Global Satellite Telephony Competitors Sharpen Knives for Tough '09

by Peter B. De Selding, Paris, Space News Staff Writer

Date: 15 December 2008 Time: 11:53 AM ET

The already bare-fisted battle between the three companies offering global satellite-delivered voice and data services is likely to get even rougher in the coming months as each confronts investment or product-development milestones in an unfavorable global economy, industry officials said.

The three companies ? Iridium Satellite LLC, Globalstar Inc. and Inmarsat ? have never been shy about drawing knives on each other. But 2009 presents each with reasons to be more, not less, aggressive.

For Bethesda, Md.-based Iridium, 2009 will almost certainly include an effort to go after the subscriber base of Milpitas, Calif.-based Globalstar with special vigor. Globalstar faces the challenge of making payments to build its second-generation 48-satellite constellation as its existing satellites continue to suffer on-board failures that make voice calls increasingly difficult.

In a Dec. 3 conference call with investors, Iridium Chief Executive Matt Desch headlined the company's ability, in the first nine months of 2008, to lure more than 4,500 former Globalstar customers as part of what he called the "Trade Up to Iridium" program specially designed for Globalstar subscribers.

"The program has been a big success," Desch said. "It has accounted for 10 percent of our total new [subscriber] activations this year."

Both Iridium and Globalstar face fresh competition, starting in late 2009, from London-based Inmarsat, the profitable mobile satellite services provider that is now entering the hand-held satellite telephone end of the business to compete with Globalstar and Iridium.

Inmarsat has said it will price its handsets at about $500 retail, around one-third the cost of the the latest Iridium telephones.

Desch said Iridium's new hand-held model, the 9555, costs less to make than its predecessor but is nonetheless being marketed at a slightly higher price, giving the company room to drop prices later if the Inmarsat competition is strong.

But Desch expressed doubts about Inmarsat's plans.

"Inmarsat has been describing this for 24 months now, by six months or more, to 2010," Desch said in the conference call. "All anybody knows about this, aside from the fact that they've spent a lot of money on it, is that they want it priced at $500. We're skeptical that that will be the price it comes in at. And when it comes, we don't think it will be a real competitor. Our [handsets] work anywhere in the world. Theirs will cover only 70 percent."

Inmarsat's handsets will be linked to the three Inmarsat 4 satellites in geostationary orbit over the equator. Geostationary satellites do not cover the polar regions, a geographic market that Inmarsat Chief Executive Andrew Sukawaty says he will happily concede to Iridium and Globalstar.

Iridium is doing well financially for the moment, but it purchased its satellite constellation following a bankruptcy, for pennies on the dollar, and is now facing a $2.7 billion capital investment in its 66-satellite second-generation system.

Desch said the company expects to select a second-generation prime contractor by June 2009, with the first satellites launched in 2014 and the full constellation operational in 2016.

In a Dec. 10 interview, Sukawaty said Inmarsat is doubtful that Iridium's current satellites, already well beyond their stated service life of seven years, will function long enough to permit Iridium to avoid the same problem that Globalstar is having now.

Sukawaty agreed that the introduction of the Inmarsat hand-held telephone is behind schedule, but he said that is only because of the delays in the launch of the third and last Inmarsat-4 satellite, over the Pacific Ocean region. The addition of the third spacecraft gives Inmarsat-4 users an unbroken coverage link worldwide except for the poles.

Sukawaty denied that the telephones would not be available before 2010. "We are targeting the second half of 2009 for our handset," he said. "We are targeting a suggested retail price of $500. We think the market won't tolerate [Iridium's] $1,500 price when they have a $500 alternative."

Inmarsat has said it is aiming to take a 10 percent share of the global satellite-telephone market, and that the overall market for satellite telephones will not grow much in the coming years despite the competition from new U.S. players including ICO Global Communications, TerreStar Corp. and SkyTerra in addition to the three current global systems and Thuraya Satellite Communications Co. of the United Arab Emirates, which covers Africa, the Middle East and Asia.

A market assessment released Dec. 11 by TMF Associates of Menlo Park, Calif., offers support for that sober market forecast. The report, dated Nov. 30 and titled "MSS industry perspectives," estimates that global revenue from land-mobile voice systems, which has been declining for several years, will drop another 5 percent in 2008, to $569 million.

Growth will resume starting in 2010, but compound annual growth over the next four years will be only 7.6 percent, TMF forecasts.

TMF speculates that, given the anemic near-term prospects, Inmarsat may be entering the hand-held market only to sap revenues from Iridium and make it impossible for Iridium to fund its second-generation constellation, which would offer more-robust competition to Inmarsat's core maritime market.