Multimedia Matters: MSS Survival–Cash And Credibility

Theresa Foley

The dust has cleared from the mobile satellite services (MSS) bankruptcies of the last few years, leaving a three-way contest among steady-sailing Inmarsat and its two restructured post-bankruptcy competitors for customers. With data services promoted as a niche in which the bankruptcy survivors can excel, it is worth comparing their strategies.

The companies, Inmarsat, Iridium and Globalstar, all operate fairly healthy satellite fleets and offer data services, although with different terminals, speeds, prices and capabilities. Beyond that, Inmarsat has the advantage of being financially sound and the disadvantage of being pricey. Iridium and Globalstar are saddled with damaged reputations, fewer subscribers and rather narrow raw data transmission rates, but they have the advantage of lower operating costs and prices, thanks to the bankruptcy filings. Watch for at least one of them to use this edge to attack Inmarsat’s lead by undercutting Inmarsat on price.

In the spring Inmarsat announced Swift64, a 64 kbps data service to corporate and private jets at $7-$15 per minute. By year end, Inmarsat plans to offer Swift64 to the commercial airline market for Internet access and e-mail, one of its steps in building on its Global Area Network (GAN) platform for higher speed mobile data. In 2000, it introduced a 64 kbps service to terrestrial mobile customers, which now has multiple users on many of this service’s 7,382 terminals. In late 2003, Inmarsat plans to launch its next generation system, Inmarsat 4, for a 432 kbps service to laptop computers.

Globalstar has dial-up type 9.6 kbps data services available via its dual-mode voice handsets that also operate on terrestrial CDMA and GSM networks. In the spring, it began offering a 28.8 kbps terminal from Sea Tel, a maritime telecom vendor, for a faster, data-only service.

Globalstar has plans to go even faster. Its investor/partner Qualcomm earlier this year demonstrated 144 kbps data speeds over Globalstar in tests of a new service that will be marketed to commercial aircraft owners for security and avionics uses.

Olof Lundberg, chairman of Globalstar LP, says mobile data has been “tomorrow’s application” for 20 years and is not going to immediately prop up MSS companies on its own. The problem is that data services can’t be sold “raw,” as voice services are, but must be integrated with applications that take a long time to develop and sell.

Iridium has been offering two data services since last June, one for dial-up access at 2.4 kbps and another “enhanced” direct Internet service that uses compression to reach 10 kbps. “We’re doing quite well with those services,” says Gino Picasso, CEO of Iridium Satellite LLC, who says customers who transmit data and voice use six times as many minutes as those who only make voice calls. Iridium believes that the interest in short burst messaging service for asset tracking, fleet management and remote monitoring is so strong that it is investing in a new service for these users, with introduction later in 2002.

Picasso and Lundberg believe that with time and the proper strategy, a new generation of MSS services can succeed. “The real issue is will there be more than Inmarsat over time, and who will that be?” says Lundberg. “I believe there will be more than one mobile operator, but there won’t be many. Those with financial backing and the most extensible platform will determine the outcome. The one that can aggregate the most and best services will be the strongest.”

But even with the $10 billion cost of putting the Iridium and Globalstar fleets into service wiped off their books by the bankruptcy filings, these companies may not be viable over the long-term. Even with operating costs reduced to $7 million a month, as Iridium has done, the numbers just may not work. To put this into perspective, consider that Globalstar took in only $6.4 million in revenue in 2001 on 24 million minutes of use. Globalstar has now restructured, but it reported a 2001 loss of $600 million with 60,000 customers.

Iridium releases no financial details, but Picasso claims that it will break even toward the third quarter of 2003. It has the advantage of a $3 million a month U.S. military contract, which will cover 40 percent of its annual $90-million operating cost this year. Iridium will have to do far better than Globalstar to cover its costs, and since the company won’t provide details on how it is doing in terms of subscribers or revenue, there is little to prove that it can cover its operating costs.

MaryAnn Elliott, CEO of Arrowhead Space and Telecommunications Inc., states that both Globalstar and Iridium are getting increased usage for deployed and emergency communications. In addition, all forms of MSS have been utilized by the military since September 11. MSS has proven once again that its capabilities are vital in disaster recovery and war fighting efforts, she says.

Beyond survival in 2002, the real battle is for credibility, followed by the one for second-generation systems. The idea of financing second generation systems for Globalstar and Iridium carries no weight in the mainstream financing community today. Despite that, Inmarsat is moving ahead with Inmarsat 4 undeterred, even though the concept appears to have increased in market risk since it was designed on the back of the collapsed dot.com economy and a 3G mobile service frenzy that is now gone. It is going to take more than just good technology for mobile data services to help turn tomorrow’s promises into a solid revenue-producing business today.

Theresa Foley is Via Satellite’s Senior Contributing Editor