DOWN TO EARTH : New Generation of Low-Orbiting Communications Satellites Has Lofty Ambitions
For decades, only space scientists seemed interested in satellites. But this winter, after years of being hamstrung by regulatory and financial obstacles, some of the biggest names in communications will begin launching payloads into orbit to provide voice, data, paging and fax services for customers around the globe.
The new satellite ventures have been encouraged by the worldwide deregulation of the communications industry and heartened by the success of digital television, which has attracted 4 million subscribers to video programming broadcast via satellite.
But the coming generation of satellites is designed to serve much greater ambitions--to leapfrog telephones and TV and become the most pervasive medium of communications yet.
Supporters of so-called low-Earth-orbiting satellites, or LEOs, envision an omnipresent celestial network allowing people in even the most remote regions of the planet to keep in touch via hand-held receivers no larger than cellular phones.
Already some global communications satellite systems are up and running. Two satellites operated by Dulles, Va.-based Orbcomm Global now provide two-way paging and other services in North America for $15 a month.
Orbcomm’s business rests on a significant technological breakthrough: its development of a suitcase-size, 95-pound satellite that could be launched for about one-twentieth the cost of a conventional $500-million, 5,000-pound satellite.
To be truly serviceable, however, an extraterrestrial global communications network will have to resemble Orbcomm on a much larger scale. Experts say construction of such a system could wind up being one of the most costly and technically challenging ventures in communications history.
Satellite communications involve a complex and costly mix of components located on Earth as well as in space.
The biggest payloads, gigantic geostationary satellites twice the size of dump trucks and weighing as much as 3 tons each, orbit 25,700 miles above Earth. Because that distance renders their signals relatively weak, they require huge Earth-based dishes or powerful and heavy handsets.
The newly developed low-Earth-orbiting satellites offer several advantages over their big cousins. For one thing, they orbit at 500 miles to 1,500 miles above Earth, allowing them to transmit signals without the troublesome half-second delay characteristic of geosynchronous satellites.
Because they are lighter and are perched on shallower orbits, they are cheaper to launch.
Signals relayed by the LEOs remain stronger thanks to the shorter distances, so they are compatible with handsets the size of today’s cellular phones. Unlike cellular systems, however, which restrict users to continental or regional networks, the new satellite systems can operate worldwide, allowing customers to use one phone number and one handset wherever they go.
There are some downsides. The wandering LEOs’ orbits mean it takes several satellites working together to ensure full-time coverage of any region. Furthermore, the Earth’s gravity pulls the smaller LEOs out of orbit after only about five years aloft, compared with the roughly 12 years geostationary satellites can stay in place.
Nevertheless, the units have turned satellite communications into one of telecom’s hottest fields.
More than a dozen groups--ranging from the ambitious 66-satellite Iridium project, backed by chip maker Motorola Inc. and 16 others, to the regionally focused Asia Pacific Mobile Telecommunications--are planning to spend about $20 billion over the next decade to launch roughly 1,200 artificial moons. Orbcomm alone plans to add 26 satellites to its current two by the end of 1997. The projected cost is $350 million.
What drives this investment are statistics showing that more than half the world’s population has never made a telephone call--suggesting that the potential for growth is enormous if service can be extended to remote villages and neighborhoods. There are only about 800 million phones serving a global population of about 6 billion people, estimates Gregory E. Staples, editor of TeleGeography, a Washington publication that tracks worldwide telephone use.
Although the financial return from serving isolated communities may be small, industry visionaries have their eyes on growing Third World countries that are so vast that serving them via conventional land lines is costly and impractical.
“The telephone penetration in countries like Brazil, China and India is minuscule compared to the potential [telephone] capacity offered by satellites,” said Bernard L. Schwartz, chairman of San Jose-based Globalstar Telecommunications Ltd. “The worldwide demand is huge. We are poised . . . to launch a new service that will bring remote parts of the globe onto the information highway.”
Other potential markets include globe-trotting business travelers. Some systems, such as Kirkland, Wash.-based Teledesic Corp.’s ambitious 840-satellite system, seek to launch enough transmission capacity and speed to serve personal computer users seeking faster access to the Internet.
For all that, launching communications satellites is a task fraught with huge financial and technical risks.
Operators will need not only deep pockets but exceptional political and strategic skills to outmaneuver the red-hot cellular industry, which is signing up more than 30,000 new customers a day in certain overseas markets.
In developing countries, cellular phones and other terrestrial wireless networks “are growing at a 70% annual rate--and it shows no signs of slowing up,” said Wheaton, Md., telecom economist Herschel Shosteck. “There will be plenty of terrestrial service, whether it’s wired or wireless, by the time most of these satellites are up and running.”
Adds Scott Blake Harris, a Washington communications lawyer who served as head of the International Bureau at the Federal Communications Commission: “The big issue for all of these satellite operators is market access around the world. I think ultimately they will get such access. But the process of putting up satellites and gaining access is not going to be a cakewalk.”
Indeed, Reston, Va.-based American Mobile Satellite Corp., which has only a single satellite offering commercial phone service in North America, has had a tough time attracting customers and been beset by technical and financial setbacks, acknowledged spokeswoman Renate Brown Neely.
The company’s 1985 satellite launch was delayed for months. Once in orbit, the satellite suffered electrical damage when it was accidentally overpowered by a company engineer. Since it began operating in January, the service has attracted only about 15,500 subscribers, a small fraction of the 100,000 the company says it needs to break even.
“We’re nine months behind schedule,” Neely said. “Demand has not been what we expected.”
Such dire talk doesn’t faze Robert W. Kinzie, chairman of Washington-based Iridium Inc., which plans to launch the first of its 66 satellites this fall.
“We don’t see cellular as a threat, because cellular customers are our [potential] customers,” Kinzie said. “You can’t use a cellular phone everywhere. What we are going to do is combine cellular with Iridium and provide better [wireless communications] penetration around the world.”
Many satellite executives believe they can deliver these high-tech advantages at bargain-basement prices: about $2 to $3 a minute anywhere on the planet, according to Globalstar executives. That’s far more expensive than direct dialing with a regular phone. But it is competitive with long-distance dialing by cellular phone.
For all that, the nature and scale of satellite communications are still on the technological drawing board. Two main kinds of systems will be competing for supremacy in the skies: little LEOs like Orbcomm and General Electric Co.’s Starsys Global Positioning Inc. satellites that focus on providing paging and other relatively modest services, and big LEOs like Globalstar, Iridium and TRW Inc.’s Odyssey, which aim to provide businesses and consumers with wide-scale voice, data and fax services.
Even more ambitious is Teledesic, a $9-billion, 840-satellite venture backed by Microsoft Corp. Chairman Bill Gates and cellular phone entrepreneur Craig McCaw, which is proposing a low-Earth-orbiting satellite network with enough capacity to transmit real-time video.
“Most people just assume our system is like Iridium on steroids,” said W. Russell Daggatt, president of Teledesic. “But what we are trying to build is an entirely new open, distributed network” that would be modeled after the Internet rather than wireless phone service. Daggatt says his 840 satellites will have more than 1,000 times the message capacity of most Internet access lines, which he noted are already groaning under skyrocketing demand.
Enthusiasm like Daggatt’s represents a marked turnaround from only a year ago. Back then, the outlook for most satellite projects was decidedly downbeat.
Investor response was so tepid to Iridium’s proposed bond issue last fall that Motorola yanked a $300-million offering for the satellite network in September. The next month, Globalstar was forced to sideline a planned $400-million debt offering because of lack of investor interest.
Both companies eventually did successfully tap financial markets once investors made an about-face.
After completing a public equity offering last year for a disappointing $20 a share, for instance, Globalstar--backed by aerospace giant Loral Corp., San Diego-based communications equipment maker Qualcomm Inc. and wireless phone carrier AirTouch Communications Inc. of San Francisco--has seen its stock price more than double, to about $43 this month.
The company says it has now secured more than 80% of the financing for the estimated $2.2-billion, 48-satellite project, including infusions from France’s giant industrial group Alcatel and Brazilian newspaper magnate Jose Antonio do Nascimento Brito.
Meanwhile, the Iridium project has concluded private financing within its existing investor group, which includes Motorola, Sprint Corp., Korean Mobile Telecom and 14 other firms. Iridium has boosted its total capital base to $2.6 billion from approximately $1.6 billion at the start of the year.
Though the amount raised so far is still short of the $3.4 billion the company says it needs to complete the 66-satellite project, Iridium’s Kinzie said a $750-million bank loan recently secured by his company’s lead banks as part of the firm’s $2.6-billion financial war chest was “oversubscribed” by the 62 participating lenders. Based on such enthusiasm, Kinzie said, he is optimistic that Iridium will meet all of its financial goals.
“The whole progression of communications is how to improve the ability of the consumers to communicate,” Kinzie said. “We are just another step up in the chain . . . and will break even with only 1 million subscribers” worldwide, he said.
Others say they can succeed by serving even smaller niche markets.
“Our business plan calls for only 220,000 subscribers in Brazil, 200,000 in the U.S.,” said Globalstar’s Schwartz. “The amount of penetration for us to break even is not that great.”
The numbers are beginning to sink in on Wall Street, where some investors no longer view mobile satellites as a financial long shot.
“When some of these companies first tried to do deals the [prospects for] cash flow was three to four years out; now much more has been accomplished and some of the risk has been taken out and cash flow is only one or two years out,” said Howard Udis, a bond manager and vice president at SunAmerica Asset Management. “From the standpoint of some people, these projects don’t look quite as risky as they did a year ago.”
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Low Riders
A new generation of smaller, lighter and lower-orbiting communications satellites, known as LEOs (for low-Earth-orbiting), will soon be cluttering the skies. A look at how they work:
1. Most present-day communications satellites, known as GEOs, are geostationary, meaning that because of their high orbit--25,700 miles--they maintain a fixed position relative to the Earth’s surface. A global geostationary system can be built with as few as three satellites because their high orbit enables their signals to reach a vast area of the planet.
2. The high orbit also means it can take up to half a second for a ground signal to be relayed back to Earth, causing annoying delays in phone conversations.
3. LEO satellites, some of which weigh less than 500 pounds, orbit at only 500 to 1,500 miles above Earth. The smaller size makes them much more economical to launch: $25 million to $45 million to place three to six in orbit, compared with $500 million to launch a single GEO satellite, which weighs between 5,000 and 7,000 pounds.
4. The lower orbit, however, means that at least 50 satellites are needed for a worldwide voice communications system. In addition, life spans of the LEOs are just four to five years, compared with 10 to 12 for a GEO.
5. Because the lower orbit causes the LEO satellite to frequently move out of range of the transmission dish on Earth, calls need to be routed among satellites to maintain a continuous connection. One company, Iridium Inc., which plans to launch a network of 66 satellites, uses one frequency to pass signals among satellites and another frequency for routing the calls back to the ground.
6. Individual subscribers will be able to use a dual-mode phone that will be able to operate in a conventional cellular system when one is in range, or switch to the satellite phone system. In remote and undeveloped areas that currently lack phone service, satellite “phone booths” and multi-line systems that wire multiple phones to a single satellite connection could be used.
Look Who’s Talking
A look at some of the new communication satellite projects:
BIG LEO SYSTEMS: Iridium
DESCRIPTION: 66-satellite voice, messaging system backed by Motorola, Raytheon, Siemens, Lockheed Martin and 13 other firms. Initial launch date: fall
COST: $3.5 billion
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BIG LEO SYSTEMS: Globalstar
DESCRIPTION: 48-satellite voice, messaging system backed by Loral, Qualcomm, Alcatel and others. Initial launch date: 1997
COST: $2.2 billion
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BIG LEO SYSTEMS: ICO Global
DESCRIPTION: 10-satellite wireless telephone system launched by the international consortium of Inmarsat, later spun off and backed by Singapore Telecom, Computer Sciences and others. Initial launch date: 1998.
COST: $2.6 billion
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BIG LEO SYSTEMS: Teledesic
DESCRIPTION: 840-satellite, high-speed broad-band voice data network launched by Microsoft Chairman Bill Gates and cellular mogul Craig McCaw. Still seeking investors. Initial launch date: by 2000
COST: $10 billion (est.)
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LITTLE LEOS: Orbcomm Global
DESCRIPTION: 28-satellite paging and equipment-monitoring system backed by Teleglobe and the Virginia aerospace firm Orbital Sciences. Initial satellite was launched last year.
COST: $360 million
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LITTLE LEOS: Starsys Global
DESCRIPTION: Six- to 24-satellite paging and tracking positioning system backed by General Electric and a consortium of French companies. Initial launch date: 1997.
COST: $170 million to $700 million
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GEOSTATIONARY: American Mobile
DESCRIPTION: Single geo-stationary wireless phone satellite covering North America and backed by Hughes, AT&T; and Singapore Telecom. Initial launch was last year.
COST: $500 million
