Iridium and Globalstar hit by delays

The launch of satellite-based global mobile telephony service has been further delayed as leading players Iridium LLC and Globalstar LP struggle to combat technical setbacks and quality-of-service issues. Licensing barriers also continue to threaten service in key countries.

Hardest hit on the technical front has been the Globalstar venture, enabling Iridium to widen its lead from a few months to nearly a year.

On 9 September, Washington DC-based Iridium formally delayed its full service launch by five weeks beyond the targeted 23 September to provide more time to work through satellite software problems that are affecting quality of service. The same day saw the destruction of 12 Globalstar LP satellites in a Russian-Ukrainian Zenit rocket failure.

The premium-priced Iridium service is now due to launch on 1 November, but users will have to wait for the cheaper services from Globalstar until some time in the second half of 1999.

Iridium officials have boasted of their success in obtaining licenses and partners around the world, with chairman Edward Staiano predicting that Iridium would be available in 90 countries by 23 September and 150 by year end. But by mid-September, Iridium still did not have licenses in key destinations for travelers, including France, Portugal and Spain.

In other places, such as Algiers. officials were still flying to convince governments not to detain travelers carrying Iridium phones or confiscate their equipment.

A special "ITU mark"--an emblem with the International Telecommunication Union stamp--has been agreed upon by many nations to enable free passage of the phones through customs, even in places where no service is authorized.

Compounding the situation, Iridium has been hit by problems both with handset production and with the system's sophisticated software, which had to be revised several times and uplinked to satellites in orbit. Motorola Inc. should have 2,000 handsets shipped this week for beta testing with selected customers and 100,000 handsets by year end, Iridium said. Its second manufacturer, Kyocera Corp., is expected to delay deliveries until later in the autumn, shipping 70,000 handsets by year end.

Meanwhile, Globalstar's latest launch failure dealt a major blow to the venture's business plan (see page 35) and delayed its service start to the last half of 1999. As a result, Iridium now has a full year to capitalize on being the only operator and to gain acceptance while functioning with a lower-than-anticipated quality of service.

Bernard Schwartz, chairman of New York-based Loral Space and Communications Ltd., which owns 42% of Globalstar, told analysts that the original target was to operate with no busy signals and no dropped calls. Instead, Globalstar will begin operations with a reduced constellation size--36 rather than 48 satellites--and the expected rate for busy signals and dropped calls will be 3%.

Call completion rate will be an issue for both systems. Iridium intends to get its call completion rate up over 90%, while Globalstar says it is now aiming for 97%.

Sound quality of the satellite phone services is also under scrutiny. Globalstar publicly demonstrated its systems 9 September in Paris at the Satel Conseil conference, delivering a clear, uninterrupted call over one satellite and the public network The Iridium system has carried tens of thousands of calls using multiple satellite links, but the company has yet to make any public demonstrations.

New York investment bank Merrill Lynch & Co., in a report on 10 September, said: "We spoke to an unaffiliated person who tried the [Iridium] system. He did not believe the sound quality matched that of cellular. He did indicate, however, that he thought the quality was sufficient for business use in areas where people have no other alternative."

U.S. news channel CNN has ordered six handsets, with the prospect of buying several more for each of the 23 international bureaux and the CNN headquarters in Atlanta, Georgia. It currently uses the laptop computer-sized Inmarsat Mini-M phone for global calling. Dick Tauber, vice president for satellites and circuits, said: "The basic improvement with Iridium is it's a lot smaller. We have a bunch of the mini-Ms, and our folks love them. The audio quality is terrific."

Tauber said he had yet to see prices for calling. He said $3-$4 a minute for calls would be acceptable, but "price is the one thing that would keep us away from the market" if it is a lot higher.

The exact price of an Iridium call is still not clear, with levels being set by the service providers rather than the satellite operator and based on the local market for cellular/roaming plus a "mobility premium."

But as more details emerge, rates appear to be substantially higher than first estimates. For example, in the United Kingdom a recent submission from BY to regulator Oftel indicated an Iridium price of $6.34-$9.92 per minute from a BY domestic fixed line, including value-added tax.

Meanwhile, a Japanese regulatory filing several months ago by Nippon Iridium included a complex listing of charges for various services: Iridium phone to Iridium phone, Iridium phone to terrestrial network, inside the country or overseas, and for World-roam service using terrestrial networks. The prices ranged from $3.81 to $8.71 per minute.

Globalstar's detailed prices have not been released, but in general retail prices are expected to be about half that of Iridium's. Satellite analysts predict a price war between the two late next year, driving down Iridium charges substantially.

The first Iridium production phones should arrive this week at companies such as CNN and Northwest Airlines, and the U.S. Navy which will test the service without being charged for calls while Motorola and Iridium fix the remaining bugs in the system.

As with its service pricing, the Iridium telephones are priced differently in each market. In France, for example, the phones are expected to cost twice as much as in the United States, where they sell for $2,795. This will likely lead to some consumers shopping around geographically to obtain a better price.

In August, when the Iridium troubles first became apparent, Merrill Lynch sharply reduced its subscriber projections for Iridium, slashing the end-year 1998 level from 160,000 to 40,000, and cutting 1999 subscriber projections from 796,000 to 400,000.

Both companies will fall about $300 million short of 1999 revenue projections due to loss of early subscriber revenues, company officials said. Iridium says it can operate through the end of 1999 without raising new financing, but Globalstar will need an infusion of several hundred million dollars during the first quarter of 1999.

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