Satellite Service Providers Struggling for Revival

Satellite voice service providers have been on a roller coaster ride. In the late 1990s, the industry was abuzz with grandiose expansion plans designed to take advantage of the dot-com explosion. When that boom went bust, providers had to scale back their plans dramatically and some were even forced to file for bankruptcy. A number of companies emerged with new, tightly focused business plans that worked well in 2005, but could another dip await these service providers?

Traditionally, satellite voice service suppliers like Globalstar, Inmarsat and Iridium marketed their services to select groups of consumers and businesses. Typically customers were stationed in places that terrestrial lines cannot serve, whether at sea, in the wilderness, in the air, or in remote areas such as the North and South Poles.

In the business market, maritime, aviation, mining, forestry, oil and gas, heavy equipment, transportation, government -- especially the military and emergency service providers -- and utility companies heavily rely on these services. In the consumer space, vendors have had success in rural areas, where approximately 10 to 15 million Americans live.

As the Internet boom took hold, satellite suppliers tried to broaden their market presence to become general purpose rather than niche telecommunications service providers. These initiatives failed for a couple of reasons, one of which is pricing. Satellite services require special end user devices that range in price from a few hundred dollars to a few thousand dollars. In addition, the service providers could not match usage pricing. While wired and cellular pricing was plummeting to a few cents per minutes, satellite services ranged from 14 US cents to a few dollars per minute.

Creating a Major Void

Consequently, the services providers expanded their businesses in anticipation of waves of new customers who never materialized. In 2000, Iridium filed for bankruptcy and Globalstar followed its competitor into Chapter 11 in January 2002. Iridium Satellite later emerged from bankruptcy, but it had paid just US$25 million for a fleet of satellites that would later cost $5 billion to launch.

These companies needed a few years to sift through the wreckage and develop new business strategies. Recently, they emerged with plans that focused on improving their niche offerings rather than focusing on general purpose services. Globalstar announced an emergency management communications system consisting of its satellite backhaul network mated to miniaturized cellular systems.

This approach allows first responders, such as police and firemen, to communicate with each other via cell phones rather than with satellite phones. For customers in the transportation industry, carriers developed items such as Web-based asset tracking and monitoring services.

Some are copying successful models found in the cellular and wired markets. Satellite services providers now offer monthly usage plans, for example, that are similar to those offered by cellular service providers. Prepaid services is another emerging market in the satellite services market.

A Watershed Year

The initial results have been promising. "2005 was a good year for the satellite vendors," said Patti Reali, an industry analyst with market research firm Gartner Group (NYSE: IT), which found that vendors generated $1.2 billion in revenue last year. In November 2005, Iridium Satellite said that it had approximately 137,500 subscribers, which represents a 22 percent increase over the total number of subscribers at the end of the third quarter last year. Revenue for the firm's first three quarters was up 24 percent compared to 2004.

A few unusual circumstances helped to fuel the growth. The war with Iraq brought on a rush of business from journalists, the military, and other organizations stationed in areas that are out of reach by regular telecommunications networks. Another factor was the number of catastrophic natural disasters that occurred in 2005.

"The tsunami and Hurricane Katrina led to more use of satellite services," said Jimmy Scheffler, an analyst at The Carmel Group, a telecommunications research firm. In these cases, satellite often represents the only possible communications option.

These natural disasters as well as the aftermath of Sept. 11, 2001, have created more awareness about satellite services among businesses. "More and more companies are now looking at ways that satellite services can augment their disaster recovery plans," Gartner Group's Reali told TechNewsWorld. Consequently, Gartner expects satellite voice service revenue to increase by 10 to 15 percent during the next few years.

The Bundled Option

While such growth represents welcome news to the vendors, they still face a number of challenges. "In many cases, customers are not focusing solely on voice services," Carmel Group's Sheffler told TechNewsWorld. "They want to buy voice, data, and video services from their service provider."

The satellite voice vendors have been expanding their offerings with the initial focus centered on data services, such as Internet access. Globalstar said its data service subscriber base grew 900 percent in 2005.

The video component may be more difficult for the satellite voice vendors to deliver. "I've heard some talk of the satellite voice suppliers teaming up with folks like DirectTV and Dish Network, but it is unclear how close such partnerships may be to being completed," noted Carmel Group's Sheffler.

As the year unfolds, questions remain about satellite service providers' future. Many believe consolidation is inevitable. "I think the satellite voice market can support two strong companies, and right now there are three, so a merger somewhere in the future would not surprise me," concluded Sheffler.