Regulatory storm in a teacup

Posted in Globalstar, Iridium, Operators at 9:56 am by timfarrar

It seems a lot of noise is being made about the potential impact of Globalstar filing the license application for its second generation constellation with the French regulatory agency ANFR instead of the FCC. Indeed this was even raised as a concern on Iridium’s 3Q2009 results call yesterday. In our view this is basically a storm in a teacup: both Iridium and Globalstar are licensed to use particular parts of the Big LEO L-band frequency allocation (1610-1626.5MHz), and in the US the FCC decided (in Nov 2007) to share this spectrum equally between the two companies (Globalstar has the bottom 7.775MHz, Iridium the top 7.775MHz and the middle 0.95MHz is shared). However, in certain other countries (e.g. Russia), some of this band is reserved for Radioastronomy and Microwave Landing Systems and so Globalstar is unable to use much (in some cases any) of the lower 8MHz of the band. Thus Globalstar wants to keep operating up to 1621.35MHz as it was allowed to in the US before the FCC’s November 2007 ruling.

In theory, the FCC’s November 2007 ruling applied to the global operations of both systems, although in reality, Iridium would still need to seek a license from individual country regulators to operate below its originally authorized 1621.35-1626.5MHz frequency band, which may or may not have been granted. Iridium still has the opportunity to make this argument, even when Globalstar is licensed by ANFR, but it will not be able to seek sanctions against Globalstar by the FCC if it is unsuccessful and Globalstar remains authorized to operate some of its gateways up to 1621.35MHz. Instead, the licensing of the two systems will depend on the decisions of individual regulators.

Some observers have seen this as a potential problem for Iridium, but that’s not really the case. Iridium will certainly need to build the capability into its next generation system to adjust frequency allocations on a country by country basis, but that’s far from an insurmountable (software) challenge. The places where Iridium will need additional frequencies for broadband and/or voice services include the oceans (for evolutions of OpenPort), where there is unlikely to be an issue as there is relatively little Globalstar coverage, and a few key countries (e.g. Afghanistan) where support from the DoD may count in Iridium’s favor in securing additional spectrum. Thus we believe Iridium is unlikely to face any meaningful incremental capacity constraints as a result of this decision. Globalstar will benefit by avoiding potential regulatory sanctions that Iridium might have pushed the FCC to impose, but there are much bigger issues for both companies: in particular, whether sufficient growth potential remains in the handheld MSS market for all of the MSS operators to be successful.

On another topic, we’ve just released the latest report in our MSS information service, with extensive discussion of the outlook for ATC, the growth prospects for in-flight connectivity and the competition between Inmarsat and maritime VSAT. In the last few months we’ve also produced detailed profiles of Iridium and Thuraya, and will be releasing profiles and forecasts for Inmarsat and TerreStar in the near future. Subscribers to the research service include the majority of leading MSS operators, distributors, equipment suppliers and satellite manufacturers, as well as a number of investors in the MSS sector. As one MSS operator recently told us: “your reports are the only ones on the MSS sector that actually provide valuable insight for someone working in the industry”. According to another provider: “I base my business targets on your forecasts; they are the only projections that you can rely on to be realistic”.

If you are interested in finding out more about our research, then contact us for more details.


More details on the TerreStar Genus phone

Posted in Globalstar, Handheld, Iridium, Services, TerreStar at 12:07 pm by timfarrar

At the SATCON conference in New York this week, TerreStar was showing its Elektrobit Genus phone. The company had conducted live demos of calls over the satellite at the IACP conference in Denver the previous week (with reportedly very good results in terms of call quality), but unfortunately a similar opportunity wasn’t available in New York. Nevertheless a few interesting facts emerged about the phone.

Firstly you have to switch manually into satellite mode (via a menu selection) in order to use either voice or data over the satellite. This was not necessary from a technical perspective (the phone could have roamed automatically since the satellite is basically treated like an international GSM network), but was insisted on by AT&T so that users know they will incur roaming charges, and that they will not be able to get the same quality of service that they would expect from a terrestrial network (i.e. they will have to stand outside, and not be inside a building or a car).

Secondly, as shown in the picture below, there is an external antenna port, enabling a cradle-type device with an external antenna to be connected, so that adequate link margin is available in Northern Canada and Alaska. The external antenna is a quad helix antenna about 0.3 inches in diameter (about the size of the Thuraya antenna) and 3 inches in length which swings up from the back of the cradle in the same manner as the rotating antenna on the old Iridium 9505 phone. These cradles will be sold separately (pricing is unclear but we’d guess in the $100-$200 range) and will increase the handset volume by about 60%.
Terrestar Genus phone

Terrestar coverage

In the lower 48 states and southern Canada (i.e. below the red line in the map above) the Genus phone uses an internal patch antenna located at the right upper corner of the phone in the picture above. It will be particularly interesting to see how sensitive the call quality is to the orientation of the phone when it is being used in practice – users are instructed to hold the phone so that their fingers do not obstruct the link (per the sticker on the back of the phone), but if you are moving around, then inevitably your head will come between the phone and the satellite some of the time. TerreStar’s very large (i.e. very sensitive) satellite antenna will certainly help to close the link, but given how many arguments there have been on conference panels we’ve chaired in the past between proponents of getting the antenna clear of the head (i.e. Globalstar, Inmarsat and Iridium) and those who don’t believe an external antenna is needed (i.e. TerreStar and SkyTerra), this will be one of the first things to examine when the phones become available for testing.


Satellite phones: up, up and away?

Posted in Globalstar, Handheld, Inmarsat, Iridium, Operators, Services, TerreStar, Thuraya at 12:43 pm by timfarrar

Unfortunately its not new services, but the prices of current and future satellite phones and airtime that seem to be headed upwards. The last year has seen Iridium introduce its new, improved 9555 handset at a higher price than the 9505A that it replaced, with phones now selling for about $1500, while Thuraya has “simplified” (i.e. increased) its airtime pricing and introduced the more expensive ruggedized XT phone. Inmarsat admitted in June that its new GSPS handset may sell for up to $750 at launch in 2010, compared to the $500 retail price point it suggested previously. Even TerreStar has now indicated that its new handset may cost up to $800, with airtime pricing at “less than $1 per minute”.

We’ve commented before on how satellite phone revenues have been falling since 2005, and competition has certainly diminished as Globalstar has experienced problems with its two-way services over the last couple of years. However, it seems the consensus amongst current participants in the handheld MSS market is that there is little if any growth potential still left in satellite phones, and the actions of Iridium and Thuraya appear to indicate that their remaining customers are relatively price insensitive.

Even more surprising is that so far, at least, the new entrants do not seem to be particularly keen on shaking up the existing “premium price” paradigm for satellite phones. In the case of TerreStar this is rather worrying, given that their objective is to greatly expand the satellite phone market, and bring satellite-cellular roaming to a mass market, which seems very unlikely to happen with an $800 phone. Is TerreStar simply trying not to give too much away about its future pricing plans, while it focuses on developing all the other elements needed for a commercial service, such as distribution channels, billing systems, etc.? Will TerreStar actually be able to convince a cellular operator to subsidize its phone (which would require a significantly greater commitment from a partner than its current roaming agreement with AT&T)? We should find out soon, as TerreStar intends to launch commercial services at the end of 2009.


Welcome to the Hotel California…

Posted in Financials, Globalstar, Handheld, ICO/DBSD, Inmarsat, Iridium, LightSquared, Operators, Services, Spectrum, TerreStar at 10:25 am by timfarrar

With apologies to the Eagles…its a lovely place, for MSS consumers at least. However, for MSS operators it seems to be somewhere you can check out [or go bankrupt] anytime you like, but you can never leave.

Today we’ve seen confirmation that Globalstar is now fully funded to complete the construction and launch of its first 24 second generation satellites by the end of 2010, while TerreStar has launched its new S-band satellite from Kourou, French Guiana and intends to initiate commercial services at the end of this year. Iridium also looks increasingly likely to complete its deal with GHL, since GHL’s shares and warrants are now trading well above the $10 value that would be refunded to investors if they voted down the deal. While there has been much speculation about potential mergers in the last two years, these now look less, rather than more, likely to occur in the near future (with the sole exception of SkyTerra’s Harbinger-backed bid for Inmarsat, which should be decided one way or another later this year).

Thus by early 2011, it looks like we will have at least four and more likely six voice and data MSS systems providing service in North America (Inmarsat, Iridium, Globalstar and TerreStar plus ICO and SkyTerra) and four systems (Inmarsat, Iridium, Globalstar and Thuraya) providing service in most of the rest of the world. With new advanced satellites, consumers will benefit from improved data capabilities and smaller, cheaper handheld satellite phones.

However, the development of at least three new systems (ICO, TerreStar and SkyTerra) and to some extent Globalstar as well (based on financial analysts’ comments at the time of its IPO in November 2006) has been justified largely by the value of MSS spectrum, due to the FCC’s rules enabling deployment of Ancillary Terrestrial Components (ATC), rather than by the intrinsic potential of the market for mobile satellite services itself. Thus, unless and until demand for MSS spectrum and ATC materializes, we run the risk of overcapacity for land-based MSS services, particularly in North America. This will certainly benefit end users, and price reductions (especially in conjunction with cheaper, more attractive terminals) may help to stimulate significant market growth, but it remains to be seen whether this will enable all the MSS operators to deliver a return for their investors or whether we’ll see more of them “checking out” with a bankruptcy filing as ICO North America did in May this year.


Point it and they will come?

Posted in Financials, Globalstar, Handheld, Inmarsat, Iridium, Operators, Services at 11:53 am by timfarrar

As Inmarsat moves towards commercial launch of its new Global Satellite Phone Service (GSPS) some time in 2010, expectations have been building in the analyst community about the potential of GSPS to gain 10%+ of the $500M satellite phone business. In reality, the $500M market estimate (given by Inmarsat in 2006 when it acquired ACeS) represents retail service revenues and is an overestimate given the significant revenue declines experienced by Globalstar and Thuraya, two of the three principal handheld satellite phone providers, in 2007 and 2008. By our estimate, Globalstar, Thuraya and Iridium generated only about $270M in wholesale service revenues from handheld satellite phones in 2008, including a significant amount from Iridium’s US government contract.

While Inmarsat will start to compete in this market during 2010, what appears to have been completely overlooked by analysts are the significant limitations of the GSPS handset. As with the current SPS phone (see p17 of the user guide), we believe that customers will be advised to use the handsfree earpierce and physically point the phone antenna at the Inmarsat satellite. Some level of user cooperation in using satellite phones is not unprecendented, since Thuraya advises customers to ensure the antenna is pointed at the satellite when operating at low elevation angles, such as in south east Australia. However, Thuraya has never achieved much success in areas where this level of user cooperation is required, and the feedback we’ve heard on the first generation SPS phone that’s in use today has been pretty negative.

Inmarsat will certainly be able to improve the performance of the GSPS service within the EMEA region, to a level comparable with Thuraya, once its more capable Alphasat satellite is launched in 2012. However, Inmarsat will be constrained in the size of the antenna that it can use on future satellites, due to the need to maintain its existing levels of maritime coverage, so Inmarsat is unlikely to be able to extend similar levels of handheld performance globally without very substantial incremental capital expense.

Thus it does not appear that GSPS will be a realistic challenger to Iridium as a global satellite phone, and it may not be easy for Inmarsat to reach its target of a 10% market share within two years of launching the product, especially if Globalstar completes its next generation system and re-enters the market as a low cost handheld provider by early 2011. More importantly, as Iridium seeks to fund its next generation system (a prospect of which Inmarsat has been openly scornful), it will be able to make a very strong argument to the US government that Iridium NEXT is a necessity to maintain support for global handheld satellite services, on which US soldiers are increasingly reliant.


What’s the difference between ATC and satellite-cellular roaming?

Posted in Globalstar, ICO/DBSD, Inmarsat, Iridium, LightSquared, Spectrum, TerreStar at 10:44 am by timfarrar

On Monday, the Wall St Journal revealed that Harbinger plans to push ahead with “a multibillion-dollar plan to build an international satellite-cellphone business” which would “complement existing cellular networks with satellite coverage, and…use new chips that could fit inside affordable, mainstream phones, keeping costs down for consumers”. This is quite different from the original plan of SkyTerra, TerreStar and ICO to build out Ancillary Terrestrial Components (ATCs) – basically a new terrestrial cellphone network using their satellite frequencies. Instead, subscribers will simply rely on their existing cellphone networks and only use the satellite services of these companies as a roaming partner when they are in uncovered areas. From that perspective, the new plan is much more similar to the business plans of Iridium and Globalstar in the late 1990s, that business travelers would rely on satellite networks to fill in the gaps in cellular coverage. For example, here’s a description from the Economist in June 1998:

“By far the largest number of subscribers is likely to come from the “cellular roaming” market. These are users of land-based cellular phones who want to be able to extend the range of their handsets when they are travelling through areas of poor or incompatible coverage. MSS subscribers will be equipped with a dual-standard phone that will switch to a satellite when a ground connection is unavailable (Iridium’s first offering is a soon-to-be-superseded $3,000 half-kilogram brick). Subscribers will pay a higher standing charge to their normal cellular operator and a premium on MSS calls. Numbering will not change and unified billing will be standard. This week Iridium said it had recruited 200 distribution partners among cellular companies.”

Of course there are many advantages that the new and very capable satellites being built by SkyTerra and TerreStar will offer over the 1990s technology of Iridium and Globalstar. Most obviously, the extra power and sensitivity of their satellites will allow the satellite service to be added to mainstream cellphones with little or no penalty in size and weight, as opposed to the ‘brick’-sized handsets produced by Iridium and Globalstar in 1998 and 1999. In addition, SkyTerra, TerreStar and ICO have signed agreements with Qualcomm to incorporate satellite technology into Qualcomm’s next generation cellular chipsets, which are likely to be used in a wide range of handsets.

However, there is a major difference between the principal sources of revenue for an ATC and a satellite roaming business plan. In the ATC case, a cellular operator would pay to lease the satellite spectrum to provide terrestrial services over a new terrestrial base station network, thereby enabling it to add capacity or new broadband services to its network. Satellite services, while available, would be a minor component of the overall revenue stream for the satellite operator. On the other hand, a satellite roaming business plan relies on the satellite services themselves to generate revenue, with perhaps some incremental benefit to the cellular partner through reduced churn, if the satellite service is sufficiently compelling to subscribers.

Even more importantly, the decision maker who will produce these revenue streams is very different: in the ATC case, it is simply a matter of convincing the cellular operator to lease the spectrum, whereas in the satellite roaming case, the end user must decide to buy the satellite service. Many people who were intimately involved in the launch of Iridium and Globalstar’s services remain convinced that it will be very difficult to explain the limitations of satellite service to a mass market: those services were sold as enabling coverage “anywhere”, and so there were numerous complaints about the inability of satellite service to work reliably in buildings, cars and urban areas. For most people, their experience of cellphone coverage limitations is in precisely these areas: in the Bay Area there are 375K riders of BART each WEEKDAY (where coverage in the underground parts of the transit system has only recently started to be deployed) compared to less than 200K visitors to Pinnacles National Monument each year (the location where we most recently spent an extended period of time outside cellular coverage). Remember also that even the new phones almost certainly won’t switch beween terrestrial and satellite modes in the middle of a call, so will likely drop an ongoing call if the user moves through a cellular (or satellite) deadzone. As the Wall St Journal explained in July 1999:

“At its core, Iridium is struggling with an incongruity between its design and its market ambitions. It was originally intended for millions of globe-trotting business travelers, and it was launched with a $180 million world advertising campaign last year aimed at that market. But when Motorola began operating the system on Nov. 1, the Iridium handsets weren’t powerful enough to work within buildings or urban areas. As a result, a vast network intended for a mass market was usable only by niche groups, such as mariners, oil-rig workers or the military. Iridium faces a tough struggle to cover its huge costs in such relatively small markets.”

Indeed there are about 150,000 Iridium and Globalstar satellite phone subscribers within these niche markets in North America at the moment, generating about $100M in retail service revenues per year (excluding international users like the DoD). New smaller, cheaper handsets from SkyTerra and TerreStar should increase the size of this “professional” MSS niche significantly (including amongst “police, fire and ambulance personnel”). In addition, a low cost “satellite backup” service might appeal to several million consumers, particularly in earthquake or hurricane-prone areas such as California or the Gulf Coast, if it is explained properly: as an emergency service for use outdoors in the event that other communications are unavailable. In order to achieve this level of take-up, cellular carriers will not only have to sign roaming deals with the satellite networks, but also ensure that satellite connectivity is included in the phones they sell and support large scale distribution of the phones themselves. Even then, it may be hard to explain properly: there were reports after Hurricane Katrina that first responders were unable to get their satellite phones to work, and it was later discovered that some were trying to use the phones in a basement conference room or inside the Superdome. Although gaining several million subscribers would be a great achievement for the MSS sector, in view of these challenges we remain skeptical that there will ever be “vast global demand for the network [Harbinger] envisions”.

In contrast, we are more positive about the long term potential of ATC: cellular operators will ultimately need more spectrum to cope with the surge in wireless broadband data demand and will use up the stockpiles of 700MHz and AWS spectrum which they have purchased in recent years. At that time ATC will be one of the most obvious sources of supplementary spectrum, and there is no technical reason why it can’t be made to work. Indeed many of the developments being put in place to enable satellite roaming (such as the Qualcomm chipset) are precisely those needed as a pre-requisite for ATC deployment. The only problem is how long it may take before major cellular operators feel a pressing need to use MSS spectrum for their terrestrial operations – it is likely to be several years off at a minimum. Indeed, if WiMAX struggles, then Clearwire’s spectrum may be sold off to other players, pushing out the timeframe in which ATC might be considered even further into the future.


Contract cancelled: Another ISatPhone setback

Posted in Globalstar, Handheld, Inmarsat, Iridium, LightSquared, TerreStar at 11:52 am by timfarrar

Its been revealed today that EMS has taken a $3.4M charge to terminate its work on the Inmarsat next generation satellite phone, and that Inmarsat will be assuming “more control over production phases of the product development”. This is the latest in a long line of setbacks for the ISatPhone, with the first generation phone failing to achieve any meaningful traction and repeated delays in completion of the next generation phone since Inmarsat acquired the ACeS customer base two and a half years ago.

In our view, a key reason for the failure of the original phone was its poor performance on the Inmarsat I4 satellite, with users advised to use a hands-free kit and keep the phone antenna pointed at the satellite! It remains unclear if EMS had solved these technical challenges with the new phone (which are caused by the smaller 9m antenna on the I4 satellites, compared to the 12m antennas used by Thuraya and AceS), and therefore it is quite possible that serious constraints may still apply to the usability of Inmarsat’s new handheld, a concept model of which is shown below. Certainly we expect that it will be difficult if not impossible for Inmarsat to ensure satisfactory handheld performance in Alaska and much of Canada.

Inmarsat’s concept model for its next generation satellite phone

The launch of the new phone had already been pushed back from early 2009 to the end of the year, with features such as packet data dropped to save time and money. Now it looks like Inmarsat will experience a further delay until well into 2010, and yet another increase in costs, adding to a development program which already totals around $100M. We will be looking with interest at whether Inmarsat maintains its stated intention to sell the phone for around $500 retail, thereby making it even harder to recover its investment in handset development. Notably, this price point has already met with pushback from potential distributors, who would be unable to realize the margins they make today on the sale of other satellite phones.

The clear winner is Iridium, who will have even more time than they had expected to capitalize on the lack of handheld competition from Inmarsat, and who managed to complete the development of their new 9555 phone on time and at a cost of less than $10M. Other current and potential satellite handheld providers, such as Globalstar, Skyterra and TerreStar, who have faced a barrage of criticism from Inmarsat in recent months, will also be rubbing their hands with glee at Inmarsat’s embarrassment.


Iridium collision: NASA ties itself in knots

Posted in Iridium at 10:31 am by timfarrar

There continues to be confusion about who said what to whom and when. Iridium stated emphatically on Thursday that “it had no advance warning of the impending collision”. However, Nicholas Johnson, NASA’s chief scientist for orbital debris, was quoted in a Washington Post article on Friday afternoon as saying “Iridium, the Bethesda-based satellite phone company, had received a report that its satellite — one of 66 used in its communications network — would pass within 300 meters of the non-operational Cosmos. Instead, the Iridium suddenly went silent. Soon thereafter, the military picked up on its radar indications of debris in orbit over Siberia. The improbable had finally happened.”

Curiously enough this quote was removed from the final printed version of the article, and Mr Johnson had previously noted that Iridium wasn’t on the top 10 list of most likely collisions on Tuesday, while the US Defense Department has been quoted as saying it did not predict the collision.

While the trading of accusations may continue for some time, it seems increasingly likely that the problem will turn out to be due to some unanticipated modeling error in the orbit prediction programs used by both military and civilian operators. Its pretty certain that this will lead to calls for more funding of space observation networks, to avoid any future problems. As a minimum, better data, and more sharing of the data that does exist, needs to be high on everyone’s agenda.


The mystery deepens over the Iridium collision

Posted in Iridium at 11:13 am by timfarrar

Our initial reaction to the collision of Iridium SV33 with a non-functioning Russian Cosmos 2251 satellite was that NORAD (or rather the US Strategic Command or Stratcom to give it the current title) would have questions to answer about why it did not warn of the danger of a possible collision. Its now been pointed out to us that both Iridium and Stratcom would have been running their own collision prediction software, not least because Iridium has to be careful that its own satellites do not collide with one another, though the input data is supplied in a USSC database (and is publicly available at Heavens Above).

However, it appears that the data did not show any predicted collision between the two satellites and they were expected to miss one another by 80km or so. Either something happened to the Russian satellite to dramatically increase its drag (“a bit falling off”?) or the Iridium satellite was moved (which appears implausible since it was in service at the time and has to stay within a box of a few km to keep its crosslinks in contact with the rest of the constellation).

Hopefully a better explanation will emerge soon, but this highlights why Iridium didn’t identify the Russian satellite correctly at first and was taken by surprise by the collision. In the meantime, we’re sure this will give ammunition to conspiracy theorists, speculating about Russia deliberately trying to take out an American satellite. However, that would undoubtedly be going too far – as the US Missile Defense Agency knows only too well, its pretty hard to hit such a small target, and no-one has actually suggested that the Russian satellite was secretly under control.


Where was NORAD when it was needed?

Posted in Iridium at 2:57 pm by timfarrar

So now the unthinkable has happened, and two satellites have collided in orbit, despite the fact that NORAD is supposed to be tracking “more than 10,000 pieces of high-speed debris, some no larger than a football” and warning of potential collisions. Indeed to our knowledge, Iridium satellites have been moved in the past to avoid possible near-misses with debris.

As we said in the WSJ interview, the Pentagon are going to face a barrage of questions about exactly why there was no warning given about a possible collision: though you can’t predict that two satellites will definitely hit one another, unless Iridium had been maneuvering its satellite (which does not appear to be the case) it is easy to calculate when they may come within a few miles of one another a minimum of several days in advance.

Fortunately for Iridium, the disruption is reduced by the availability of in-orbit spares, and the fact that the satellite is only one out of 66 providing coverage, so there will just be a hole passing over any point on the Earth’s surface twice a day for 5-9 minutes (less at higher latitudes). Its a lot better than the failure of a GEO spacecraft which could eliminate service for months (or even years) across a large part of the globe, while a spare satellite is built and launched to replace it.

The main worry now is about how far the debris cloud will spread, and whether it will affect other Iridium satellites at that altitude, or even other satellites in nearby orbits. The closest commercial sytem is Orbcomm (only about 10km away), then there are optical imaging satellites a bit lower. The debris won’t get up to Globalstar’s orbit (600km further up) or of course the geostationary belt (36,000km above the earth). However, there are also a lot of government (military and civil) satellites in and around these orbits (including weather and other Earth observation satellites). In a worst case situation it is even possible that Iridium might have to raise the orbit of its remaining satellites slightly, but within reason this could probably be achieved without any additional service disruption.

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