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Cover
Story: Pie in the sky?
01 January 1999
Getting
Global Mobile Satellite Systems into
commercial operation is proving much more
difficult than was anticipated. But, as
Guy Daniels and Martyn Warwick report, the
investments have been so great and
expectations are so high that, despite
some embarrassing setbacks, failure is not
an
option
Let's
go back in time a little and imagine that
it is now the morning of Wednesday, 23
September 1998. Today, the world's first
Global Mobile Satellite System has just
entered commercial service and a
constellation of 66 low earth orbit (LEO)
satellites is now providing ubiquitous
telecomms coverage to anyone,
anywhere.
Helping to make this technological miracle
happen are 17 strategic investor partners
who are operating and maintaining the
network of ground station gateways through
which the Iridium network is connected
with the global PSTN. And that's not all,
these satellites are doing more than
sending and receiving calls from the
special mobile handsets to the gateways,
they are also simultaneously switching and
routing calls between themselves via
inter-satellite links.
This visionary and highly-technologically
advanced system was championed by
Motorola, and, once it had satisfied
itself that the concept was sound and that
Iridium could be made to fly, that company
led the effort to raise the truly immense
sum - US$5 billion - that was required to
get it from the drawing board and out into
space.
That investment eventually realised and
spent, the Iridium company and its service
providers now have access to 3.4 billion
potential customers and comms technology
has, once again, changed the world for the
better. No longer will people need to be
concerned about call reception problems,
service availability and network
compatibility. One (admittedly rather
expensive) handset does it all and now the
Iridium investors, having taken a risk and
won, can sit back and wait for the revenue
streams to become rivers of profit that
gush straight to the corporate bottom
line.
Well, that was the theory, here's the
practice. It is now January 1999 and for
Iridium, and other global mobile satellite
system consortia as well, things are not
going to
plan.
To
understand what has happened, it is
necessary to delve into some telecomms
history.
Industry folklore has it that the basic
concept of a low earth orbit mobile
communications system came about in 1985,
when the wife of a US Motorola executive,
unable to use her brick-sized and
brick-heavy analogue cellular phone while
on vacation in the Caribbean, convinced
her husband that a global wireless system
would be a good thing. Five years later,
Motorola made its first public
announcement on what was to be eventually
become Iridium.
In those days, the constellation was
planned to have 77 satellites, the first
of which would be launched in 1992, with
full commercial service being available
during 1996. Reporting on the announcement
at the time, CI asked the advice of John
Pemberton, an analyst at the Gartner
Group. He said, "We think it's very
do-able, and it's going to work." He
added, however, that financing would be a
problem and that the system would cost
considerably more than the $2.3 billion
price-tag Motorola had put upon it.
The stratospheric costs of low earth orbit
Pemberton was right. To date, Iridium has
cost about $5.7 billion, and this tally
will grow further before the books can be
closed. For example, approximately $1.5
billion will be required to cover
operational costs. Thus, between 1990 and
1998 the cost of Iridium is close to
having quadrupled.
But, for every downside there is usually
an upside and Motorola seems to have got
its subscriber costs right. Way back the
company predicted that handsets would
retail at $3,400 and that calls would cost
$3 per minute - and that is what it is
expected to be - in the US at least.
Elsewhere, though, it will be a tad more
pricey.
Unfortunately, Motorola also predicted
that Iridium would break even after the
first year of operation at a subscriber
level of 400,000. Even today, it is
predicting a subscriber base of five
million by 2002. So where are they? Have
you tried to get your hands on an Iridium
phone or become a subscriber to the
system? We have, and have been frustrated
at every turn.
Missing the deadlines
The first cracks in the glossy veneer of
positive PR appeared when Iridium lost
seven satellites during the constellation
deployment phase. The satellites got into
orbit alright, but thereafter failed to
respond to ground control signals and had
to be replaced. But then, launch failures
happen, they are anticipated and insured
against, as were
these.
Then
came difficulties with the control system.
The co-ordination and control of 66
fast-moving satellites, (plus back-ups),
operating in six different orbital planes
would be enough to tax the abilities of
the entire crew of the Starship
Enterprise, and it certainly proved to be
a problem for Iridium. The poor technical
performance of the network, caused by
integration difficulties with the space
and ground segments, as well as problems
with the control software, forced CEO
Edward Staiano to put back commercial
introduction from 23 September to 1
November, 1998.
This five-week delay was as long as
Iridium could get away with without
precipitating serious trouble- the
investment community was getting worried -
and a $180 million global advertising
awareness campaign was at its peak.
Iridium also had to start to generate
income - $1 billion of bank financing
would mature at the year end and
repayments had to be made.
To allay the growing anxieties in both the
investment and industry communities, and
also to show that large-scale commercial
roll-out was getting closer, Iridium
announced that it had distributed 2,000
handsets for a controlled service rollout
at the end of September last year. It also
said it expected that 5,000 users would be
on the network by the beginning of 1999.
However, analysts that CI has contacted
believe there were only 500 users up until
November 1998.
Commercial pressures and severe time
constraints are forcing Iridium to combine
what is, in practice, the initial launch
of operational services with the final
technical trials of the entire system -
not an ideal scenario.
Staiano, who is on record as saying, "We
have been very pleased with the voice
quality and are working to improve
operational stability of the network," is
staking a lot on relatively trouble-free
final tests.
And they may be fine; after all, they are
just tests. What is unknown is how well
Iridium will perform when it is fully
loaded with paying subscribers -
subscribers who will make calls when and
where they want to and won't keep quiet if
the system doesn't work properly.
Nevertheless, last October Staiano
remained bullish. "Our progress in the
third [financial] quarter has made
the commercial availability of the Iridium
system on 1 November a reality," he told
the market.
Meanwhile,
Iridium told analysts and press that call
completion rates and call performance had
improved so steadily with the introduction
of new software uploads that it "is now at
commercially acceptable levels". Quite
how, and against what, that acceptability
was measured was not made clear.
The company also played down persistent
reports that its two selected handset
manufacturers, Motorola and Kyocera, were
experiencing difficulties in producing the
special Iridium terminals. "Motorola
handsets will be available in sufficient
quantities to support the demand shortly
after commercial activation," the company
announced, with an initial shipment of
5,000 handsets to the gateways.
Elsewhere, it also stated that Kyocera had
made "substantial progress with software
developments" and was expected to ship
4,800 satellite-only handsets and 9,400
multimode handsets last November. Then, on
November 1, in the US, Edward Staiano was
finally able to say, "After 11 years of
hard work, we are proud to announce that
we are open for business."
The first person to make a call on
Iridium's commercial service was US Vice
President Al Gore, who spoke, via the
Iridium groundstation in Arizona, to the
great-grandson of Alexander Graham Bell.
The call went well, connection was
faultless, reception was fine and mutual
congratulations and superlatives were
heard all round. There were no hitches and
no glitches. That, however, was not the
experience of Mike Mills, a telecomms
reporter with the
Washington
Post. Mills is one of
the few journalists with, if you'll
forgive the pun, the right connections to
have been allowed to road-test an Iridium
satellite phone. We at CI, and many of our
colleagues across Europe and the Middle
and Far East, have not been so lucky, and,
despite making strenuous efforts, have
been unable to test the network. So, on
this occasion we must report things
second-hand.
Writing of his experience in the
Herald
Tribune of 26
November 1998, Mills stated that of a
dozen calls made, (in deference to the
wishes of Iridium executives, from a
clearing in Washington DC and not from a
built-up area), one was lost completely,
several were garbled and the voice quality
was poorer than expected.
Mills admits that his was not an
exhaustive or scientific test, but
nevertheless, his experience seems to be
in line with Iridium's own quality of
service expectations.
Questioned about the garbled calls,
Staiano said they would probably have been
caused by a land-based software bug that
was still being rectified. The dropped
call he attributed to a hole in the
network caused by the 66th satellite,
which while in orbit, was, at that time,
not operational.
According
to Staiano, in November 85% of Iridium
calls were completed and 12% of completed
calls were subsequently dropped. Staiano's
goal was to have a 98% call completion
rate and a 3% drop rate by the start of
January 1999. At time of going to press,
no figures confirming the achievement of
these objectives have yet been
released.
Teething troubles
Staiano also said of the 'nasal and
somewhat tinny' voice quality, "That's
probably about as good as it will get." He
pointed out that as Iridium and
terrestrial cellular systems are
completely different, it is unfair and
invalid to compare them as
like-with-like.
He's right, but Iridium has invited such
comparison by promoting the concept of the
global cell phone and giving its terminals
the ability to convert to cellphones that
will work with any of the world's
incompatible wireless standards.
Hopefully, Iridium's difficulties will not
prove insurmountable and will be seen as
part of the common lot of the innovator -
it's the pioneers that get the arrows and
the settlers that get the land.
Iridium, in the full glare of publicity,
was always going to take the heat for
broken deadlines and the unforeseen
technical problems that were bound to crop
up in a project of such imagination,
magnitude and complexity.
Given Iridium's public discomfiture, it is
significant that there has been little
evidence of
schadenfreude
on the part of its many rivals. In the
ruthlessly competitive environment of
today's global telecomms market, delight
in the misfortune of others is sometimes
pretty evident. Not in this case, though.
With so much at stake and the huge sums
involved, investor confidence is equally
crucial to the success of the other mobile
satellite systems. For, should Iridium
fail, who knows what would happen to the
rest of them?
Sleeping
with the enemy
That is why the broadband LEO organisation
Teledesic (which says it will be
operational in 2003) went out of its way
to applaud the launch of the Iridium
service publicly. "We're rooting for
Iridium to succeed," said Steve Hooper,
Teledesic's co-CEO. "In a sense, Iridium
is a technological precursor to Teledesic
and we hope to learn from the Iridium
experience as we build our system."
Iridium isn't the only consortium to have
suffered setbacks. The first casualty was
TRW-backed Odyssey which, after a
long-running legal dispute with Inmarsat's
ICO over the constellation design of their
two planned medium earth orbit (MEO)
satellite networks, eventually threw in
the towel and merged its activity into its
arch-rivals'.
Elsewhere, Globalstar, whose network was
originally due to enter commercial service
in late 1998, and is now planned for the
third quarter of 1999, lost 12 of its 48
service satellites when a Ukrainian-built
Zenit 2 rocket crashed just after launch.
This failure, and the three-month delay in
service launch which it occasioned, is
estimated to have cost Globalstar an
additional $240 million in replacement
costs, insurance and loss of revenue.
ICO, despite being the victor in the war
of attrition with Odyssey, hasn't been
without its difficulties either. The
company, which had hoped to raise $380
million with its July 1998 initial public
offering, fell foul of a nervous and more
conservative money market than it expected
and, in the end, came away with just $120
million.
The global mobile satellite system
consortia are attempting, through the
application of various complex
technologies, to make satcomms into a more
ubiquitous phenomena. But, the market is
untried, uncertain and overcrowded and the
success of the entire global satellite
industry could now be contingent on
Iridium's success. This is because, given
the investments and promises made, the
expectations raised, looming global
economic downturn, and twitchy
stockmarkets, the failure of one system
could be the start of a domino effect that
could mean the failure of all other
systems.
The global mobile satcomms market is
overcrowded and, as CI has always said,
there never has been room for multiple
players. Indeed, some have already bowed
out, and others will fall by the wayside
as consolidation inevitably continues.
Failure is not an option
But, that said, the ramifications of the
failure of these pioneering systems would
be so great, and have such a knock-on
effect not only for the entire telecomms
industry, but also for the world economy,
that it simply cannot be permitted to
happen.
The target was for Iridium to have 250,000
subscribers by 'early 1999'. It's that
now, and nowhere near that number have
signed up. Nonetheless, Staiano still
believes Iridium will be "cash-flow
positive" by the end of this year. Let's
hope, for everyone's sake, that this is
more than wishful thinking.
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Mobile
satcomms - past, present and
future1985
Motorola conceives the low earth
orbit (LEO) model
1987
Motorola proposes the Iridium
concept and commences R&D
June 1990
The Iridium system is officially
announced to the world
December 1991
The Iridium LLC operating company
is established
December 1991
The first commercial GSM network
is launched. GSM will become a
serious threat to the LEOs
31 January 1995
FCC grants the Iridium system an
operational licence for the
1.616GHZ to 1.626GHz band
26 November 1996
Globalstar receives its final FCC
authorisation
May 1997
First five Iridium satellites
launched
June 1997
Iridium completes its $240
million IPO
4 December 1997
First Globalstar launch delayed
by technical difficulties
December 1997
First successful Iridium test
call made
The Odyssey LEO project
wound-up
Principal investor, TRW, buys
into rival ICO
14 February 1998
The first four satellites of the
Globalstar constellation are
launched 1 May 1998
First successful Globalstar call
is made
21 May 1998
Motorola abandons its Celestri
broadband LEO project and joins
the Teledesic team
22 July 1998
Iridium loses two more
satellites, bringing its losses
to seven out of 72 (10%)
31 July 1998
ICO's IPO is a victim of changing
attitudes in money markets,
raising only $120 million against
its target of $380 million
9 September 1998
One of Globalstar's
Ukrainian-built Zenit 2 rockets
explodes, destroying 12
satellites, costing the company
an extra $240 million and
delaying its commercial launch by
three months
23 September 1998
The expected launch of Iridium
service - then delayed until
November
1 November 1998
Iridium goes live. Well, not
quite - phones are scarce,
problems persist and it proves
very difficult to obtain regional
service
17 November 1998
Iridium activates its global
paging and messaging network
Late 1998
The original commercial launch
date of the Globalstar service is
now delayed until late 1999
Early 1999
Iridium's original plans called
for 250,000 users by this
time
July 1999
Expected completion of Globalstar
satellite launches
Third quarter 1999
Globalstar plans its commercial
service launch, on a 'region by
region' basis
September 2000
Planned launch of the ICO
service
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