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Globalstar aims to avoid Iridium's pitfalls

Globalstar is preparing to do something its struggling predecessor Iridium has been unable to: corner the market for satellite voice communications.

Globalstar is preparing to do something its struggling predecessor Iridium has been unable to: corner the market for satellite voice communications.

With increased cellular coverage around the globe, the need for a new technology that allows customers to use a phone or pager almost anywhere on Earth would seem to have shrunk. After all, wireless carriers have rapidly expanded their networks worldwide over the past decade.

But analysts believe it was bungles by Iridium--not lack of demand for satellite phone technology--which crippled the company, leaving a handful of competitors like Globalstar to get it right.

Globalstar launched four more satellites this past weekend, giving company a total of 32 satellites in orbit, the minimum for worldwide coverage. The next big step for the service is commercial availability, which is scheduled for September.

The competing satellite Cable nation chart mobile phone service provider believes it can learn from Iridium's mistakes and can carve out a niche in the booming wireless business by keeping its service costs lower. But considering its predecessor, it has a steep hill to climb.

Past problems
Iridium, the world's first satellite-based mobile phone and paging company, has faced a string of setbacks since launching its costly service last November.

The company had trouble with the most fundamental part of its business, getting customers to sign up. As a result Iridium has missed several creditor-imposed revenue and subscriber target goals and, up against a mid-August deadline to repay interest on its bank loans, is flirting with bankruptcy.

"The reason Iridium has struggled is they didn't really have their marketing act together," said Lisa Pierce, director of global telecommunications research for GIGA Information Group.

"There's no question that there's a market for this service. The quality of phone service in developing countries leaves everything to be desired. [Satellite phones are] not just for when you're in the middle of nowhere," she added.

Despite concerns in the industry that other satellite phone firms could be dragged down by Iridium's woes, Globalstar stock has remained solid. Shares are hovering in the low 30s, after trading in the high teens just a month ago. Globalstar stock has traded as high as 33 and as low as 8.3125 in the past year.

Analysts said the inability of today's phones to switch between various wireless transmission technologies prevalent in different parts of the world, coupled with sometimes sparse regional cellular coverage--even in the United States--will make satellite phones an attractive alternative.

"If you ever look at a map of cell sites in the U.S., it's embarrassing how many places don't have service," said Jimmy Schaeffler, a satellite industry analyst at The Carmel Group.

"There is much more coverage today than there was a few years ago, but even now, the cellular networks are not ubiquitous, especially in developing countries where they're just becoming available in major metropolitan markets," said Naqi Jaffery, a wireless industry analyst at market research firm Dataquest.

Dataquest projects more than 10 million customers will subscribe to a satellite voice service worldwide by 2003. Iridium had only 10,000 customers at the end of March.

Doing its own thing
Globalstar, owned in part by Loral Space & Communications, plans to spend $3.9 billion on a 48-satellite constellation capable of providing service almost anywhere on the globe.

By wholesaling to wireless carrier partners such as AirTouch Communications and Vodafone Group--who will market and sell Globalstar's service on its behalf--Globalstar hopes to escape some of the marketing snafus Iridium suffered.

Other partners include China Telecom, Korean telecommunications firm Dacom, a joint venture between France Telecom and Alcatel, and Elsacom.

Of course, by working closely with carrier partners who want their fair share of the profits, Globalstar will only receive a portion of the revenue from its service.

"We'd rather have a smaller part of the pie, but a bigger pie," said Globalstar spokesman Mac Jeffery.

This is not a cellphone
The company has been careful not to position its service as a competitor to cellular or digital PCS mobile phone services, a potential death knell for getting carriers to sell its service.

"It is not at all meant to compete with cellular," Jeffery said. "Cellular will always be cheaper. We're not trying to reach the exotic international traveler who wants to keep in touch across Antarctica. We're aiming for a much, much broader base; the typical business traveler."

Until a recent restructuring and revised marketing plan, Iridium targeted large multinational corporations and government contracts--critics said they were the only customers capable of paying as much as $4,000 for Iridium's special phone and as much as $7 per minute for service fees.

By using a different technology, whereby the majority of call processing and switching takes place at ground stations rather than in space, Globalstar believes its service will be cheaper than Iridium's.

Globalstar's wireless carrier partners will set pricing, but the company expects per-minute charges to be between $1 and $1.50, Jeffery said.

"The whole thing boils down to pricing," Dataquest's Jaffery said. "Pricing is always a critical factor."

Ericsson and Italian handset maker Telital will make dual-mode phones using the satellite capabilities and the GSM standard, while Qualcomm is developing a tri-mode satellite phone.

Although the satellite phone business has had its setbacks and has many hurdles yet to clear, analysts said the growing pains are not unlike those in other nascent businesses.

Dataquest, in an April report, said "market growth is expected to be modest due to slower-than-expected service rollouts because of problems in handset distribution and licensing delays." But the firm expects market growth to accelerate after 2000 once new operators join the fray.

"One cannot help but compare this business to the cellular phone business, and it took cellular phone companies a few years to get it right," The Carmel Group's Schaeffler said.