The advent of ancillary terrestrial component, or ATC, will revolutionize the mobile satellite services industry in the long run, according to a new report from Northern Sky Research, a market research firm that focuses on the mobile satellite sector.
The prospects have brought renewed attention to the MSS space, in which a handful of companies have steadily built thriving but limited businesses following several high-profile failures in the late 1990s.
The Northern Sky Research report is bullish on the improved prospects for the ATC sector, projecting it to grow to $2.3 billion in revenues annually in 2010, when specialized, near-term demand-potentially from the U.S. government-will give way to consumer offerings and explosive growth.
That’s a rosy scenario, but like most projections it is rife with uncertainty.
The Federal Communications Commission brought renewed attention to the MSS industry-mostly from cellular providers crying foul over plans to integrate satellite and ground-based networks-first in February 2003 when the agency said it would allow MSS spectrum holders to use their spectrum for ancillary ground service to benefit consumers and strengthen competition, and then when it licensed 30 megahertz of spectrum to Mobile Satellite Ventures without charge. By terms of the spectrum allocation, MSV is obliged to develop an ATC network or return the spectrum. The company said it plans to build a $1 billion ATC network-a hybrid satellite-cellular technology-that will use a modified CDMA mobile phone that also operates as a satellite phone. The handsets would use a terrestrial network when in urban areas or indoors, but communicate directly with a satellite when the terrestrial network is not available.
“I think that ATC for now and the next two to three years is really a phenomenon,” said Jose del Rosario, Northern Sky’s senior analyst and author of the report. “Some are saying this is really a spectrum play. Thirty megahertz is a huge chunk, more than [cellular provider] T-Mobile [USA Inc.] has. To provide that much spectrum in a single chunk in the United States is viewed as an FCC attempt to mainstream this ATC application. The cellular operators, restricted by their current spectrum allocations, want that spectrum to provision 3G services and, typically, they’d have to buy it at auction. For MSV, it was free. One way for cellular players to obtain that spectrum is to buy MSV.”
For many years, the FCC has been trying to boost the teledensity rate-or the number of telephones available to a section of the population-in the United States to a level comparable to that of Western Europe, del Rosario said. Boosting U.S. teledensity to 90 percent requires offering cellular service in rural areas and, because those areas are sparsely populated, there is a lower return on investment.
“So, if I were the FCC,” del Rosario said, “and I wanted to boost teledensity rates and push digital divide programs, an ATC platform is perfect-it has the advantage of ubiquitous coverage. So, although it’s not explicit in the documents that support the FCC’s decision on granting MSV spectrum, I would speculate that the FCC felt that having ATC in the marketplace is a good bet to achieve higher teledensity rates.”
To provide full service in the U.S., MSV would have to launch a next-generation satellite-and has a pending contract with Boeing Corp. for such plans-and deploy 12,000 to 15,000 terrestrial radios.
“A cellular player could buy all those assets, plus the spectrum, and still make a valuable investment because the spectrum alone would cost about the same amount, if not more,” del Rosario added. “For MSV right now, that spectrum is part of its value proposition.”
Del Rosario said that cellular players are waiting in the wings. “I’m not saying they will try to buy MSV, but it’s a strong possibility, given the spectrum issue,” he added. Any cellular player heading down that path would be obliged to add ATC services to its cellular portfolio to satisfy FCC requirements.
Globalstar L.L.C. is currently licensed to use 11 megahertz of its spectrum to provision ATC services; a limited amount of spectrum, but enough that Globalstar could compete in the space. Inmarsat plc wants an ATC license as well, but FCC approval is pending.
For Iridium Satellite L.L.C., which has expressed “keen interest” in ATC, according to a company spokesman, it could provide an ATC-like service in partnership with a cellular operator, but according to del Rosario, such service is “not on their radar screen right now” as they grow their existing satellite business.
“If you look at the current MSS players, most of their business is actually outside the U.S., so the ATC `threat’ is not compelling yet,” he said.
If however U.S. homeland defense becomes a customer for disaster preparedness, ATC might take off, spurring competition.
The interest of the U.S. government, indeed, was on MSV’s mind when company Chief Executive Officer Alexander Good gave a demonstration of the technology on Capitol Hill last November, in the wake of Hurricane Katrina and its effect on traditional communications technologies along the storm-ravaged Gulf Coast.
“It’s a new technology, but there are public-safety issues that have to be addressed after Hurricane Katrina, and MSV’s and Globalstar’s positioning is good to tap that market first,” del Rosario concluded. “Everyone wants an `anchor tenant,’ however, before they can penetrate the consumer market. And the government/military market makes sense for this kind of technology.”
One wild card is the potential for a technological and marketing response from cellular providers. If a cellular carrier and handset vendor offer a well-priced handset and service that allows satellite-based backup to cellular service-either through a chipset or second antenna-consumers would have little reason to look elsewhere.
