Satellite providers look to past to find future

A little over a month ago, Iridium, the world’s first satellite phone service, liquidated its US$5 billion, 66-satellite system for a paltry US$25 million. The alternatives for the Motorola-backed company, however, were limited. In fact, they were non-existent. Until new owners Iridium Satellite stepped up at the last minute with their lowball offer, Iridium was resigned to the fact that its once-heralded technology was going to be bumped from orbit and allowed to burn up in the earth’s atmosphere.

Which is not to say that still won’t happen. The new Iridium recently signed a two-year, US$72 million contract with the U.S. Defence Department which they leveraged to buy the satellite system. But with a burn rate of US$7 million per month – for marketing and to pay Seattle-based The Boeing Co. to manage the satellites – the company’s future is really only assured through the spring.

It’s a predicament Iridium’s competitors find themselves facing, too. Globalstar Telecommunications, backed by space giant Loral Space & Communications and wireless firm Qualcomm, has only enough cash to make it to summer. And London-based ICO Global Communications almost went under without launching one satellite successfully until cellular phone entrepreneur Craig McCaw bailed them out at the end of 1999.

With all three satellite phone companies hanging like an albatross over the satellite industry, why then are analysts still high on satellite technology?

Because they’re looking past the anomaly of satellite’s venture into mobile phone service, and seeing a future based on what satellite does best – broadcast.

“Iridium is a black cloud hanging over the entire satellite communications industry,” says Jack Rigley, the vice-president of satellite communications for the Communications Research Centre, an agency of Industry Canada.

“But you have to qualify that failure a number of different ways,” he suggests. “Iridium was very expensive…the entire system cost US$8 billion including the ground infrastructure. Satellites last only seven years, and have to be replenished.

“The market had to be there very early on or the company wasn’t viable, and the market wasn’t there early on so it didn’t develop.”

Launched only in 1998, Iridium faced an uphill battle almost from the start. It’s extremely high costs – US$3,000 for a handset, and US$7 a minute in airtime charges – made its global coverage advantage an afterthought to potential customers, many of whom were satisfied with the cellular and digital phone industry’s ability to offer close-to-global roaming.

Iridium’s other failure was its lack of data capabilities. Transmitting at only 2.4Kbps, its future is still in doubt in this Internet age. The company hopes to begin offering short-burst messaging capability by the end of this year, but in reality, company executives admit they only plan to go after niche markets such as mining and exploration and defence.

But where Iridium has left aside its once ambitious plans to reach a mass business market, there are no shortage of satellite technology providers willing to pick up where it left off.

The difference is in what they’re selling. Rather than complicated two-way voice services, the new pack of satellite service providers envision a future where satellite can multi-cast a broad range of digital services.

“If one believes there’s going to be a demand for broadband Internet communications to the home – and already in Canada we have a million subscribers to cable modems of the telephone DSL system for higher-speed access – then demand will probably grow for other applications that are supported over the Internet such as video-on-demand or videoconferencing,” says Rigley.

Paul Bush, the vice-president of corporate development for Telesat Canada, Canada’s only satellite operator, is more definite.

“If the killer application on the Internet is broadband video, large amounts of data that [have] to be routed around, then satellite is the only viable way of distributing video efficiently across the network,” he says.

Bush backs up his assertion by pointing out the success of satellite technology in today’s broadcasting world. Television shows, for example, are distributed to networks around the world via satellite, often only a day or two before the show airs.

Satellite companies are trying to expand into other formats as well. In November, Cinema Connexion by Boeing recently tested its new movie distribution technology by sending the movie, “Bounce” to an AMC theatre in New York via satellite. The company plans to launch its commercial service sometime in the middle of this year.

Though a foray into Hollywood is definitely sexy, satellite technology’s real future might be a little more mundane, except to those who look at the balance sheets.

For Lance Mortensen, president of San Jose, Calif.-based r)Star Broadband Networks, satellite technology is already enabling a number of horizontal services for the retail sector.

“We’re doing a big project in the retail business in malls, where you go and put a dish on a regional mall and basically empower or enable all the tenants in that shopping centre to receive all those horizontal services,” Mortensen explains, highlighting credit card transaction processing as the big seller.

“So you think of a retail store, they can get training films, a connection to their corporate extranet or the Internet, they can get background music…all sent to them by the same thing that powers their credit card (processing line) today,” he says, adding the cost for all these services is about the same as what businesses now pay a telco for a dial-up credit card processing line.

Currently, r)Star uses satellites by Israel’s Gilat Satellite Networks, which is owned by GE. “Even with power from a generator, we can provide up to a 40Mbps stream into the facility, and the return path is about 156Kbps for the traffic going out of the site,” says Mortensen.

That much slower return path, he admits, prevents his company from servicing people who need to send video back out.

It is also a problem that has many critics skeptical of satellite technology’s ability to handle the inherent two-way nature of the Internet. For the past few years, companies like Germantown, Md.’s Hughes Network Systems (now a division of Boeing) have offered commercial Internet service via home dishes, similar to those for the very successful digital television service. The results have been satisfactory (Hughes says it has sold about 250,000 of the units globally, though it won’t say how many still subscribe) but not astonishing. In fact, until Gilat began offering its Starband Internet service in late 2000, satellite-based Internet still required a dial-up return uplink. Currently, both Hughes and Gilat offer in the range of a 400Kbps downlink and a 128-144Kbps uplink. Not superfast, but in areas without cable or DSL, they might be the best speeds available.

According to most estimates, only two-thirds of North American homes and businesses are able to get terrestrial high-speed services. That figure is unlikely to change anytime soon, says Rigley.

“Fibre to the home right now is overkill,” he says. “The capacity and the cost incurred would be far greater than would be incurred by wireless or satellite communications.”

Rigley says the usual catch-22 of going after the world’s remote and rural markets – that is, there isn’t the critical mass of demanding subscribers to even make it worthwhile – is not as much of a problem for satellite service providers.

“Even with low penetration rates, it can be very successful because a satellite like Anik F2 (Telesat’s next satellite scheduled for launch) sees all of North America,” Rigley says. “So even if you capture only a very small percentage of the market you would saturate the satellite, unlike any other system where your penetration rate would have to be high or hope that it would be high someday.”

This possibly lucrative world market, which will likely never build the wired infrastructure North America already has in place, is causing a race among satellite providers to launch a high speed Internet service.

Chief among these is the new ICO-Teledesic. After merging with Teledesic, ICO switched gears and is now planning on launching an always-on, 144Kbps mobile phone and Internet connection service, perhaps by 2003. The company estimates it will cost an additional US$2.5 billion on top of what it has already spent to get their planned 12 satellites into orbit.

Its companion company, Teledesic, has much bigger plans. Planned to orbit close to the earth (100 to 300 miles away), Teledesic’s 88-satellite constellation could cost up to US$15 billion to deploy. The payoff for the company, it believes, is that the technology will be able to deliver data at a rate of hundreds of megabits per second.

Though investors in the project include Bill Gates, Teledesic exists mostly on paper. And it does not have a believer in Telesat’s Bush.

“Telesat’s focus is on geostationary satellites,” Bush says, referring to satellites which orbit 37,000 km above the earth and rotate at the same speed as the planet. “Our belief is that the cost per unit of capacity on a GEO satellite is extremely competitive against not only celestial services, which is the LEOs (low-earth orbiting satellites) and the MEOs (mid-earth orbiting satellites), but also the terrestrial services.”

Compared to the billions of dollars Teledesic must lay out, “we for several hundred million dollars can blanket the Americas, and we think that’s a very viable market.”

Bush’s assessment of Telesat’s future relies on one criterion: the Internet network has to be cleaned up and organized.

“If you can imagine running the broadcasting system across Canada with 11 million television sets, and every session was an individual session for me…the network would be exactly what the network today is on the Internet: gummed up, unreliable, and slow,” Bush says.

“The way this is going to go, if the applications (in demand) are going to video, audio, and more and more broadband – which is what I think they’re going to be – the network service providers are ultimately going to have to look at how they’re going to make the network more efficient so the users are comfortable relying on it. And to do that, they’re going to use satellites to broadcast to points of presence, which you can then take to the home via satellite, over a cable network, or over a DSL (line).”

r)Star’s Mortensen agrees with Bush’s belief in what’s being called, “edge-casting.”

“When it comes to multi-casting – you know, one-to-many, point-to-multi-point – there’s no other form of connectivity that can perform anything like a satellite

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