MSS Companies Take Different Approaches To Growing Market

By | February 1, 2008 | Cover Story, Telecom

The demand for mobile services continues to grow, along with the number of companies offering solutions. The only common feature among companies within the mobile satellite service (MSS) segment is they deliver satellite service to mobile terminals. Each company brings a different business model using different types of satellites to provide services with various types of terminals. But there may be room for them all in the market.

The MSS market has suffered through its well-documented share of problems, especially the bankruptcies of the original low-Earth orbit (LEO) companies. But the LEO operators have rebounded to establish solid businesses and are developing their next-generation constellations, and a new generation of geostationary spacecraft also is taking steps to expand in a market that is projected to grow for the next several years.

NSR estimates the global MSS market will grow from 1.8 million in-service units in 2005 to more than 6.7 million units by the end of 2012, according to “Mobile Satellite Services, 3rd Edition,” released by the consulting firm in June. One indicator of the health of the sector is the entrance of new players such as Inmarsat, TerreStar, ICO Global Communications (ICO) and Mobile Satellite Ventures (MSV) in the satellite handheld business. “The MSS market has benefited over the last few years from renewed interest and investment, and innovative solutions with expanded service suites have brought greater capabilities to users for mobile voice, data, video and television,” says Claude Rousseau, analyst for NSR and author of the report.

Wholesale revenues were $1.3 billion in 2006, and the industry has found new markets in vertical industries operating in remote areas such as oil and gas, media, maritime, forestry, mining, or heavy construction, according to Euroconsult. By 2016, more than 2.8 million terminals are expected to be deployed around the globe, compared to 1.1 million in 2006, the Paris-based consultancy says in “World Mobile Satellite Communications Markets Survey, Prospects to 2016,” released in July.

Revenues in the MSS handheld market are projected to grow to $1.3 billion in 2016, but this growth may not benefit equally to all market players. Data transmissions and services will become increasingly dominant throughout time and provide the primary relay of growth to the MSS sector, with new applications like broadband communications and low data rate asset tracking and machine-to-machine communications about to take off, Euroconsult says. Technological advances in both satellites and terminals will allow higher data rate transmissions, enhanced capabilities and improved interfaces for the increasing communication needs of professional end users.

LEO Operators Moving To Second Generation

Mobile satellite operators have entered into a new investment cycle, with about 60 satellites for MSS geostationary (GEO) fleets or LEO constellations scheduled be launched throughout the next five years. More than $3.3 billion of debt capital have been raised by existing and prospective MSS operators since the end of 2004 to fuel these efforts, Euroconsult says.

Orbcomm operates a constellation of 29 LEO satellites that communicate via an FM radio frequency allowing for low-cost transceivers. The network architecture routes small datagrams using a store-and-forward technique. While the network is very good at routing small bits of data, network latency can range from seconds to minutes. “While our competitors are primarily voice networks, Orbcomm controls the lion’s share of the machine-to-machine market,” says Marc Eisenberg, Orbcomm’s vice president of sales. These applications involve monitoring and control of industrial assets and tracking of trucks and railcars. Eisenberg cites contracts with clients, including General Electric, Caterpillar, Wall-Mart, Hitachi, Volvo and Zeta as well as a multi-year contract, signed in May 2004, with the U.S. Coast Guard to track 65,000 ships as evidence of Orbcomm’s strong position.

Orbcomm issued an initial public offering in November 2006 to fund the development of a new constellation of satellites. The first 18 are scheduled to be launched in September 2011.

Iridium operates a constellation of 66 satellites and provides both voice and data services to government and commercial markets. “We serve the premium part of the market,” says Matt Desch, Iridium’s president. “Voice services are our core, but data service segment is growing much faster. Overall, Iridium has grown between 200 and 300 percent over the last several years. The growth can be attributed to the company’s distribution model. “The real secret isn’t the link,” he says. “It’s the value our partners bring. Given our rate of growth and customer satisfaction, we intend on challenging Inmarsat for market leadership within the next five to 10 years.”

The spacecraft in Iridium’s second-generation constellation, dubbed Next, will begin entering service in 2013 and usher in new, enhanced services. Iridium plans to spend more than $2 billion to build and deploy the constellation of 66 satellites. A portion of the cost funded through cash flow, which is about $60 million per year, and the remainder from capital markets and strategic partners. The prime contractor for the new spacecraft will not be announced for another year.

Globalstar operates the third major LEO constellation, consisting of 40 satellites. Globalstar has acknowledged problems with the S-band amplifiers on its spacecraft, which causes intermittent outages. “The attrition of the S-band amplifiers has caused interruptions with our voice service,” says Jay Monroe, Globalstar’s chairman and CEO. “We have developed a tool, which allows users to predict when service will be available.” Globalstar also has taken aggressive steps to deal with the problem, launching eight ground spares last year to replace satellites with faltering S-band amplifiers. In addition, Globalstar introduced aggressive pricing plans for simplex and duplex data services. “It is important to remember that the L-band amplifiers on all of our spacecraft work perfectly, totally without error,” he says.

The company has focused heavily on selling data services, which has enjoyed a significant uptake in the market due to low price and reliability. Globalstar also has taken aim at the GPS consumer market with a new product called Spot, which will be marketed though retail distribution channels with an anticipated 10,000 points of distribution in 2009. Globalstar has more than 300,000 subscribers but is shooting for several million with the introduction of Spot, Monroe says.

Based on the growth of the user base, Globalstar was able to raise funds for a new constellation of satellites. In late 2006 the company signed a contract with Thales Alenia to design, manufacture and launch 48 second-generation satellites, with the first scheduled to be in orbit in 2009.

Geostationary Players Prepare For New Services

At one point in the planning of its second-generation constellation, Globalstar was considering using three to four geostationary satellites to replicate its first-generation spacecraft. The company stayed with LEO satellites due to cost and schedule considerations, but several MSS companies are banking on geostationary spacecraft to power their business models.

Inmarsat, the originator of MSS services by providing satellite services to ships, operates the I-3 series of geosynchronous satellites, and has launched two of three planned I-4 satellites that will deliver Broadband Global Area Network services providing voice and data support up to 432 kilobits per second. Inmarsat markets services exclusively through distribution channels. “Our distribution partners are a very important part of our business model,” says Frank August, director of business development Americas at Inmarsat. “We have teamed up with leading companies in the maritime, aeronautical and land mobile business and develop specific services targeting those areas. It’s not so much that the link is satellite, it’s the applications that are enabled. It’s the portability of the satellite equipment and the availability of the bit stream. You need to be able to provide all the pieces.”

MSV has been providing voice services since the mid-1990s through two geostationary satellites. The company’s primary voice product utilizes push-to-talk handsets, with their primary market being the public safety and public service markets. MSV recently introduced its SMART (Satellite Mutual Aid Radio Talk Group) service, which allows one-to-one and one-to-all communications between handsets. The company provides service to more than 200,000 voice terminals.

MSV is counting heavily on ancillary terrestrial component services (ATC) to power its business in the future. ATC systems allow satellite operators to use their authorized satellite radio frequencies to integrate into their satellite service offerings a terrestrial wireless service that is similar to, but more limited than, cellular or PCS. “Chips can be integrated into cellular handsets, which will allow the seamless transition from a terrestrial network to satellite,” says spokesman Tom Surface. “This allows terrestrial carriers to augment service in rural areas or even in bad cells.” MSV is currently in discussions with terrestrial carriers about possible teaming agreements. Boeing is building a pair of geostationary satellites for MSV, which are expected to be launched into geosynchronous orbit in 2009 and 2010, respectively.

ICO has taken a circuitous route to where it is now. The company was scheduled to launch a constellation of medium-Earth orbit satellites in the 1990s, but the plan went awry and the former partners are still embroiled in a lawsuit. In 2000, Craig McCaw stepped in and redirected the company vision from a voice-based carrier to video-centric.

“ICO is focused on the consumer market,” says spokesman Chris Doherty. “Our new satellite will be launched in March and service is expected to commence later this year or in early 2009. Our service is known as mobile interactive media, and it contains three elements: video, interactive navigation and emergency assistance.”

Unlike the tiny video screens in cellular handsets, ICO’s receivers feature a significantly larger screen — ICO’s MIM technology will be integrated into a range of devices and the screen sizes will range from 4.5 to 10 inches, and ICO is the first company to deliver video to mobile devices using the new DVB-SH (DVB to satellite handhelds) standard, says Doherty. The service covering the United States will be delivered via satellite, with a complimentary network of terrestrial repeaters to saturate urban areas.

ICO will deliver eight to 15 video channels, which will include a variety of news, weather, children’s and sports programming. “While cellular companies may be able to deliver video in Los Angeles and Los Vegas, ICO can deliver video to your vehicle as you drive between [Los Angeles] and Las Vegas,” Doherty says. The system also allows simultaneous use of the interactive navigation system. ICO also believes strongly in their emergency assistance capabilities. “Satellite isn’t a good technology for high-volume voice services,” Doherty explained. “However, it is ideal for emergency messaging because it is readily available and has a ubiquitous footprint.”

Market Assessment

While the overall market forces look positive for MSS players, challenges remain, says Roger Rusch, president of the TelAstra consultancy. “Geostationary satellites are fundamentally less expensive to launch and operate. From that perspective, MSS companies are at a disadvantage if they are trying to provide the same services as those provided by companies operating geostationary satellites.”

Rusch also is skeptical about carriers who are banking on the hybridization of cellular and satellite networks. “All of these companies are perspiring raising enough money. There is a fallacy assuming that their spectrum is worth a large amount of money. How do you value pure spectrum? Spectrum only has value if you can make a profitable business out of it.” To interoperate seamlessly, the proposed hybrid cellular-satellite hybrids must use a common frequency. “This means that every cellular antenna, and probably most of the internal equipment at each cell site, must be changed out to allow satellite frequencies to be used, which is a major expense. We haven’t seen a single terrestrial wireless carrier move in this direction,” he says.

“The MSS sector is still a high-risk endeavor, and one risky business that many will be examining over the next few years is the MSS-ATC market” says Rousseau. Should MSS-ATC broadband operators attract large numbers of consumer and public agency subscribers, satellite handhelds will gain a stronger foothold than ever before in the traditional mobile voice and media sector. However, delays have pushed back the launch of services, and few partnerships for the ATC segment have been signed to date.

But MSS executives remain positive. “The whole nature of communications in the world has changed in the last 20 years, we have all become data junkies and everyone wants to be connected wherever they are.” This bodes well for all the MSS companies, says Monroe.

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