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A New Satellite System Clambers Onto The Launchpad

News: Analysis & Commentary: Communications

A New Satellite System Clambers onto the Launchpad

But can Loral's Globalstar get out of Iridium's shadow?

Since Iridium LLC declared bankruptcy on Aug. 13, Bernard L. Schwartz has had his ear chewed off by backers. They're worried about Loral Space & Communications Ltd.'s $3.8 billion satellite venture called Globalstar which, like Iridium, is aimed at providing wireless phone service anywhere, anytime. "My partners have been saying `You better make the damn thing work,"' says the Loral CEO.

It's not just Loral's investors who are edgy. The financial collapse of Iridium, which sought bankruptcy protection when it could not make debt payments, has cast a shadow over the future of the entire satellite industry. Sure, Iridium had special problems, including technical delays and major marketing gaffes. But its high-profile belly flop has made investors take another look not only at Globalstar but also at similar systems designed to deliver a variety of voice and data services by satellite that have nearly $20 billion riding on them.

"Iridium spawned a large number of other projects based on similar business models or more speculative ones," says John E. Pike, director of space policy at the Federation of American Scientists. "But now, these other guys are going to have a real hard time sustaining their financing."

Globalstar has tried mightily to distance itself from Iridium, which was marketed for elite "VIP roamers." Globalstar is aiming at giving well-heeled executives a service to cover areas where their cell phones don't work. It is focusing mainly on providing domestic service in developing countries, not international traffic, as Iridium had. And its pricing, probably about $1.25 a minute, is one-third of Iridium's fee. Schwartz says the $3.8 billion system needs only 200,000 subscribers to break even on an operating basis. Analysts see 30 million to 40 million people worldwide who would pay for global satellite phone service.

Globalstar is not the only satellite system tarnished by the Iridium debacle. London's ICO Global Communications, which plans to use an array of 12 satellites to deliver low-cost telephony around the world, could fall short in its attempt to raise funds for a service launch in late 2000. In July, shareholders rebuffed a plan for a $500 rights issue. Shares of ICO, whose partners include British Telecom, Hughes Electronics, and TRW, have plunged from 16 in January to less than 5, because of growing doubts about its ability to raise capital.

It's a different story in the emerging broadband arena--transmitting digital data and video at high speed. Satellite systems enjoy an edge at reaching remote or sparsely populated regions and in sending broadband data from one point to many. These might add up to a big market. By 2003, reckons Pioneer Consulting in Cambridge, Mass., satellite services will grab about 12% of a global broadband market worth $26 billion.

"BACKBONES." Another satellite service that must overcome the Iridium question is Teledesic, a $10 billion-plus scheme backed by Bill Gates and cellular pioneer Craig McCaw. Teledesic plans to loft 288 satellites to construct a web of two-way connections sending data as fast as 64-megabits-per-second. Teledesic says its charges will be comparable to those of fixed-line services when it begins operations in late 2003 or early 2004. But analysts question whether there is a business in selling broadband service to the remote areas that cable-TV or phone lines won't reach. "The villagers of Somalia do not appear to have the ability, let alone the willingness, to pay for something like this," says James E. Freidell, president of Daedalian Technologies Ltd., a consultancy in Littleton, Colo.

Indeed, in the long run, satellites may serve as "backbones" for broadband communications, but are unlikely to play a big role in the largest consumer and business communications markets where phone and cable-TV networks are ubiquitous. "In the cities, fiber's so well established it will be hard for satellites to compete," says Christopher Baugh, an analyst at Pioneer Consulting.

For now, the future of the satellite phones may ride on the kickoff of Globalstar. If its business plan orbits successfully, it will prove that Iridium's failure was a fluke. If not, Iridium won't be the last satellite venture to crash and burn. By Steven V. Brull in Los Angeles with Janet Rae-Dupree in San MateoReturn to top

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