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4 LEO CARRIERS TO GARNER 80 PERCENT OF BUSINESS

Several low-earth-orbit satellite systems will have initial launches this year, marking the beginning of services that a Washington, D.C., consulting firm says “will fill the gaps other wireless systems don’t cover.”

Big LEOs and medium earth orbit systems will not only be viable but will thrive in the evolving personal communications services marketplace, according to a new study by C.A. Ingley & Co.

The study focuses on the big four satellite communications companies-Iridium Inc., Globalstar L.P., TRW’s Odyssey and ICO Global Communications. The services initially will transmit voice and data.

The first system to launch will not necessarily be the most successful, states the Ingley study. “Rather, the most successful system will be the one that has a market driven service mix and market driven technology … which must occur on three levels-billing features and functionality, handset features and functionality, service mix with diverse features and functionality,” the study stated.

Iridium is expected to launch its first set of satellites during the first quarter, using a McDonnell Douglas Delta II rocket from the Vandenberg Air Force Base in California. Globalstar plans to launch Aug. 1 from Cape Canaveral, also using a McDonnell Douglas Delta II rocket. Iridium and Globalstar are scheduled to have global satellite services by 1999. London-based ICO Global Communications is scheduled to be operational by 2002. Odyssey is slated to be in service about 2004.

By 2002, when three of the four big LEOs are operational, the business will grow quickly, “creating their own unique market niches, benefiting from the expanding cellular customer base as well as customer bases from other wireless systems,” according to the report.

By the time Odyssey enters the market in 2004, there will be about 14 million Big LEO subscribers, Ingley predicted.

Big LEO revenue and subscriber levels will grow in a pattern similar to that of the U.S. cellular market during the 1980s. By 2004, service revenues will reach $13 billion.

The market will evolve in three phases. The first subscribers will be international business executives, primarily in the more developed economies of the world. Ingley said big LEOs could erode the calling card market, which is one of the highest-margin endeavors for U.S. long-distance carriers. “A percentage of calling card users will turn in their plastic for the convenience of a big LEO global terminal,” Ingley said.

During the second and third phases, the momentum of growth will climb because big LEOs can provide instant infrastructure to less developed countries, helping them leap into the information age, the report states.

Ingley expects the four big LEOs to capture 80 percent of the market, with the remaining 20 percent going to other big LEOs and competing regional mobile satellite services.

Globalstar, ICO and Iridium will have similar market percentages, although Iridium’s recent change in business strategy may affect that outcome. Iridium now intends to address both the cellular and satellite handheld terminal marketplace, “which may shift the company’s focus away from the space segment, potentially reducing its market share,” the report stated.

The Odyssey system, coming online later than the other three LEOs, may capture a slightly lower percentage of the market, Ingley said.

A financial review of the systems indicates that they will all be profitable. “One variable impacting profitability is the life of the satellites and the cost of any early implementation of a follow-on satellite generation,” the report said.

Another variable is price. “Although all services are currently priced differently, it is unclear how long that will last once the systems all reach the marketplace.”

As a whole, telecommunications systems are becoming integrated, bringing together a variety of wired and wireless transmission methods for voice, data, video and entertainment. “Big LEOs provide an important link to help form this integrated system,” Ingley said.

Iridium is led by Motorola Inc. and includes investors such as Lockheed Corp. The prime contractor for Globalstar is Space Systems/Loral Corp. with investments from Qualcomm Inc. and AirTouch Communications Inc.

The Odyssey system is led by TRW. Hughes Electronics Co. is the prime contractor for ICO, with Comsat as one of the partners.

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