‘The Stupid Rich’: The Untapped Satellite Phone Market?

By Roger Rusch

Nearly 20 years ago, mobile telephone service was transformed by the development of cellular networks. Airtime service prices were high, and the telephones were costly and bulky. Originally, the telephones were installed in vehicles. Many doubters thought that that cellular service would have limited appeal. Some thought that a mobile telephone was as important as a second Jaguar sports car. The sarcastic remark implied that only a tiny portion of the population would be willing to pay for terrestrial mobile telephone service. That conventional wisdom was wrong because many people were willing to pay high prices for convenience. Today, cellular prices are much lower and, consequently, more than 1.5 billion people use wireless telephones.

When satellite telephone systems were proposed over 10 years ago, there was enormous excitement about the potential service for affluent business travelers. At that time, it was predicted that the airtime tariff would be $3 per minute. Some thought that this fare was extraordinarily high. Others expected the business to develop the way cellular had. A friend of mine commented that the only addressable markets for satellite phone service were people who did not care about the cost of service, a group he called “the stupid rich.”

A mass market for satellite phone service did not develop as planned. When we look more deeply, after five years of satellite phone service, there are about 700,000 users of satellite telephones who are willing to pay relatively high prices for service. There appears to be a small, yet important, market for satellite telephone service.

Most business plans for new satellite services identify a range of niche markets that could be served. The cases already have been made for video distribution and broadcasting by satellite. Customers generally are well satisfied with the quality of these services, and the business case is strong. Certainly, many market segments have been explored, but there may be a different approach that could identify new opportunities.

Finding the Stupid Rich

Today, several new satellite phone services, including broadband, are emerging. A good approach for operators to take would be to identify governments, institutions, companies, groups or individuals that have unsatisfied needs and are willing to pay a premium price for a high quality service. Prime customers consider high-performance, reliability, dependability, and responsiveness to be paramount. Make sure that the highest level of service is delivered.

Airtime pricing is a critical issue that is central to every business case. If the price is too high, few prospective users will become subscribers. If the price is too low, revenue will not support the service. Some new satellite business cases have grossly overestimated demand and overbuilt capacity. Many earlier forecasts for satellite telephone service were more than a factor of 10 higher than the actual number of subscribers.

Tremendous Overcapacity

Consequently, tremendous over-capacity was built, and the capital and operating costs were excessive. There was no realistic way to provide affordable service prices for the small subscriber base, and three of the most prominent satellite phone service companies filed for bankruptcy protection. The lesson is to reduce expectations substantially and build system capacity that matches realistic demand. This might mean that service prices will be somewhat higher and that the customer base will be limited, but the business still could be profitable if properly managed. Inmarsat is an outstanding example of managing a micro market.

Satellites are inherently expensive, but they can be used to provide invaluable services that are superior to terrestrial alternatives. The trick is to match satellite capability and capacity to customers who are willing to pay the price.

Roger Rusch is the president of TelAstra He can be reached at 310/373-1925 or via e-mail at [email protected].