Dollars And Sense: A Closer Look: The ATC Promise

By Owen D. Kurtin

This column has focused extensively over the last two years on the transformation of the satellite sector by private equity purchasers in 2004 and the initial public offerings and merger and acquisition activity of 2005. While the events of these years demanded coverage, that focus has come to some extent at the expense of close examination of new services and technologies that are transforming the sector’s operating businesses. It is time to remedy that. In this new series of articles, to be interrupted as warranted by breaking news and transactional analysis, we will take a closer look at those new services and technologies. Our first "closer look" will be at ancillary terrestrial component (ATC) service.

ATC is a long-hoped for goal of the mobile satellite service (MSS) sector. In essence, ATC allows MSS operators to use terrestrial repeaters and other hardware and software devices to obtain and boost coverage of MSS signals in low coverage or blocked areas, such as high-density urban areas, where the high-margin subscriber base spends virtually all its time. Under operators’ current business plans, MSS signals would be accessed by a chip in otherwise ordinary-looking handsets that also offered conventional terrestrial wireless service. The handoff from terrestrial wireless to satellite service would be seamless from the end-user’s perspective. The incremental cost of satellite service over the steadily dropping terrestrial service rates would be made economically attractive to consumers, featuring monthly plans, prepaid rates, and other proven methods cribbed from the cellular industry.

The promise of ATC is to expand satellite telecommunications service from its current user base, the specialized needs of governmental, military, transportation, mining and other users for which terrestrial wireless does not suffice and create a true, consumer mass market for it. ATC operators hope to overlay a full coverage Internet Protocol (IP)- based network on terrestrial operators for broadband voice, data, video and multimedia telecommunications. In so doing, ATC may reduce or eliminate the need for landline networking for both enterprise and end-user customers and render satellite service as indispensable to the terrestrial component as the terrestrial component has turned out to be for the satellite operators.

ATC’s promise is aided by a harmonious convergence of events. The U.S. Federal Communications Commission (FCC) granted ATC authority to MSS operators in February 2005, at a time of recovery for the MSS industry in the wake of the bankruptcies of the late 1990s. In the first place, the FCC grant of ATC authority was itself a victory, coming as it did over the objections of terrestrial operators who claimed that the MSS spectrum would never have been licensed at rates as low as it was had it been known it would be available for terrestrial service.

Also, as Voice over Internet Protocol (VoIP), terrestrial landline and wireless telecommunications providers increase their market share in the United States and for international calls particularly, the promise of IP-based ATC satellite service functioning seamlessly in conjunction with the terrestrial component seems clear. Finally, MSS also has been rehabilitated by its obvious relevance to disaster recovery and emergency situations, as demonstrated by its use and availability in the wake of Hurricane Katrina and by the U.S. military in current operations.

ATC is going to be an expensive proposition, however, and one that Wall Street, admittedly burned by the first generation of MSS bankruptcies but far more sophisticated about satellite issues today, must finance if the industry players, Globalstar, Mobile Satellite Ventures, ICO and Terrestar, are to remain independent and succeed. Satellite fleet replacement and upgrades will be required, as will extensive ground station hardware and software. All four of the companies recently have accessed the debt and equity markets, or are in the process of doing so, but not yet at the level of billions of dollars yet that will be required for ultimate deployment. They also may become the strategic targets of terrestrial telecommunications providers, whether wireless, landline or cable.

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