with local service providers in each country.
Before it launched service, Iridium had signed more than 200 distribution partners. Since commercial launch, Iridium has extended distribution agreements into about 15 additional countries.
While these local providers have a large amount of autonomy, the central MSS companies behind them will have a say in their actions because the distributors potentially could dictate the success or failure of the venture.
“We set guidelines and policies toward presenting a single global image of ICO worldwide,” Wetenhall said of ICO’s role. “I think there’s a lot of agreement among our investor base that we need consistent marketing.”
Iridium’s central organization provides sales training support and sets the marketing image. It also facilitates communication between providers.
“Marketing and sales is essentially communications,” said Bond. “What we’re able to do is garner the best of the best in sales practices so other gateway providers in other parts of the world can learn.”
Also, Iridium is in the final stages of launching an Internet site where potential customers can buy products and services. All of its distribution partners also can use the site.
This “global stabilizer,” as Bond put it, is “a tool that allows all our service providers to sell via the Internet.”
Some of the larger providers have their own Web sites, where customers can purchase devices and services, he said. Iridium created its own to benefit those smaller providers in other countries unable to create their own Web presence.
“We’re making sure everyone has an even playing field so all service providers can open a store in the Iridium Mall.”
Getting it there
MSS companies also must aid local distributors in assuring their necessary inventory of products. MSS providers face logistical nightmares delivering handsets throughout the globe as customs regulations and transportation reliability widely vary.
“With MSS opening up all over the world, demand for MSS handsets will peak around 2000,” according to the Ovum report. “Guaranteeing handset supply is therefore vital and made more complicated by the difficulty in accurately predicting the size of markets.
“Handset manufacturers have consistently preferred to allocate stock to larger, wealthier markets. Service providers in smaller markets will need to be proactive in securing handset supplies.”
Iridium already has faced several setbacks in this area. Service providers in Russia and India have reported delays in handset delivery. Russia has complained that Iridium’s primary manufacturer, Motorola Inc., has held up delivery, while India has experienced problems getting the handsets through customs.
“Getting product to the countries is a very daunting task,” Bond said. “We’re learning. We’re fighting that tooth and nail every day … What we do is monitor and track where product is in all distribution channels and try to push to get product in faster.”
Outsourcing is one tactic for managing the delivery process. Iridium has agreements with Brightpoint Inc. and CellStar Corp. to handle delivery from the manufacturer to the service provider. Also, Iridium secured International Telecommunication Union registration for its product, which helps get handsets across borders.
Shots fired
In the marketing effort, only Iridium has an actual product to sell. But close behind are Globalstar L.P., ICO and Constellation Communications Inc., all of which expect to activate commercial service between next year and 2001.
According to the Ovum report, these companies should take steps to position their nonexistent service against Iridium’s.
“Where service providers know they will be beaten to the marketplace, they should work hard to ensure awareness of their own service, so that potential subscribers know that they will be able to choose between multiple operators if they wait,” the report read. “There will be a lot of spoiling tactics around the first launch.”
The early shots on the skirmish line have been targeted at pricing.
“We are concerned that prices put out by our competitor are high,” ICO’s Wetenhall said. “It’s not just a question of price level itself, but also how services are packaged. People don’t like the tariff structure at the moment. It’s difficult to understand what they’ll be paying.”
He said ICO likely will enter the market with a flat-rate pricing model set well below Iridium’s costs. By coming in below the premium charged by Iridium, ICO and other competitors will do much to grow the MSS space overall, he added.
“If the market is truly going to expand in the next generation … it must see an increase in functionality and a decrease in price,” he said. “We think we can come in with a proposition that will expand the market considerably. We think we can come in with a lower price.”
The price issue is not lost on Iridium.
“To tell you the truth, I think some of the criticisms are fair. I don’t think we’ve properly identified our pricing,” Bond said.
He said Iridium explains its pricing structure based on what the customer will pay in the end, including all taxes, government fees and long-distance rates
in each country, which is why the model changes from country to country.
“We’ve communicated what the customer is going to pay,” he said. “Our competitors are typically quoting their wholesale price to another distributor who then resells it,” which eventually will be marked up close to Iridium’s price, he added.
Even so, Iridium still will be priced at a premium, he said, because it is offering services its competitors will not, at least initially. Bond said Iridium will be the only MSS provider offering voice communications from a handset available anywhere in the world. The other MSS providers only plan to expand the national footprints of telecom operators in countries where they operate, he said.
“I think it’s a different customer base initially,” Bond said, admitting other MSS carriers will offer global service, but not at initial service activation. Bond said he fears other voice MSS providers will lump themselves into the same category as Iridium, which could hurt the industry if they do not meet customer needs.
“The concern we have is they will confuse the marketplace,” he said.
Taking point
While it is necessary to position their services against Iridium’s in expectation of future competition, other MSS providers must be careful of their criticisms because they are-to an extent-riding Iridium’s coattails.
Since Iridium is the only operator offering service today, the company is an ambassador of the industry. If competitors attack Iridium too harshly, they could inadvertently cool enthusiasm for MSS overall.
“Iridium needs to be successful for them to get the rest of the way,” Bond said. “You can always throw stones at something that’s there when you have nothing to back it up … I think we’re setting a precedent here that’s going to be hard to match.”
