Global Satellite Telephony Competitors Sharpen Knives for Tough '09

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

The threecompanies ? IridiumSatellite LLC, Globalstar Inc. and Inmarsat ? have never been shy aboutdrawing knives on each other. But 2009 presents each with reasons to be more,not less, aggressive.

ForBethesda, Md.-based Iridium, 2009 will almost certainly include an effort to goafter the subscriber base of Milpitas, Calif.-based Globalstar with specialvigor. Globalstar faces the challenge of making payments to build itssecond-generation 48-satellite constellation as its existing satellitescontinue to suffer on-board failures that make voice calls increasinglydifficult.

In a Dec. 3conference call with investors, Iridium Chief Executive Matt Desch headlinedthe company's ability, in the first nine months of 2008, to lure more than4,500 former Globalstar customers as part of what he called the "Trade Upto Iridium" program specially designed for Globalstar subscribers.

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

BothIridium and Globalstar face fresh competition, starting in late 2009, fromLondon-based Inmarsat, the profitable mobile satellite services provider thatis now entering the hand-held satellite telephone end of the business tocompete with Globalstar and Iridium.

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

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

But Deschexpressed doubts about Inmarsat's plans.

"Inmarsathas 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, asidefrom the fact that they've spent a lot of money on it, is that they want itpriced at $500. We're skeptical that that will be the price it comes in at. Andwhen it comes, we don't think it will be a real competitor. Our [handsets] workanywhere in the world. Theirs will cover only 70 percent."

Inmarsat'shandsets will be linked to the three Inmarsat 4 satellites in geostationaryorbit over the equator. Geostationary satellites do not cover the polarregions, a geographic market that Inmarsat Chief Executive Andrew Sukawaty sayshe will happily concede to Iridium and Globalstar.

Iridium isdoing well financially for the moment, but it purchased its satelliteconstellation following a bankruptcy, for pennies on the dollar, and is nowfacing a $2.7 billion capital investment in its 66-satellite second-generationsystem.

Desch saidthe company expects to select a second-generation prime contractor by June2009, with the first satellites launched in 2014 and the full constellationoperational in 2016.

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

Sukawatyagreed that the introduction of the Inmarsat hand-held telephone is behindschedule, but he said that is only because of the delays in the launch of thethird and last Inmarsat-4 satellite, over the Pacific Ocean region. Theaddition of the third spacecraft gives Inmarsat-4 users an unbroken coveragelink worldwide except for the poles.

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

Inmarsathas said it is aiming to take a 10 percent share of the globalsatellite-telephone market, and that the overall market for satellitetelephones will not grow much in the coming years despite the competition fromnew U.S. players including ICO Global Communications, TerreStar Corp. andSkyTerra in addition to the three current global systems and Thuraya SatelliteCommunications Co. of the United Arab Emirates, which covers Africa,the MiddleEast and Asia.

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

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

TMFspeculates that, given the anemic near-term prospects, Inmarsat may be enteringthe hand-held market only to sap revenues from Iridium and make it impossiblefor Iridium to fund its second-generation constellation, which would offermore-robust competition to Inmarsat's core maritime market.

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