Mobile satellite service is an idea and a technology that today lies buried under the apprehension and disappointment of a number of major business deals gone bad. But about 10 years ago, the mobile satellite industry had an optimistic outlook on the future, one that envisioned giving people all over the world, even in the most remote places, the means to make a connection.
It is hard to pinpoint exactly when commercial mobile satellite voice service, or at least the idea of it, appeared. But around 1991, a consortium of telecommunications companies led by Loral Corp. and Qualcomm Inc. created Globalstar Telecommunications Ltd. The company wanted to put 48 low-earth-orbit satellites in space, crisscrossing the Earth in a maze of hardware capable of transmitting a signal just about anywhere.
A few years later in 1995, ICO Global Communications Ltd. formed in the United Kingdom to launch and oversee a constellation of 34 medium-earth-orbit satellites for data and voice communication. A still-fresh Globalstar also announced a series of joint ventures-the first of many established in practically every country in the world-with several companies wanting to provide MSS service in Africa, where the majority of countries averaged one landline phone per 211 people, and satellite phones had the potential to close a shocking telecommunications gap.
In hindsight, perhaps Globalstar should not have touted the “low-cost simplicity and easy adaptability” of its LEO satellite system. Even back in 1995, analysts saw trouble ahead and warned MSS would be expensive to start up and paying customers would be sparse. Economic and Management Consultants International Inc. said that by 2004, it expected Africa to place last in subscribers, accounting for about 1 percent of the worldwide demand for MSS.
The MSS bandwagon kept going however, egged on by the success of Inmarsat, which has been providing voice, fax and data communications to ships since the early 1980s. Everyone pointed to Inmarsat as evidence of demand, and it became a source of reassurance for nervous investors and customers.
The most infamous participant in the MSS saga emerged on the scene in 1997. The original Iridium L.L.C. launched into orbit on May 5, 1997, the first six satellites of a 66 low-earth-orbit satellite constellation following a series of delays. Iridium was the most aggressive and expensive MSS undertaking, raising approximately $5 billion in funds, mostly from Motorola Inc.
From the very beginning, for all the MSS companies trying to get their business off the ground, money was a crippling issue. No one had much trouble acquiring cash, the problem was large sums of it disappeared quickly with little hope of recovery. Iridium, Globalstar and others poured billions into satellites, launches and supporting infrastructure, which consequently drove the cost of handsets and minutes-per-use well beyond the financial reach of the average consumer, let alone the thousands of poor people in third-world countries for which Iridium, ICO and Globalstar’s brand of MSS was originally intended.
As Richard Smithies, director of the Space Technology & Telecommunications Group of BZW, the investment banking division of Barclays Bank plc, noted in 1997, “Rollout of a global mass market isn’t easy to do quickly.”
“There is a market but I am skeptical about the speed of the ramp-up and I don’t believe all the players will make it,” Smithies said.
As time passed, it became questionable as to whether any of the consumer mobile satellite voice service providers would make it. Iridium officially commenced service on Nov. 1, 1998. Moody’s Investors Service Inc. said in 1997 Iridium would need 350,000 subscribers by the end of first-quarter 1999 to reach positive cash flow, but by the time Iridium folded in March 2000, the company reported only about 55,000 total subscribers.
Globalstar officially launched in January 2000, and quickly swooped in to rescue those MSS subscribers abandoned by Iridium a few months later. The company tried to turn the bad situation around, recognizing that if one MSS player toppled, it could easily follow the same path. Much investor and consumer confidence was rooted in the success or failure of Iridium, and its surprisingly swift demise left everyone reeling.
“We take no joy in the outcome,” said Scott Webster, chairman and chief executive officer of mobile satellite asset tracking service provider Orbcomm Global L.P. “It’s certainly a dark day for the industry.”
While Iridium and Globalstar struggled to gain subscribers, ICO scrambled to launch its satellites. For all its efforts, and despite raising $3.1 billion, ICO ran out of money and entered Chapter 11 bankruptcy protection in August 1999. Three months later, cellular pioneer Craig McCaw led a group of investors who offered up $225 million in first-round financing to bail the company out.
Now known as New ICO, McCaw’s group eventually would pour a total of $1.2 billion into the company, investing the last $700 million in May 2000, which pulled it out of bankruptcy. McCaw also is part of a team of financial heavyweights backing Teledesic, a 10-year-old venture building a broadband “Internet in the sky.” New ICO, with 10 medium-earth-orbit satellites circling the globe, plans to launch voice and data service in 2003, and Teledesic plans to place 288 satellites in orbit and launch service in 2005.
A battered but functioning Globalstar continues to offer MSS. The company added data capability to its network last December. Determined not to go under, a short time later the company said it was suspending all payments on its funded debt. Globalstar says it has enough cash to keep going through the end of next year, but its future hangs in a delicate balance.
Perhaps if Iridium took the same approach and refused to pay back its debtors, it might still be around in its intended form, but instead, it hovered in a state of flux in the year following its closure while Motorola weighed what to do with the assets. A slew of buyout offers and a variety of lawsuits later, Motorola ended up swallowing billions in debt and a group of investors led by former Pan American World Airways President Dan Colussy bought Iridium’s assets last December for the unequivocally cheap price of $25 million.
Iridium emerged basically the same in practice, but much different in theory, and in doing so, brought the industry back to its roots, which are firmly planted in the maritime, oil, gas and mining industries. A new and improved Iridium Satellite L.L.C. serves almost exclusively industry customers, which have the money and need for MSS. Globalstar also recently announced a new marketing campaign directed squarely at industry pocketbooks.
The dream of giving everyone a chance to connect with others, no matter where one is in the world, is alive. MSS is an industry that paid dearly for its mistakes, but learned many valuable lessons in the process, and is striving to make a comeback with a new mission in mind.
