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MOBILE SATELLITE COMMUNICATIONS --
From Obscurity to Overkill
By: Patricia T. Whalen
Michigan State University
Mass Media Ph.D.Program
Mailing Address: 3059 Biber Street, S-2
East Lansing, MI 48823
517/333-3424
E-Mail: [log in to unmask]
Submitted to the International Communications Division of
The Association for Education in Journalism and Mass Communication
April 1, 1995
wp51\pwp1210S
MOBILE SATELLITE COMMUNICATIONS --
From Obscurity to Overkill
ABSTRACT
This paper traces the origins of international mobile satellite
communications, identifies those mobile satellite services available
today
and compares the various proposed global Personal Communications Networks
(PCNs), including "INMARSAT-P" and the Low Earth Orbit (LEO) satellite
systems known as Motorola's "Iridium" and Loral/Qualcomm's "Globalstar"
systems. The paper also reviews the current regulatory environment for these
services, especially in the United States where market access is critical
for
success, and predicts that the services will ultimately become
commodity-like, resulting in intense price competition that will drive
some
would-be providers out of the industry.
MOBILE SATELLITE COMMUNICATIONS --
From Obscurity to Overkill
INTRODUCTION AND OVERVIEW
A number of changes in international satellite communications have occurred
over the past five years that will have far-reaching affects on the way
people communicate in the future. These changes include a shift from the
1980's model of relatively stable, but high, prices; few competitors; and
limited technology options, to a new era of price competition, rapid growth
in the number of international service providers, and the implementation
of
digital technologies that dramatically reduce the size and cost of
satellite
equipment and allow for significant improvements in system capacity.
Organizations such as the Washington, D.C.-based International
Telecommunications Satellite Organization (INTELSAT), which began the
decade
of the 1980's with a virtual worldwide monopoly on international video
and
telephony satellite transmissions, ended the decade facing an uncertain
future. That uncertainty was, in large part, due to a regulatory and
competitive onslaught of newly authorized, privately-owned competitors, such
as PANAMSAT and Orion. In addition, INTELSAT's future was clouded by
AT&T's
1989 completion of TAT-8, the first of many planned transoceanic fiber
optic
cables, as well as a significant Ku-band capacity shortage that was
caused by
the slow-down in launches following the 1986 shuttle disaster and
exacerbated
by the rapid growth in Very Small Aperture Terminals (VSATs) and
metropolitan
teleports, which needed the digital capability and urban access of
Ku-band
services.
But probably the most significant change in the satellite industry in the
1980s went relatively unnoticed by the large fixed satellite system
operators
and end-users. That was the birth and gradual development of an
international mobile satellite network headquartered in London and known
as
the International Maritime Satellite Organization (INMARSAT). In fact,
in
the first ten years of INMARSAT's existence, from 1979 to 1989, fewer
than
10,000 users purchased equipment capable of operating within the INMARSAT
system.
But in the subsequent five years, the number of INMARSAT users jumped to
more than 50,000 commissioned terminals, and the organization is predicting
usage in the hundreds of thousands by the end of this decade. The reason
for
this growth is the implementation of new digital technologies and the
launch
of a second generation of satellites that allowed for significantly
smaller
and less costly mobile terminals and a more efficient use of the limited
capacity of the system. This has allowed a reduction in the once stable,
but
very high service price of $10.00 per minute for a voice call, charged
throughout the 1980s, to a wide array of prices as low as $4.00 per minute
today. The system upgrades also allowed INMARSAT to expand on its
original
mission of improving safety of life at sea on large ocean-going vessels,
to
today providing communications services virtually anywhere in the world
on
ships of any size, trucks, airplanes, and in transportable suitcase and
briefcase-size units.
The possibilities for this type of mobile system caught the imagination of a
number of communications experts, and has led such powerful individuals
as
George Fisher, Chairman of Motorola, and Bill Gates of Microsoft fame to
herald the concept of mobile satellite communications as the future of
international communications.
Given the relative obscurity of the INMARSAT system prior to the early
1990's, it is somewhat astounding to note the amount of interest in mobile
satellite communications today. Dozens of companies have announced plans
to
move into the next phase of mobile satellite technology: Low Earth Orbit
(LEO) systems. Several of these companies, most notably Motorola, have
already spent millions of dollars and committed billions more to build and
launch complex LEO systems to interconnect with terrestrial cellular
networks
around the world to create what is referred to global Personal
Communications
Networks, PCN[1].
THE PLAYERS AND THEIR HISTORY
Before exploring these proposed global PCN systems and the regulatory
environment that could have an important impact on their future development,
it is first necessary to understand the current status of mobile
satellite
communications -- who the key players are in the industry, how they became
players, and what their relationships are to one another. This is
especially
important because these events are so current that they are literally
unfol
ding in real time, right before our eyes. Almost daily, we see new
regulatory policies, new partnerships, new competitors, and new
technologies
being introduced. Having some foundation in the roots of the system may
help
future analysts gain a better understanding of the complexity of the
industry
and the challenges that it will face in the future. There are a number
of
important players in this industry, but this paper will address five
organizations specifically and then review the current mobile satellite
services available today and then the proposed global PCN systems.
1. Comsat Corporation:
COMSAT, which stands for Communications Satellite Corporation, is a
Bethesda, Maryland-based, publicly-traded (NYSE) company that was created by
an act of Congress in 1962 to help the United States develop an
international
satellite system. The company played an instrumental role in developing
and
launching the first commercial geosynchronous satellite and in
establishing
the international consortium, INTELSAT, in the mid-1960s. Ten years
later,
it played a similar role in developing the first mobile satellite service
and
in creating the mobile satellite consortium, INMARSAT. Today the company
is
the sole U.S. Signatory to and largest owner in INTELSAT (with a 21%
share)
and in INMARSAT (with a 24% share). Despite its relatively small size
--
its $825 million annual revenues seem almost meager compared to the giants
of
the communications industry -- the company's expertise, not only in
satellite
technology, but in the international politics and diplomacy required to
operate in the global communications arena, will make it a formidable player
in the development of future mobile communications systems.
2. INTELSAT:
The Washington, D.C.-based International Telecommunications Satellite
Organization was created in 1965 as an inter-governmental treaty
organization, with COMSAT initially acting as its systems manager. The
organization is currently composed of 134[2] member countries which act as a
consortium to own and operate a large network of geosynchronous satellites
that are currently operating in a "fixed" environment. These satellite,
despite an increase in competition in recent years, continue to carry the
vast majority of international video and telecommunications signals beamed
throughout the world. There is nothing, however, in the INTELSAT
structure
that would prohibit it from entering into a "mobile" environment. As a
matter of fact, the INTELSAT system, because of its considerably higher
capacity and lower costs than the INMARSAT system, is currently being used by
the U.S. Navy and by some large cruise ships in a test of that system's
ability to communicate with "stabilized" antennas aboard ship.
The INTELSAT Directorate staff manage the day-to-day operations of the
system, but its management directives come from the INTELSAT Board of
Governors, made up of the largest owners in the system who meet four to six
times a year. COMSAT World Systems Division is the U.S. "Signatory" and
representative on this Board. Government oversight of the organization is
conducted through coordination with the Signatories and a bi-annual
Assembly
of Parties. The U.S. State Department is the official "Party" to
INTELSAT.
3. INMARSAT:
COMSAT Corporation started the mobile satellite industry with the launch of
three L-band MARISAT satellites in 1976. Until then, only fixed
satellite
technology, like that used by INTELSAT, was used for commercial
communications, which operated in the C and Ku-bands in a geosynchronous
orbit using large gateway antennas that pointed at the satellites from a
relatively "fixed" position. The use of L-band and the new mobile satellite
technology -- while still using a geosynchronous orbit and a large "coast
earth station" on one end of the transmission -- allowed the use of much
smaller antennas on the other end that no longer needed to be "fixed" in
place. The antennas could be stabilized like a gyroscope and could also
point to a satellite while moving through the satellite's footprint. The
application for international maritime communications and for broader
mobile
applications, including aeronautical and land mobile, was obvious to the
COMSAT engineers who designed it.
The cost of implementation, however, was prohibitive given the need to
develop a market from scratch. So COMSAT created a unique venture between a
government application and a commercial enterprise, with half of the
MARISAT
capacity committed to the U.S. Navy and the United Kingdom's Royal Navy
and
the other half intended for commercial purposes.
But even that was not enough to secure a successful venture. Because of the
international nature of the communications (it was assumed that the
majority
of users would be ships on the high seas in "international" waters), and
its
experiences in establishing INTELSAT, the company decided that a private
corporation representing the interests of one country would have little
chance of success. It was decided that many countries had to be united under
one umbrella, which had to accommodate governments as well as both
state-run
and private sector telecommunications organizations.[3]
The result was the formation of INMARSAT in a structure much like that of
INTELSAT. It was organized as an intergovernmental institution whose
function was to support a communications capability for the protection of
life and property at sea.
The U.S. Congress passed the International Maritime Satellite
Telecommunications Act in 1978[4] designating COMSAT as the "sole
operating
entity of the United States for participation in INMARSAT, for the purpose
of
providing international maritime satellite telecommunications
services."[5] (As
we shall see later, the specific words, "maritime" and "international"
have
stirred a great deal of controversy about both INMARSAT's and COMSAT's
plans
to provide domestic land mobile services.)
The INMARSAT Convention and Operating Agreements were signed in 1979[6],
taking the limited joint venture to a truly global system. The United States
and the Soviet Union were two of the original ten members. Today
INMARSAT
membership stands at 76, with the largest participants being the U.S., the
U.K., Norway, Japan, France, and the Russian Federation. COMSAT Mobile
Communications acts as the U.S. Signatory to INMARSAT and sits on the
INMARSAT Council, which is the equivalent of the INTELSAT Board of Governors.
Despite its maritime beginnings, in 1989 INMARSAT adopted amendments to its
Convention and Operating Agreement[7] to allow it to provide land mobile
satellite services, and a number of manufacturers now offer the necessary
land transportable terminals. While there continues to be some limitations
on the use of the service in various countries (including the United
States)
because of fear of bypassing local telecommunications authorities,
temporary
licenses from local governments can usually be obtained for emergencies
and
fast breaking news stories.
A unique feature of the INMARSAT system (in contrast to the INTELSAT system)
is that while all 76 members are partners in deciding the design and
implementation of the overall satellite system and receive revenues based
on
their ownership interest in the organization, each partner also acts in
competition with each other for ground station services. When the system
first began, there were only three ground earth stations from which end
users
could choose, and two of them were owned and operated by COMSAT in the
United
States. Today, there are over 25 earth stations throughout the world,
including two new stations in the United States owned and operated by IDB
Communications, Inc. that compete with the COMSAT stations.
4. AMSC:
The American Mobile Satellite Corporation (AMSC) is an outgrowth of a 1989
FCC decision to create a U.S. domestic monopoly for the provision of
mobile
satellite communications services. This decision came about after twelve
separate applications were made for the limited frequencies that had been
set
aside for mobile satellite communications within the United States. The
FCC
requested that the twelve applicants merge their license applications
into
one. Eight did so, with some later dropping out. Today, the three
largest
owners in AMSC are McCaw Cellular (now merged with AT&T), MTEL
Corporation
(owner of Skytel paging, which is applying for a domestic PCS license and
is
affiliated with Singapore Telecom), and Hughes Communications, Inc.
(which is
a domestic satellite operator and a sister unit to the Hughes subsidiary
that
is currently building the AMSC satellites).
The AMSC system will offer voice and data services using its own dedicated
L-band geosynchronous satellite. Although it is authorized to deploy
three
satellites, it currently plans to launch just one and use as backup the
MSAT
satellite being launched in mid-1995 by TMI Communications Co. Ltd., the
Canadian mobile satellite service licensee.
The AMSC satellite is scheduled for launch the first week in April 1995 (and
should have been launched by the time this paper is read). If the
launch is
successful, AMSC will provide a wholesale service to value-added
resellers,
like cellular telephone service providers, who will then package the
AMSC's
services into their own mobile communications services for such markets
as
land mobile (primarily for cars and trucks), maritime, aeronautical and
fixed-site applications. The AMSC system, combined with the MSAT system,
while different in architecture than the proposed global PCN systems, will
be
the first test of the ability of mobile satellites and cellular systems
to
seamlessly operate with one another. An early success or failure could
have
long-term consequences in other organizations' willingness to participate
in
the future PCN systems as partners or financial backers.
5. AT&T:
Other than its recent $17 billion merger with McCaw Cellular, which is the
largest owner in AMSC, AT&T has kept a relatively low profile with regard
to
the highly touted mobile satellite industry.
This communications giant, however, which generated nearly $73 billion in
revenues in 1994, could ultimately play the largest role in this industry,
either through direct participation or indirectly, by creating market
impacts
that may not seem obvious on the surface. AT&T is currently COMSAT
World
Systems' largest customer, making it the largest user of the INTELSAT
satellite network. At the same time, it is also the largest builder and user
of undersea fiber optic cables. As AT&T moves more traffic off of the
INTELSAT satellites onto its own cables, it creates an economic pressure for
INTELSAT to seek new markets and other sources of revenue, and an obvious
option would be mobile communications. The INTELSAT tests with the U.S.
Navy
and the cruise market mentioned above may be the first indicators of this
possible shift in strategy.
AT&T is also the largest supplier to COMSAT Mobile Communications, providing
both the domestic and international terrestrial links to and from
COMSAT's
coast earth stations, which operate with the INMARSAT satellites. In
1993,
after COMSAT unsuccessfully tried to negotiate lower access charges from
AT&T, that organization exercised its financial clout by entering into an
agreement with COMSAT's U.S. competitor, IDB Communications, to route the
majority of its shore-to-ship traffic to their coast earth stations.
The issue was hotly debated in FCC legal filings, but in an interesting
role-reversal (because AT&T was providing financial support to an up-start
competitor to an entrenched monopoly, i.e. COMSAT), the FCC allowed the
agreement to go through. In true oligopoly fashion, however, COMSAT backed
off its demands for lower prices from AT&T, so a compromise was reached
where
AT&T continues to route a proportionate amount of shore-to-ship traffic
to
COMSAT's coast earth stations as COMSAT routes its ship-to-shore traffic
through AT&T.
The experience, however, may have taught COMSAT how vulnerable it is to its
suppliers and may, therefore, have an impact on how it will want the
network
configured for the planned INMARSAT-P PCN system. AT&T may also have
learned
from the experience -- it may have just been testing the waters to see
what
it could get away with at the FCC. Since the INMARSAT ACT does not
preclude
other carriers from building and operating INMARSAT coast earth stations
in
the United States (hence the start-up of IDB Mobile Communications), AT&T
could conceivably build its own stations and put COMSAT's coast earth
stations out of business. While one would assume that neither the FCC nor
the FTC would allow this type of predatory behavior, that is exactly what
happened in the mid-1980's with COMSAT's INTELSAT earth stations. With
less
than $300 million in revenues (estimated) being generated by COMSAT's
coast
earth stations today, it is unlikely that AT&T would find the market
enticing
enough to make the investment to build its own coast earth stations. But
as
the use of the current INMARSAT services continues to grow and with the
potential for the global PCN markets to generate revenues of $10 billion per
year[8], it is unlikely that AT&T will sit on the sidelines.
INMARSAT SERVICES AVAILABLE TODAY:
Technology improvements and digitalization within the INMARSAT system have
allowed the mobile terminals that operate with INMARSAT satellites to
drop in
size and weight from the original 1-meter, 200 lb. "radome" that could
only
be used on large ocean-going vessels to 5 lb. "briefcase" size units that
are
not much larger than a laptop computer. A third generation of INMARSAT
satellites, known as the Inmarsat-3s are being built by Martin Marietta and
are due to be launched starting in late 1995 or early 1996. They will
allow
for even lower service rates and smaller terminals.
The system has five basic services today that use mobile terminals
manufactured by a wide variety of equipment manufacturers around the
world,
including Magnavox, Toshiba, Atlas Electronics, and Ball Aerospace.[9]
INMARSAT A:
First is the traditional maritime analog service, called Inmarsat A, for
telephone, telex, facsimile, and high-speed (56/64 kbps) data, which
will also allow broadcast quality audio and compressed video. There
are
currently 24,200 Inmarsat-A mobile terminals in use today, with
7,200 of
them configured as "suitcase" type units for land-mobile
applications.
INMARSAT B:
Next is the Inmarsat B service, the digital replacement for Inmarsat A,
which will be phased out over the next few years. All of the
services
available with Inmarsat A will also be available with Inmarsat B.
Ground station Inmarsat B service became available from COMSAT in 1993
and the first of the equipment models began shipment in 1994. There
are
currently 240 Inmarsat-B terminals in use, with 165 of them in land
mobile applications.
INMARSAT C:
Inmarsat C service is a digital, store-and-forward text and data service
that uses small, inexpensive football-sized shipboard terminals or laptop
computer-sized land mobile units. Journalists have found these
particularly
useful for filing stories directly from the field in remote parts of
the
world. Trimble Navigation has also found a way of incorporating a
Global
Positioning Service (GPS) into the unit so users can not only pinpoint
their
position anywhere in the world, but can communicate that position to
a
headquarters unit for tracking purposes. There are currently l4,200
Inmarsat
C units in service, with 5,200 used for land-mobile purposes.
INMARSAT M:
Inmarsat M provides many of the same services available from
the Inmarsat A and B units, but at nearly half the cost and with
equipment half the size and weight. It provides a fairly high quality
digital voice service, that can accommodate fax and computer
connections, but is not capable of transmitting video or high-speed
data. Inmarsat M equipment was first available in 1993, and currently
about 3,500 are in service, with 2,800 of them in land mobile
applications. INMARSAT initially believed the market for this service
would be the smaller ships that could not accommodate the larger
satcom
terminals, but to date, the market most actively interested in
Inmarsat
M is the traveling business executive who visits very remote sites
around the world.
AERO A & C:
Aeronautical service for use on aircraft in international
flight was also approved by the INMARSAT Council, but the recent poor
financial state of many of world's airlines as well as the very high
cost of the aircraft avionics (over $500,000 per plane) has kept the
numbers relatively low. There are currently 460 Inmarsat Aero units
in
service today, with hopes that the advent of a lighter weight, less
expensive Aero-C data-only service will spark some growth in this
industry.
REGULATORY ENVIRONMENT:
In reviewing the value to potential U.S. users of INMARSAT mobile
communications services, one must look at two questions from a regulatory
perspective. The first is, "Can INMARSAT services legally be used in the
United States today, given that the FCC considers it an 'international'
service?" The second question is, "Can COMSAT participate in the future
INMARSAT-P services?" (or translated, "Will the U.S. market be open to the
future INMARSAT-P services?")
The answer to the first question is "yes," but FCC authority must be given
for each use. Although only authorized for use in the United States
under
special circumstances, the INMARSAT services have proven invaluable to the
U.S. Forestry service during major forest fires, and were used extensively
by
the Red Cross as well as news organization during Hurricane Andrew, the
San
Francisco and Los Angeles earthquakes, and several devastating floods
over
the past few years.
The requests for use of these terminals in the United States has gone up
dramatically in the past few years, partially because the terminal size,
cost
and usage fees have dropped significantly, but also because the world has
just recently become aware of the system. The first widespread public
display of its effectiveness was during the Persian Gulf War when CNN
correspondents used an INMARSAT terminal to report live from a hotel balcony
in Baghdad, despite all of the other communications systems being either
down
or in the total control of the Iraqi government.
The significance of the event was somewhat astounding for INMARSAT. This
live coverage -- the only live coverage from Iraq -- was not being brought
to
the world via the sophisticated INTELSAT system, but was being
transmitted
from a land-mobile terminal the size of a small suitcase over an INMARSAT
satellite. At that time, there were fewer than 15,000 users of INMARSAT
in
the entire world, and all but a few of them were on ships at sea.
There are a number of advantages for news organizations to use INMARSAT,
despite its high cost and the fact that it has much lower capacity than the
domestic satellites and the INTELSAT system (250 simultaneous calls in an
entire ocean region vs. 18,000 on just one INTELSAT satellite) and it is
not
capable of the extremely high transmission speeds that allow broadcast
quality video signals. INMARSAT's key advantage is that it offers
"demand-assigned" service that requires no transponder leasing,
coordination
efforts, or monthly fees. It is a transportable, pay-as-you-use-it
service
that allows the user to make or receive telephone, data, or facsimile
calls
to anywhere or from anywhere in the world, by-passing local terrestrial
telephone systems. Newer INMARSAT terminal models also offer a 56/64 kbps
transmission capability that permit broadcast quality audio, high-speed
data
or photo transmission, and compressed video. Following the CNN
broadcast
from Iraq, COMSAT was flooded with requests for service from every major
broadcaster, wire service and print news organization. The following
excerpt
from a 1993 joint-FCC filing by Capital Cities/ABC, CBS, NBC and TBS
shows
the value that the broadcasters currently place on the service:
Capital Cities/ABC, CBS, NBC and TBS are major users of
international television, voice, and data transmission services in order
to bring fast-breaking news, sporting events, and other programming
from
overseas to the American public, and, increasingly, to export
programming abroad. . . Because even the current generation of INMARSAT
terminals are small and light enough to be transported by a single
individual, they are especially well-suited to be used for Satellite
Newsgathering operations and for providing coordination and control
communications from the remote site to the satellite operator's
International Operator Center (IOC) and the broadcaster's network
control center.
Over the past few years, and particularly since the coverage
of the Persian Gulf War, the Networks' usage of the INMARSAT satellite
services has increased dramatically (200-400%). For example,
INMARSAT
mobile terminals have been used extensively by the Networks in
Somalia
and Bosnia in bringing the American public coverage of news events
in
those locations. The use of such terminals accessing INMARSAT
services
is expected to continue increasing significantly for the foreseeable
future..."[10]
Because of the widespread interest in using INMARSAT services in the United
States, where no similar service will be available until the AMSC system
goes
into operation, the FCC issue an Order in February 1992[11], authorizing
the
"interim use" of Inmarsat in the United States until such time as the AMSC
system becomes operational. The Order states:
The interim service authorized herein is a domestic
service, not an international service, and is an exception to the traditional
role INMARSAT has played within the U.S. telecommunications policy
-- that of
providing satellite capacity for communications that are
international in
character...
We wish to emphasize that our decision herein (and in a companion order
involving aeronautical service) is also based on the unique need for the
development of mobile satellite service within the United States and
the
specific circumstances surrounding it. While future additional
domestic uses
of Inmarsat might be found to be in the public interest, INMARSAT
should not
generally be viewed as an available option for other interim
domestic
services within the U.S. while the permanent structure for those services
is
being developed.19
At AMSC's request, that Order was modified in the summer of 1993 to require
any user of INMARSAT equipment to show how they will transition to the
AMSC
service within 180 days after that system is operational. While causing
some
alarm among INMARSAT equipment manufacturers, who know that the equipment
is
not compatible with the AMSC system, many believe that because of the
high-speed data (56/64 kbps) capability of the INMARSAT services, which will
not be matched by AMSC, users will continue to be granted the special 214
"Temporary Authority" that they always have. The FCC has not been explicit
about how it plans to handle these requests once AMSC is fully
operational
(which could be as early as June 1995).
To properly address the second regulatory question, "Can COMSAT participate
in the future INMARSAT-P services?" we should look at all of the proposed
global PCN systems, including INMARSAT-P.
PROPOSED PERSONAL COMMUNICATIONS NETWORKS:
"Global PCN" is the next phase of digital cellular service which envisions a
satellite-based, international telecommunications network that uses
small,
hand-held phones and other personal communication devices anywhere in the
world at any time. In January 1995, there were five Global PCN hopefuls
who
applied to the FCC for one of the licenses to develop voice service using
low-earth orbiting (LEO) or middle-earth orbiting (MEO) satellite
constellations. According to Telephony Magazine, Motorola's Iridium
system,
Loral/Qualcomm's GlobalStar system, and TRW's Odyssey system were the
only
three potential global PCN systems that received one of the five available
licenses. "The FCC deferred the applications of two other companies,
Constellation Communications and Mobile Communications Holdings, until
January 1996 on financial grounds, giving them the opportunity to improve
their financial qualifications."[12]
Summaries of each of the proposed systems are as follows:[13]
Iridium: In June 1990, Motorola Corporation's Iridium system was the first
to propose a low earth orbit satellite network to interconnect with
terrestrial cellular networks around the world. It's architecture
consists
of 66 LEO satellites (11 satellites in each of six orbital planes).
Iridium
investors will own and operate Iridium gateway stations within their
territories for interconnection to the public switched telephone network.
The cost of the system is estimated to be $4 billion, and the following
investors have already signed partnership agreements to help foot the bill,
with $l.5 billion in funding coming from: Bell Canada, Sprint, Lockheed,
Raytheon, Khrunichev Enterprises (one of the largest rocket and aerospace
ventures in Russia), DDI (a Japanese communications company), STET (which
owns most of Italian telecommunications service providers), Sony,
Mitsubishi
Corp., the China Great Wall Industry Corp., VEBA AG of Germany, Korea
Mobile
Telecom, and a group of South American companies.
GlobalStar: The second most prominent potential entrant is the Loral
Corp. and Qualcomm GlobalStar system, which proposes a constellation of 48
satellites and which has recently announced partnership arrangements with
Alcatel, Dacom Corp. of Korea, Deutsche Aerospace, France Telecom, Hyundai
Electronics Industries Co, The Vodofone Group of England, Alenia Spazio,
Space Systems/Loral and AirTouch Communications (formerly PacTel Corp.).
Odyssey: Third is TRW's Odyssey system which proposes using a Medium Earth
Orbit (MEO) constellation of 6 - 12 satellites, and recently announced
that
Teleglobe Inc., Canada's international communications carrier, would
invest
in the $2.5 billion system. Aries: Fourth is Constellation
Communications's Aries plan, which announced on November 17, 1994, that
it
has teamed with Bell Atlantic Corp., E-Systems and Telecomunicacoes
Brasilleiras SA to build, launch and operate a global 46-satellite
system.
Ellipso: Fifth is the Ellipso system, proposed by Mobile Communications
Holdings, Inc., which would operate with 14 to 24 small satellites deployed
in three elliptical orbits. Its partnering team consists of Fairchild
Space
& Defense Corp., Harris Corp, Westinghouse Corp., IBM Corp. InterDigital
Corp., and Israeli Aircraft Industries. AMSC: A sixth entrant, the
American
Mobile Satellite Corp., deferred disclosing its financial arrangements
until
1996, and according to a recent WALL STREET JOURNAL article[14] won't be
eligible
for an FCC license until it does so. Because the FCC had only five
licenses
to potentially hand out in January and had five applicants with completed
financial information, AMSC's deferral meant that the FCC could avoid
auctioning the licenses. AMSC officials said their service could be
accommodated later through spectrum-sharing arrangements.
It was reported that all of the applicants for the licenses "had held their
breath, concerned that six complete applications would necessitate an
auction. That, in turn, could easily have led to other countries deciding to
conduct similar auctions, boosting costs and extending for years the
rollout
of the new services."
A recent report by the U.S. Department of Commerce[15] stated:
In addition to their financial, regulatory, technical and commercial
challenges, the U.S. LEO proposals also face competition from a
growing
number of international LEO proposals. Consortia in France, Mexico,
Russia, and Belgium are all considering separate proposals to launch
or
develop small satellite technology, but none is considered as far
along
as U.S. entrants in technical or financial planning. INMARSAT took
itself out of the LEO field at its August 1993 Council meeting, ruling
out a LEO configuration for Project 21.[16]
INMARSAT-P: This system, previously referred to as INMARSAT's "Project 21,"
will use 10 operational and two spare intermediate circular orbit (ICO)
satellites in two ICO planes, costing approximately $2.6 million. The
satellites will relay calls between the user and a Satellite Access Node
(SAN) within the satellite's view. SANS will be interconnected using
terrestrial facilities to form a network --called the P-Net -- and will be
linked through Gateways owned and operated by third parties, to public
terrestrial and cellular networks."[17] INMARSAT expects to be in service in
1999
and to be fully operational by 2000.
INMARSAT-P currently has 38 affiliate investors from countries spanning six
continents. They are all current INMARSAT signatories or their
subsidiaries
and have already provided $l.4 billion to fund the project. It is likely
that this head-start will put them in the market before any of the other
global PCN contenders. That is why, despite its not pursuing a LEO system,
all of the other global PCNs tend to look at INMARSAT as their most
direct
competitor and potential blockade to their future success. Consequently,
some of them, especially Motorola, initiated legal proceedings within the
FCC
to keep them out of the competition.
Remarks made by Bruce Crockett, COMSAT President and CEO, on May 20, 1993,
before the U.S. House of Representatives' Subcommittee on
Telecommunications
and Finance of the Committee on Energy and Commerce, outlining COMSAT's
and
INMARSAT's plans for INMARSAT-P drew very heated comments from a number
of
other executives also testifying at the same hearing, because they felt
that
COMSAT and INMARSAT have overstepped their authority to provide service
outside the international maritime arena. The most vocal of these opponents
was Mr. Durrell Hillis, Corporate Vice President and General Manager of
Motorola, Inc. Satellite Communications Division,
Motorola filed a Petition for a Declaratory Ruling, asking the FCC to
declare that 1) COMSAT does not possess the statutory authority to
participate in the global PCN service proposed as INMARSAT P, primarily
because the International Maritime Satellite Act and subsequent FCC rulings
allowed only for the provision of non-maritime services that were
"ancillary
to and supportive of its maritime services."[18]; and 2) "the U.S. public
and
national interests neither support such participation through an
intergovernmental treaty organization, nor justify granting INMARSAT
access
to the United States market for Inmarsat-P services."[19]
The Motorola Petition stated that "the U.S. Government should insist that
if COMSAT and other interested INMARSAT Signatories proceed with global
handheld MSS (mobile satellite service), they must compete on a truly level
playing field. At a minimum, they must establish a new a separate entity
which would: (1) permit private competitors to have equal access to
foreign
markets; (2) have built-in safeguards against cross-subsidies; (3) shed
INMARSAT's governmental privileges and immunities; and (4) compete for scarce
spectrum on an equal footing. The Commission should condition access to
the
U.S. market by such an entity on compliance with these principles." (pp.
3 &
4).
Perhaps to Motorola's surprise, COMSAT's Bruce Crockett and COMSAT Mobile
Communications Division President Ronald Mario set off in late 1993 and
throughout 1994 on worldwide speaking tours to convince their INMARSAT
partners that they should do just what Motorola suggested. At an Asian
conference in December 1994,[20] Mr. Crockett said, "The world is becoming
economically interdependent and more competitive. Nations can no longer
steer their economic courses within their own borders and shield themselves
from international commercial rivalry." Even more controversially, he
said
"Inmarsat can't shield itself from competition. It can no longer steer a
course based on a committee of conflicting captains who must first reach a
protracted consensus before issuing a heading. It can no longer afford to
be
the United Nations of satellites." Acknowledging Motorola's powerful
arguments, he said, "The privileges and immunities granted by the INMARSAT
Convention and Operating Agreement are to competitors like a red flag in
front of a bull... Motorola has attacked INMARSAT for having unfair
advantages with customs authorities, tax-exempt status and immunities
from
liability. COMSAT has expended considerable time and effort explaining
itself to the government when we'd rather be out competing in the
marketplace."
The COMSAT lobbying campaign, half aimed at other INMARSAT signatories and
half at the U.S. government, apparently worked. The signatories with
majority ownership in the INMARSAT system recently agreed to proceed with the
Project 21 handheld system falling under the purview of a separate
INMARSAT
affiliate that will own and operate the satellites and provide service to
consumers. According to VIA SATELLITE Magazine[21], the affiliate, "which
is
expected to be owned partly by INMARSAT signatories and partly by INMARSAT
itself, may well be opened to outside investors in the future."
Regarding
the U.S. government's response, The WALL STREET JOURNAL reported in
November
1994 that the Clinton Administration had signaled that it was willing to
allow the INMARSAT mobile-phone service, but for it "to be kept fully
separate from the consortium's existing maritime-phone service." The most
recent confirmation of the U.S. government's acceptance of the INMARSAT-P
system and its willingness to allow it to operate within the United States
comes from a "Statement by the Representative of the Party of the United
States of America"[22] released in January 1995 following the December 1994
INMARSAT Assembly of Parties' bi-annual meeting. In that statement, the
government said, "The United States welcomes the competition that will be
offered by INMARSAT P services and will work to assure that these services
can be provided under fair and open competitive conditions to persons in
the
U.S." The statement went on to say, however, that "our support for the
affiliate is contingent upon maximum separation between INMARSAT and the
affiliate." and "there should be no cross-subsidization between INMARSAT
and
the INMARSAT-P Affiliate." Attendees at the Assembly of Parties'
meeting
noted that while the larger signatories rejoiced at the outcome, smaller
countries (most notably Cameroon and Columbia, which filed statements of
dissent) were very disturbed by the current state of affairs and will mourn
the loss of what Mr. Crockett calls the "United Nations of Satellites."
CONCLUSION:
Based on the events of the past five years, there is little doubt that the
mobile satellite communications industry will continue to grow at a
significant pace over the next few years and that the new INMARSAT PCN
affliate company will play an important role. By the beginning of the next
decade, as new PCN satellite systems are launched, the industry will grow
exponentially. But there are two factors that must be taken into account
before one should blindly accept COMSAT'S market prediction that revenues
will run as high as $10 billion in annually within ten years.[23]
First, let us assume that the demand for services will be as great as the
future PCN providers hope. There is a basic tenant of economic theory
that
says, "In competitive industries, entry by new firms takes place until
excess
profits are reduced to zero, and only sufficient profits are earned to
return
the market price of capital and other inputs." (Omen & Wildman, 1992)[24]
Simply
put, the very high profit margins that exist today for INMARSAT services,
because users have few options, will begin to disappear as new providers
enter the market and price competition intensifies. Eventually, if all of
the organizations that say they will be providing service, become
operational, those profit margins will shrink to a point that companies
will
no longer find it profitable to be in that market. Additionally, it will
be
difficult to differentiate the PCN services, since cellular operators
will be
looking for a simple "pipe" to carry their traffic, so they will likely
become commodities sold on price and availability alone.
Second, the building and launching of satellites is a very expensive and
risky activity. Motorola has said that its system will cost in excess of
$4
billion. INMARSAT's will cost in excess of $2.6 billion. There is a
strong
motivation on the part of the cellular companies to find or develop other
less expensive options for obtaining the same type of service. One cannot
help looking back at the mid-1980s and the clamor for the domestic mobile
satellite licenses that ultimately forced the FCC to merge them into one
license and form AMSC. That organization, as it began construction on its
satellite, looked forward to serving the vast rural areas that did not
have
any cellular coverage. Today, with advances in cellular technology,
those
areas are being widely served by terrestrial networks and are becoming
more
so every day. In addition, cellular providers are joining forces in such
ventures as MOBILE LINK, which creates a seamless cellular connection for a
user virtually anywhere in the country. Consequently, AMSC has had to
create
new strategies to fill its satellite -- one of which was to lower prices
and
sell at wholesale to resellers. Another strategy has been to market to
ships
at sea, and that strategy will certainly have repercussions for COMSAT
and
INMARSAT in the future.
The jury is out on how many systems the market will be able to support. For
those that get in early, there appears to be a huge demand and
significant
profits to be made. But those who arrive late may wish they had not come
at
all.
###
MOBILE SATELLITE COMMUNICATIONS --
From Obscurity to Overkill
Submitted to the International Communications Division of
The Association for Education in Journalism and Mass Communication
April 1, 1995
[1] In this paper, we refer to the satellite-based systems that will interco
nnect with
cellular systems as global PCNs in contrast with PC
S, Personal Communication Service,
which we use to refer to th
e domestic terrestrial-based cellular networks that are curr
en
tly being auctioned by the FCC.
[2] INTELSAT membership as of September 1994.
[3] From a speech entitled, "Frontiers Without Borders: Competitive Satelli
te
Communications for the 21st Century," by Bruce L. Crockett,
President and CEO, COMSAT
Corporation, delivered February 10,
1994, at the Satellite XIII conference in Washington
D.C.
[
4] 47 USC 751 Amendment to the Communications Satellite Act of 1962, Public La
w 95-564,
95th Congress.
[5] 47 USC 752, Sec. 503 (a) (1).
[
6] Convention of the International Maritime Satellite Organization and Operati
ng
Agreement of the International Maritime Satellite Organizat
ion, September 3, 1976, 31
U.S.T. (entered into force July 16,
1979).
[7] INMARSAT adopted the land mobile amendments to its Convention and
Operating Agreement
at its Sixth Extraordinary Assembly of Pa
rties meeting held January 17-19, 1989.
Ratification of the a
mendments requires approval by two thirds of its membership. While
the U.S. State Department, the U.S. Party to INMARSAT, has indicated its
willingness to
approve the amendments, it has not yet done so
.
[8] quoted by Ron Mario, President of COMSAT Mobile Communications, in a CO
MSAT
Corporation press release dated January 23, 1995.
[9] So
urce of COMSAT and INMARSAT service information: COMSAT Mobile Communications
Backgrounder, dated November 1994.
[10] Reply Comments of Ca
pital Cities/ABC, CBS, NBC and TBS in the matter before the FCC,
File No. ISP-94-001 of Motorola Satellite Communications, Inc. Petition for
a Declaratory
Ruling Concerning Participation by COMSAT in a
New Satellite System Being Developed by
INMARSAT to Provide Pe
rsonal Land Mobile Communications Services.
[11] FCC Order and Authorization,
FCC 92-26, adopted January 21, 1992, and released
February 4,
1992, page 3.
[12] Telephony, February 6, 1995 (p. 12).
[13] Specifications
for the global PCN systems were obtained from the November 1994 issue
of VIA SATELLITE Magazine, "Mobile Satellite Services: An Overview o
f Major GEO, LEO, MEO
and HEO Systems," by Roger J. Cochetti.
[14] The WALL
STREET JOURNAL, Friday, November 18, 1994, "FCC, Clinton Administration Both
Move To Spur Satellite Network Competition," by Mary Lu Carnevale.
[15] 199
4 U.S. Industrial Outlook, Chapter 29, "Telecommunications
Servi
ces" prepared by the U.S. Department of Commerce, Washington, D.C.
[16] Accor
ding to the November issue of VIA SATELLITE Magazine, in 1994 the INMARSAT
Council agreed to utilize a 12 S-band satellite (ten operational
and 2 spares)
constellation in an intermediate circular orbit
(ICO) of 10,300 km.
[17] According to a January 23, 1995, INMARSAT press rele
ase.
[18]
[19] Motorola's Reply Comments in Support of Petition For Declara
tory Ruling, dated
December 23, 1993, in the matter before the
FCC: The Participation of COMSAT Corp. in an
INMARSAT Progra
m for a New Satellite System to Provide Personal Land Mobile Communications
Services, File No. ISP-94-001, pp.i.
[20] In a speech by Bruce Crockett befor
e the Mobile Satellite Communications in Asia
Conference, Dece
mber 6, 1993, Hong Kong.
[21] Via Satellite Magazine, November 1994, (p. 38).
Phillips Publishing.
[22] COMSAT public document: Assembly/10/Report, S
ec:S10RA.
[23] Ron Mario quote in COMSAT press release, dated January 23, 199
5.
[24] Bruce Owen and Steven Wildman, Media Economics. Sage Publications,
Newbury
Park (1992), p. 15.
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