Satellite phones are linking the corners of the globe at a cost that is sky high
Sorry, wrong planet
Satellite phones are linking the corners of the globe at a cost that is sky high
Maurice Rompré gets a lot of voice mail. Sometimes he has as many as 25 messages waiting when he arrives for work at the Montreal headquarters of Iridium Canada Communications Inc., where he is the firm’s president. But a message on the morning of Dec. 18 from Bernard Voyer stood out. Voyer, a Quebec adventurer and acquaintance, had called during the night from Africa. He was on Mount Kilimanjaro in northeastern Tanzania, 4,600 metres up and planning his final assault on the summit. “He was at the foot of an ice field and looking out at a magnificent view across the African plains,” Rompré said. Instead of lugging the usual suitcase-sized satellite phone with his gear, Voyer was using a handheld phone that routed his message along a network of Iridium satellites and a ground station in Arizona before connecting to the traditional phone system. “He said he was holding a little marvel in his hand,” Rompré boasted.
Such “little marvels” are going to become more common as 3 telecommunications companies race to launch so-called conJ stellations of satellites to handle an exploding demand for com£ munications services. Iridium, a joint venture led by Motorola 1 Inc. and phone companies around the world, is the first to bei gin operations with its $7.6-billion constellation of 66 satellites g in low-earth orbit 780 km above the earth. But about 10 systems g are now on the drawing boards, providing everything from invoice and fax services anywhere on the planet, to constellations | like Teledesic, backed by Microsoft chairman Bill Gates, which intends to have 288 satellites in low-earth orbit by 2003 offering highspeed data and Internet connections. Ovum Ltd., a London-based firm, expects about 11 million subscribers for its various services by 2007, generating revenues of more than $7.5 billion.
Iridium, backed in Canada by phone giant BCE Inc., which owns 66 per cent of Iridium Canada Communications, is stealing almost a one year march on its competition, which will come first from the 48-satellite Globalstar system, promoted by Loral Space and Communications Ltd. of New York City and Qualcomm of San Diego. Globalstar will be gin offering service by the end of the year, a few months behind schedule. The delay illustrates the unique risks such companies face: a Zenith-2 rocket carrying 12 of its birds crashed after launching from Kazakhstan last fall, adding $130 million to a $5.4-billion price tag.
Cost is one of the big question marks about these networks. The market for such expensive services appears limited to corporate and government clients, while the investment needed to create global corporations with skeins of satellites is astronomical—$30 billion so far, according to Ovum. Skeptics doubt they will ever become profitable. “That’s going to be the real challenge,” says George Karidis, associate director of the Yankee Group in Canada, a telecommunications consultancy based in Brockville, Ont. “I’m not sure they can overcome it.” But that risk is not stopping companies from launching additional satellite services. Iridium’s competition will be rounded out by the end of 2000 when ICO Global Communications has its system of 10 satel-
lites in operation, orbiting at a higher altitude of 10,355 km. At a higher altitude, fewer satellites are needed to provide complete global coverage. ICO, based in London, is a spin-off from the International Marine Satellite Organization, known as Inmarsat, which has long provided suitcase-sized mobile phones that employ four satellites at a much higher altitude of 35,400 km. Voice quality is poorer when satellites are at higher altitudes because of the noticeable delay as the call bounces the long distance into space and back to earth.
Iridium is spending more than $1.5 million in Canada and about $270 million worldwide to promote its service and its Big Dipper logo. Rompré’s future competitors, such as ICO Canada general manager Graham Smith, appreciate that advertising. “Iridium is making people aware of satellite communications and that will help us,” Smith says. Iridium’s marketing will be directed at international travellers, as well as airlines, fishing fleets and resource companies with farflung operations. Late last month, the company spent $98 million to buy Seattle-based Claircom Communications Group Inc., which provides phone services to passengers on she airlines worldwide, including Canadian Airlines. Within five years, Rompré expects to have 100,000 phone and pager subscribers in Canada. But, he cautions, “this is definitely not a mass market.”
Globalstar and ICO have somewhat similar views of the market, although all will trumpet what they see as their own advantages. Iridium’s handsets, which customers are only now receiving because of production delays, are relatively large at about half a kilogram, and will initially cost about $5,000. Air time using the Iridium network will cost about $2.50 a minute for North American calls and up to $13 a minute for international connections, far more than cellular calls which can now cost as little as 10 cents a minute for off-peak service.
The phones from the three companies can also be used on cell networks where service is available. Globalstar and ICO Global both have somewhat simpler technology and smaller satellite networks than Iridium and officials at both firms say that will allow them to offer smaller and cheaper handsets and lower calling costs—benefits they hope will more than make up for Iridium’s head start. Lower costs will make their systems a better alternative for isolated communities in Canada and Third World towns and villages with no landbased telephone service. “The question is price,” says Gordon Masson, editor of Satellite Today, a U.S.-based trade journal. “People in the Third World don’t have thousands of dollars for a phone.” ICO handsets will cost about $1,500 with calls charged at about $2.25 to $5.25 a minute. Globalstar’s phones, says Canadian general manager Peter White, will cost about $2,500 and air time about $2 a minute.
So who will buy the new services? With mining operations in isolated areas on several continents, Barrick Gold Corp. of Toronto is a likely customer. Karen Sutherland, the company’s staff geologist, says Barrick will purchase several handsets for its geologists. PetroCanada is buying about 25 sets for its staff in Algeria and Tunisia. Brian Brenneman, the company’s Y2K project director, calls the purchase an insurance policy. If the so-called Y2K problem takes down the regular phone system on Jan. 1,2000, Iridium will give the company an alternative.
The federal government is looking at Iridium for use by the department of national defence and Parks Canada, say officials at the government’s telecommunications bureau. The government could buy a few hundred units, but initial trials were plagued by poor voice quality and dropped calls, says Paul Hayes, a senior official at the bureau. Iridium says such problems have been ironed out. One Iridium believer
is Rhonda Markel, the senior park warden at Vuntut National Park in the northern Yukon, where neither phone nor radio service is available. When backpacking in the park, Markel and her colleagues have no desire to take the much heavier Inmarsat phone. Iridium, she says, “is great because it’s really small.”
While voice services like Iridium have attracted much of the attention, Teleglobe Canada thinks it has found a winner in the Orbcomm satellite system launched by U.S.-based Orbital Sciences Corp. Teleglobe holds 50 per cent of the $500-million venture, which will never carry a single phone call over its constellation of 28 satellites. Marc Leroux, president of Teleglobe World Mobility, the division that holds the equity position in Orbcomm, says he already has 10,000 subscribers who use the system and its two-way messaging service to monitor industrial processes and equipment. One example: a driver carrying frozen seafood in a refrigerated truck equipped with an Orbcomm monitor can be notified by his dispatcher if the refrigeration unit breaks down, preventing a load of spoiled fish. The system can also be used to monitor pressure in oil and gas pipelines. “This is a new way of doing business for a host of industries,” Leroux says.
The allure of being able to communicate anywhere in the world— from the rugged trails of Vuntut National Park to the top of Kilimanjaro—is undeniable, even for people like Voyer who love to escape to the wilderness. When he reached the summit on Dec. 21, Voyer called his son Yoann back in Canada. “I described the sun rising over Africa and told him I would not forget to bring him a little stone from Kilimanjaro,” Voyer told Maclean’s. “It was fantastic.”
But for most Canadians, says analyst Karidis, “we have more telecommunications than we know what to do with.” Rompré and ICO’s Smith remember the naysayers who said more than a decade ago that cellular phone service was too expensive. As Iridium and its competitors begin their big sell, “the market will wake up,” Rompré predicts. After all, he enthused after his call from Voyer, “this is magic.” The question remaining for his company, and others like it, is whether the magic of a great technology can actually cover expenses. □
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