The fortunes of Dulles, Va.-based mobile data services provider Orbcomm rose last week when the company completed a $26 million equity financing that included the participation of the world’s largest satellite operator, Luxembourg-based SES Global [SES].

Orbcomm plans to use the funding to grow its business aggressively by expanding beyond its current focus of offering mobile services in North America to operating worldwide and adding fixed service applications. With little fanfare, Orbcomm has grown its revenue during the past few years since emerging from a financial restructuring to attract the investment support of mighty SES; OHB Technology A.G., a European space technology company and part of the Fuchs-Gruppe; and a group of financial investors.

For SES, Orbcomm would help it enter markets more suited to narrowband, low-Earth-orbit (LEO) service to build on the broadband services that the Luxembourg-based operator now provides. The partnership would allow SES to access markets and customers that cater to Orbcomm’s services and price points.

Robert Bednarek, executive vice president of corporate development at SES Global, said Orbcomm gives SES a unique opportunity to participate in the growing market for global, satellite-based fixed and mobile data services. Another benefit is that Orbcomm’s well-developed, low-cost terminal equipment and service offerings fill the needs of many enterprise and government customers of SES, he added.

“Orbcomm has a very interesting space infrastructure that supports the development of many different potential applications, particularly those related to mobility and security,” Bednarek told Satellite News Senior Editor Paul Dykewicz during a phone interview. “We believe that SES can help bring value to Orbcomm based on our past experience with the operation of infrastructure and the development of satellite applications.”

Strong benefits from strategic partnership with SES also should flow to Orbcomm. Funding from SES, OHB and other investors will increase the credibility of Orbcomm with its global customers, says Don Franco, Orbcomm’s co-CEO. The support of strategic investors also is an endorsement of Orbcomm’s business model and cements its position as a leader in the emerging mobile data industry, he adds.

Favorable Reaction

Andrea Maleter, technical director at Bethesda, Md.-based market research firm Futron Corp., said, “This looks like at least a double-play for SES, which has already shown, with its WorldSat commitment to serving Connexion by Boeing, that it understands that the lines between fixed and mobile services are increasingly blurred. The investment in Orbcomm is another step in this direction. At the same time, Orbcomm’s asset-tracking capabilities also play to the homeland security markets that are key to SES Americom.”

Tim Logue, a satellite and telecommunications consultant in the Washington office of the Coudert Brothers law firm, says, “This is certainly good news for Orbcomm and the satellite industry. In the post-9/11 world, smart investors are realizing that there are many opportunities for low data-rate tracking and monitoring. This was an area in which GE Americom, in fact, had looked at very carefully in the 1990s. It’s encouraging that its successor sees it as a profitable niche in this decade.”

The strategic business plan that Orbcomm has followed since it emerged debt-free from an April 2000 restructuring was to focus on the United States and Canada.

In North America, Orbcomm sells directly to resellers who then sell to the end users. Outside of the United States and Canada, Orbcomm services are sold through country representatives. They then sell to resellers who sell to the end users.

The reasoning is that regulatory licenses generally need to be held by an entity that is native to an individual country, says Marc Eisenberg, Orbcomm’s executive vice president of sales and marketing. “With all the countries in the world, you can imagine the challenges involved in obtaining regulatory licenses globally and providing worldwide service,” he added.

Orbcomm now uses resellers who typically specialize in serving one particular market, such as the trucking, trailer or marine segments. “Our goal is to team up with the right resellers who are leaders in each market segment,” Eisenberg said. For example, Orbcomm works with Volvo and its affiliates on the OEM side of the trucking market. Orbcomm also works with Xata, an aftermarket reseller in the trucking industry.

In the trailer market segment, Orbcomm has teamed with General Electric’s Tip division, the largest trailer-leasing company in the world. Tip already has a sales force of mobile maintenance centers and is a “natural partner” for Orbcomm, according to Eisenberg.

For the heavy equipment segment, Orbcomm’s largest reseller is Caterpillar [CAT], the largest OEM manufacturer of heavy equipment in the world. With those relationships in place, Orbcomm is looking to expand its reach by tapping into abundant opportunities for fixed applications.

“There are eight or nine fixed asset resellers who will be added to the fold within the next six to eight months,” Eisenberg said. The fixed applications include the monitoring of utility meters, storage tanks, pipelines, propane tanks, oil and gas wells, and turn-on and shut-off commands for remotely located electrical devices.

Another big change between the pre-bankruptcy and post-bankruptcy versions of Orbcomm is the debt-free status of the new entity.

“As a debt-free company, we are able to hit price points that meet market needs,” Eisenberg says. “The company runs at one-eighth the cost structure of the previous company.”

However, Orbcomm’s previous owners made a number of good moves before running out of money. One was Orbcomm’s design of an “incredible” Web-based network had the foresight to meet today’s user needs, Eisenberg says. A second technical advantage of the Orbcomm system is its “simplicity.” Orbcomm’s system architecture allowed the satellites to cost just a fraction of those required for the Big LEO voice systems.

Orbcomm also relies on packetized data to increase system capacity and message fallout, Eisenberg said. Iridium Satellite LLC uses an open-channel architecture in which the satellites communicate with each other. Because Orbcomm data is packetized, the end user communicates with one satellite at a time.

“Satellite failures cause a delay that can range between one second and minutes to deliver a signal,” Eisenberg said. “With Orbcomm, if an in-orbit satellite fails, the message is not lost. With Big LEOs, a message can be lost.”

In the marketplace, it is “very rare” for Orbcomm to face either of the Big LEO voice services, Iridium or Globalstar, in bidding to serve a customer, Eisenberg said, adding, “Orbcomm’s competitors vary depending on the application, which makes us unique.” Rivals include paging, cellular and other communications companies.

Orbcomm also is nearing “profitability,” Eisenberg said. That goal should be achieved during the first half of this year when the company reaches cash flow breakeven. The key has been the company’s use of value-added resellers to drive sales. The improved financial picture also has encouraged company officials to begin planning the launch of next- generation satellites during 2006, similar to those used today but including a few new features.

RFPs (request for proposal) have been issued for the manufacture and launch for those next-generation Orbcomm satellites. “We will order 24 more satellites over the next five years to supplement the existing in-orbit fleet of 30 satellites,” Eisenberg said. None of Orbcomm’s 30 in-orbit satellites have failed since the company’s restructuring in April 2000. The company has achieved more than 99.99-percent message delivery, he added. –Paul Dykewicz