The Future of Satellite Communications

Article excerpt

A $50 billion bet

New systems will provide the next generation of mobile phones and high-speed data networks

What could interrupt the launch?

Satellite communications are set to take a new direction. Almost $50 billion will be spent over the next six years on a breed of system that will take satellites out of the back room of telecommunications and into the mainstream. Supported by leading companies such as Motorola, Hughes, and Alcatel, the systems will play two main roles in telecommunications: they will support the next generation of mobile telephones that will work almost anywhere on the planet, and they will allow worldwide access to high-speed data networks, especially the Internet.

Why is this renaissance happening now? What exactly will the systems do for customers? Why are so many smart people and companies throwing such enormous amounts of capital into the sky? And what do these systems mean for terrestrial operators? These are some of the questions we aim to answer.

The renaissance of satellite communications

Satellites have been used in telecommunications since the mid-1960s. For a decade or so, they carried the bulk of international telephone calls, which they still do on routes to small and developing countries. In addition, VSAT (very small aperture terminal) networks provide essential communications for large companies, big ships, and disaster relief. But the use of satellites on any wider scale has been ruled out by their traditional disadvantages (high cost, expensive and bulky terminal equipment, and annoying delays in voice transmission), and by advances in competing media such as undersea fiber-optic cable.

The signs now, however, are that satellites are about to emerge as a powerful force in communications, as they have already done in television broadcasting. Three factors explain why:

Technological advances are improving the price/performance ratio of satellite communications systems. Important breakthroughs are taking place in almost all aspects of satellite design, construction, and operation as the digital revolution that has affected so many other industries sweeps through satellites. These enhancements are boosting system capacity and power and consequently cutting the cost per telephone call, enabling satellites to fulfill more telecommunications functions.

Structural changes in terrestrial telecommunications are creating both the demand for satellite communications services and the environment in which they can play a useful role. On the demand side, the rapid rollout of mobile telephony services is fueling a growing desire among people to stay in touch. Even by 2000, when there will be more than 350 million cellular users worldwide, cellular networks will still cover only a fraction of the Earth's surface [ILLUSTRATION FOR EXHIBIT 1 OMITTED].

Within areas that are nominally covered, there will remain holes where services are not available. Satellites have the potential to fill these holes, and to cover vast land masses - such as Russia, the interior of the United States, Africa, and China - where populations are not dense enough to justify building cellular networks. The spectacular growth of corporate computer networks and the Internet is also boosting demand for ubiquitous and fast access, something that terrestrial networks will be unable to meet for some time.

On the supply side, deregulation is creating an environment in which new operators can compete in offering satellite services. The International Telecommunications Union estimates that by the end of 1998, about 90 percent of revenue from telecommunications services worldwide will come from deregulated markets. Thus, the traditional satellite communications industry structure, based on state-owned operators and international consortia such as INTELSAT and Inmarsat, and co-funded by the world's telecommunications carriers, will no longer be the only model on which global satellite companies can be built. …