03.04.09
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.
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.
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02.17.09
Posted in Financials, TerreStar at 9:38 am by timfarrar
So Liberty Media has struck a deal to invest up to $530M in Sirius XM, in the form of secured loans, and will receive preferred stock convertible into a 40% stake in the company in exchange for its investment. The first $280M tranche from Liberty will be used to pay off $171.6M in bonds held by Echostar, which are due for redemption today. Subsequently, and subject to “various closing conditions”, Liberty will loan Sirius XM a further $150M and offer to acquire up to $100M of the company’s outstanding loans.
While this means that Echostar’s attempt to acquire Sirius XM has been defeated for the moment, it may be too early to write Echostar off completely. As we highlighted previously, Sirius XM would offer potential synergies with Echostar’s other investments (particularly in TerreStar), which will not be available to Liberty. Indeed other analysts have commented on how satellite radio holds little interest for DirecTV, and in our view, speculation that Sirius XM is a good route into mobile video is completely misplaced. We highlighted back in September 2006 that even if the mobile video opportunity is large (which is now far from certain), satellite radio is a very poor solution for providing the necessary handheld coverage, without deploying a huge number of repeaters. Unless either the Sirius or XM radio service was closed down, it is also unclear that there would be sufficient capacity for a meaningful video service, since both Sirius and XM each have only about 4-5Mbps of data delivery capability within their current architectures.
Instead, we consider that the potential to add two-way (OnStar-like) capability to the in-car service, using Echostar’s other assets (i.e. TerreStar), offers much more long term promise. Viewed from this perspective, Liberty’s investment should be seen more as an attempt to frustrate Charlie Ergen’s ambitions, and acquire the satellite radio service at a very attractive price, rather than a desire to add new mobile services to DirecTV’s offering. Conversely, we shouldn’t rule out the possibility of Echostar coming back with a better offer (or simply acquiring more debt than Liberty would want to buy back), given the much greater synergies available to it from an acquisition of Sirius XM, and the likelihood that Sirius XM will continue to struggle to generate enough cash to meet its debt repayments over the next year or more, while new car sales remain at a low ebb.
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02.14.09
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.
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02.13.09
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.
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02.12.09
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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02.04.09
Posted in Financials, ICO/DBSD, Spectrum, TerreStar at 10:50 pm by timfarrar
Its now been reported that Echostar has acquired a substantial portion of Sirius XM’s maturing debt as part of a possible attempt to take control of the company through a forced bankruptcy filing. This doesn’t come as a great surprise given Echostar’s other investments in satellite-delivered mobile TV (in Korea and China), in 700MHz spectrum that would likely be used for mobile TV in the US, and in TerreStar’s MSS-ATC system (where it has stated an interest in using the satellites for mobile video, most recently at the SATCON conference in New York last October). Indeed, a primary reason for the spin-off of Echostar from DISH was to enable Echostar to exploit new business models in mobile entertainment, while the slow growth DISH business would ultimately be sold to a telco or merged with DirecTV.
In our view, satellite radio has always had a far more viable business model than mobile TV, despite the recent downturn in new car sales making it difficult if not impossible for Sirius XM to achieve subscriber growth this year. We believe that satellite radio will remain an attractive feature for car manufacturers in the medium to long term both because the satellite infrastructure is ideally suited to providing a near ubiquitous car-based service with only a limited number of terrestrial repeaters and because the technology is not going to change dramatically over the next decade, avoiding the risk of existing OEM installations being left with no service (as happened to many OnStar subscribers when analog cellular networks were switched off). Compare this to cellular-based navigation and entertainment systems, where technology is advancing very rapidly and an aftermarket solution (or a flexible OEM solution such as Sync) is the most viable option for car manufacturers and end users alike. However, we also view a bankruptcy filing by Sirius XM as highly likely, because it will enable the company to renegotiate its biggest (controllable) expense – that of content rights. While some providers such as talk radio hosts may feel that there is a better deal on offer from terrestrial free-to-air networks, for most sports programming there is no viable alternative to satellite radio as a distribution mechanism, because no other broadcast (audio) medium can offer sufficient capacity and reach to deliver multiple simultaneous games to a widely distributed national audience. Some may argue that internet streaming is an alternative, but 3G and 4G wireless networks are (and will remain) ill-suited to providing continuous in-car coverage (not to mention the difficulty of extracting any revenue stream for content providers other than advertising from such users).
So if Echostar does now move to take control of Sirius XM, how will this fit with its other investments? Most obviously it seems plausible that TerreStar’s satellites could be used to provide a two-way communications channel for future generations of Sirius XM receivers, while Sirius XM’s repeater network could form part (although not all) of the necessary Ancillary Terrestrial Component (ATC) to ensure signal reception for TerreStar in urban areas. This would enable low cost integration of other services into cars, whether desired by the manufacturer (such as over-the-air fault monitoring) or paid for by the consumer (such as an OnStar alternative). Indeed, with the exception of mobile video (which we do not believe is likely to gain traction in cars, for the simple reason that the vast majority of satellite radio use is by solo commuters, who obviously couldn’t watch a video) this sounds surprisingly similar to ICO’s proposed Mobile Interactive Multimedia (MIM) service, and given Sirius XM’s strong relationships with most of the major auto manufacturers, this prospect could make it even more difficult for ICO to move forward with a commercial launch of MIM. Perhaps it might even provide an incentive for ICO to contemplate merging with TerreStar (as has often been rumored in the past)? Certainly Echostar’s interest in satellite radio is likely to shake up the MSS sector as well.
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01.28.09
Posted in Inmarsat, Maritime at 2:45 pm by timfarrar
On Monday, Thrane & Thrane announced an agreement with KVH Industries to distribute KVH’s TracPhone V7 mini-VSAT product. At first sight, this seems to be an expression of confidence in the potential of maritime VSATs, with Thrane noting that “the market for Ku-band equipment for maritime satellite communication is expanding strongly” by about 1500 terminals per year. However, Thrane’s original plan was to pursue development of its own maritime Ku-band VSAT product and service, the SAILOR 900, announced last June, which has now been cancelled.
The Ku-band maritime VSAT market has grown dramatically in recent years, taking market share amongst high end users, who can afford the expensive terminals (typically $50,000+) and need the flat-rate, always-on connectivity that Inmarsat cannot provide with its L-band satellites. However, the Achilles heel of Ku-band systems has always been coverage: as Connexion-by-Boeing found out in 2006, the cost of leasing a global Ku-band network far outweighs the near term revenue that can be gained in what is a very fragmented business, with the largest players (Vizada/Marlink, SeaMobile/MTN, Caprock and ShipEquip) each having a market share of less than 20%. As a result, providers have to date offered C-band systems to customers requiring global coverage, and focused Ku-band solutions on intra-regional users.
KVH and Viasat have promised to change this model with their mini-VSAT network, building out global Ku-band coverage for both aeronautical and maritime applications, along similar lines to the concept envisaged by Connexion (though with smaller, cheaper terminals costing around $30,000). Thrane’s decision to join with KVH is an acknowledgement that even a company such as Thrane, with it’s very strong maritime brand, is unable to justify the costs of establishing global Ku-band coverage on its own. The question now is whether KVH and Viasat can afford the investment needed to complete their 2009 coverage expansion plans.
Orders have remained strong for maritime VSATs, even in recent weeks, but in the current financial climate, maritime VSAT looks far more vulnerable than Inmarsat to ship operators seeking to cut back their communications spending: it generally has a high fixed cost every month (compared to Inmarsat’s pay-by-the-use) and is usually sold on the basis of getting “ten times more data for double Inmarsat’s cost”, not on the basis of saving money over current expenditures. Most importantly, in many cases it is seen primarily as an investment in crew welfare: when there are few jobs going either at sea or on land, crew retention in 2009 will be much less of a problem than in 2008. As a result, Thrane looks amply justified in getting cold feet over pursuing its own VSAT product.
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01.21.09
Posted in Financials, Globalstar, ICO/DBSD, LightSquared, Regulatory, Spectrum, TerreStar at 9:46 am by timfarrar
Last week, the FCC awarded ICO its ATC license, with no requirement to enter into a ground spare contract at this stage. Indeed ICO will only have to demonstrate 30 days before commencing ATC service that “firm arrangements are in place to meet the spare satellite requirement” within 1 year of service initiation. Of course, since a satellite would normally take around 2 years to construct, ICO would have to enter into a ground spare contract well before that 30 day notice period. However, ICO has gained considerably more flexibility to keep its expenditures to a minimum, while pursuing resolution of its litigation with Boeing and waiting for a more favorable economic climate in which to launch commercial service.
With this ruling, along with Globalstar’s ATC license grant last year, the FCC has shown a desire to be flexible in its interpretation of the ATC rules, so as to ensure that ATC deployments do eventually take place. Arguably, this flexibility has advantaged operators such as ICO and Globalstar, over TerreStar and Skyterra (formerly MSV), who have committed to considerably greater capital expenditure, based at least to some degree on a more cautious interpretation of the ATC requirements. Most notably, TerreStar is already well advanced with construction of its ground spare satellite, although we have heard rumors that work may have paused in anticipation of the ICO ruling, and (unless TerreStar gains a European license in the near future and decides to use the satellite there) we expect that construction will soon be formally suspended to save money, on the assumption that this will not impact TerreStar’s pending ATC application.
A future question for the FCC with regard to ATC “flexibility” may well relate to what level of satellite performance is needed to justify that an ATC service is truly “ancillary”. TerreStar and Skyterra have built very large and powerful (and expensive) satellites, in order to deliver voice and data connectivity to “standard” mobile devices without external antennas. ICO and Globalstar’s satellites are rather less capable (and cheaper), but if they are not required to deliver fully reliable handheld satellite voice services, then these satellites could also operate with “standard” mobile devices. For example, if the only test required is to complete a call from a handset on a tripod in an open field, with no head blockage or obstruction from trees etc, then a far less expensive satellite is required than if link margin is needed to overcome these obstructions and the call is made or received by a real person walking around with the phone.
Given that many hundreds of millions of dollars of satellite construction costs are at stake, it will be very interesting to see how the FCC ultimately decides this issue and therefore who has made the right call with their satellite design.
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11.25.08
Posted in Globalstar at 10:02 am by timfarrar
With Globalstar looking to raise additional funding to complete construction and launch of its second generation satellites, it is critical that it demonstrates good fourth quarter results, by selling as many SPOT units as possible. Indeed Globalstar’s most recent 10-Q indicates that it is targeting between 1M and 1.5M users in North America by the end of 2010, although at the end of the third quarter it only had around 50,000 SPOT subscribers. Unfortunately the SPOT unit is a highly discretionary purchase for most consumers, since it represents such a new type of service (think for example of how long it took for awareness of TiVo to grow), and with the downturn in consumer spending, it seems likely that sales of SPOT units have also been affected.
As a result, we’ve now seen SPOT offering a $50 rebate to new subscribers, and most recently an announcement (shown below) that existing subscribers are now able to get additional SPOT units for free if they sign up for the $150 service plan. With 100,000 units already shipped or ordered, hopefully these incentives will allow SPOT to show significant subscriber gains in the fourth quarter. However, as we’ve highlighted before, the cost of subscriber acquisition for SPOT is quite high and this rebate/free unit program will do nothing to reduce those costs. It therefore seems unlikely that SPOT will help to generate the cash needed to pay for the launch of Globalstar’s second generation satellites in the near term.
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11.03.08
Posted in Globalstar, ICO/DBSD, Spectrum at 9:07 pm by timfarrar
It came down to the wire, but on Friday October 31, the FCC approved Globalstar’s application to offer ATC in conjunction with Open Range Communications. Friday was the deadline for Open Range to secure spectrum under the terms of its $267M USDA rural development loan agreement and as the FCC pointed out in its order, it was faced with a difficult choice between waiving many of the ATC requirements until Globalstar’s next generation satellites are launched, and losing the loan which would facilitate WiMAX deployment in 500 rural communities.
The FCC voted 3-2 to approve the application, over the objection of two (Republican) commissioners who worried about the “inappropriate precedent” it might set. Notably, the CTIA also came out strongly against the application, suggesting that a “grant of the sweeping waivers that Globalstar is seeking would effectively eviscerate the MSS/ATC rules of any meaning and enable Globalstar to ‘game’ the MSS/ATC regulatory scheme to maximize use of MSS spectrum for terrestrial service”.
The FCC has imposed a fairly strict time limit for Globalstar to deploy its second generation satellites and come into compliance with the ATC rules, but it already appears that the door has been opened for other prospective ATC operators to seek a relaxation of the conditions associated with ATC. For example, ICO indicated today that it does not believe it will be necessary to order a ground spare satellite before the FCC will approve its ATC application (merely that a satellite will have to be on order before ATC service commences), despite the fact that the ATC licensing rules require a “substantial showing that a non-operational MSS licensee will soon meet the gating criteria” established by the FCC, including a ground spare being available within 12 months of commencing service.
It also looks like the stage is now set for a bigger fight between the cellular operator community on one hand and the MSS-ATC proponents on the other. This may actually be a good thing from the point of view of the ATC proponents, since at least it shows that cellular operators are once again taking ATC seriously (cellular operators dropped their earlier opposition to ATC several years ago, apparently believing that it would never come to fruition). However, it will be interesting to see who will gain the upper hand in the regulatory battles to come, especially if the change of administration leads to a number of new faces at the FCC.
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