Last year was not a good one for the satellite telephone business. First, the Motorola-led Iridium World Communications consortium bit the dust, followed by ICO Global Communications. So is Adi R. Adiwoso nervous? Not that he will admit. The Indonesian businessman insists his Asia Cellular Satellite (ACeS) will go ahead with its plan to launch a communications satellite in the coming weeks to deliver wireless-phone service from Japan to Sri Lanka. "Our system is different" from Iridium, Adiwoso assures.
That is a message that Adiwoso, 46, is trying harder than ever to convey. And the failure of competing satellite-phone ventures is but one of the doubts plaguing ACeS, a project conceived during Asia's boom years and backed by U.S. aerospace giant Lockheed Martin Corp. and a group of Indonesian, Thai, and Philippine companies. The satellite was supposed to be launched atop a Russian rocket last October, for example. But it was postponed while investigators probe why another Russian rocket failed to deliver a satellite into its proper orbit. There also are doubts about Adiwoso's Pasifik Satelit Nusantara (PSN), which owns 30% of ACeS. PSN is beset by steep losses, big debts, and links to the disgraced family of ousted strongman Suharto.
Still, investors seem willing to bet on Adiwoso. PSN's stock has more than doubled, to about $16 a share, after Merrill Lynch & Co. issued a bullish report in mid-November. That came despite $29 million in losses in 1999's first nine months on just $5.9 million in revenues. But after pumping some $750 million into ACeS over 15 years, the consortium that includes Philippine Long Distance Telephone Co. and Thai telecom firm Jasmine International is determined to press on.
PSN's success has long depended on political winds in Jakarta. Before the country's economy crashed in 1997, PSN was a prize asset of Bimantara Citra, the conglomerate controlled by Suharto's son Bambang Trihatmodjo. He entered the business in 1984, when the government began the first of several controversial transfers of satellites to companies controlled by Bambang. Now, with many of his businesses on the rocks, Bambang has even more riding on PSN.
Adiwoso insists the scheme can succeed where others flopped because it is much less ambitious, and its service will be more affordable. Whereas Iridium involved satellites positioned at various points above the earth to provide global coverage, ACeS calls for one satellite serving all of Asia. And while the Iridium satellites would hover at 1,400 km, ACeS's bird would be at 36,000 km. The higher orbit should double the satellite's life, to up to 15 years. Thus, "the time you have for payback is longer," says telecom analyst Jonathan Shaw of Schroder Securities in Hong Kong.
CHEAPER SERVICE. Because of ACeS's far lower cost structure, Adiwoso says most users will pay between 65 cents and 85 cents per minute, far cheaper than Iridium. What's more, unlike Iridium, ACeS's satellite-phone handsets could also be used for normal digital cellular service. Merrill estimates PSN will see revenues hit $122 million and turn profitable in 2001. Adiwoso claims ACeS would be able to break even with only 120,000 subscribers using the service an average of 1,000 minutes a month.
Big questions remain, of course. The handsets, costing $900 and weighing 205 grams, are much pricier and clunkier than today's sleek cell phones. Also, the telecom liberalization now sweeping Asia will bring new competition and technologies. "Cellular technology keeps getting better and better, and service is getting cheaper," cautions Hong Kong-based ABN Amro analyst Joe Locke.
Politics presents another wild card. Since Suharto's 1998 downfall, many lucrative franchises have been stripped away from his children. Also, Bambang's Bimantara owes $473 million to the Indonesian Bank Restructuring Agency, which could take over its PSN stake. Jakarta also may want to renegotiate with foreign stakeholders in PSN, including Hughes and Telesat Canada.
Adiwoso also must clean up PSN's finances. He's trying to restructure $190 million in loans. To raise cash, he wants to float a bond offering in Luxembourg---where it won't need review by a U.S. rating agency. "Why spend $50,000 to $100,000 for a rating that will be lower than junk?" he asks. Without new money, he can ill-afford new services, such as Net access via satellite.
But to stay in the game, Adiwoso desperately needs for the next satellite launch in Russia to be successful. Then PSN investors can only watch, wait, and hope that the project will stay aloft.