In the first quarter of 2010, AT&T plans to begin offering Terrestar’s satellite voice service as part of selected AT&T wireless plans, and this may be the time that satellite voice comes into its own.

Satellite phone service does not have a sterling record in North America. LEO providers Globalstar and Iridium entered into bankruptcy at the turn of the century when the market for their consumer services was unexpectedly soft. TMI Communications & Co. Ltd. and American Mobile Satellite Corp. have primarily served the traditional MSS niche markets throughout North America. One of the factors that limited the appeal of these services was that any call made on them was a satellite call and was charged accordingly. In general, there has not been sufficient demand for universally high-priced voice service.

There has been some demand for satellite voice, of course, but not enough. Iridium has demonstrated one approach to this problem, offering a broad range of services with a wide array of partners. These services share one feature, they use Iridium’s satellite constellation, but many do not involve voice service. Globalstar has been forced to depend on non-voice service by the failure of a component in the duplex system of their satellites. MSAT and AMSC merged in the early 2000s and now are known as SkyTerra. They have a pair of satellites on order and are preparing to expand a modest ongoing business into a potentially much larger market, ATC, and currently offer a mix of voice and non-voice services.

Terrestar, whose next-generation satellite was launched in the summer of 2009, announced in September a partner agreement with AT&T to offer a combined satellite and cellular voice service. AT&T is looking for an incremental advantage over its competitors (although the deal is non-exclusive), and Terrestar is looking for a way to avoid the problem that troubled earlier efforts (no choice but high-cost calls). In addition, Terrestar is selling their services to AT&T on a wholesale basis, letting satellite companies keep their organization lean by avoiding an in-house consumer billing organization.

Currently, AT&T will be offering the Terrestar Genus handset. Provided by Elektrobit Inc. Genus is a smartphone that will allow the use of either AT&T’s terrestrial wireless network or Terrestar’s Terrestar-1 geosynchronous satellite. The price of the Genus handset or the per minute rate for satellite connectivity has not been released yet but this first generation will not be cheap. In time, however, such handsets will cost much less.

The reason for this reduction is a theme I have touched on before, the increasing convergence of satellite and terrestrial communications infrastructure. The Terrestar and AT&T partnership is one such convergence, though on what might be called a macro scale.

On a much smaller scale there is another, at least as important, convergence. SkyTerra and Terrestar have partnered with Qualcomm and Infineon to create chips that will enable not just cellular wireless communicate but the use of a satellite as well. With this new generation of chips any phone will have the DNA that allows the use of a satellite as well as terrestrial networks (GSM, GPRS, EDGE, WCDMA, HSDPA, HSUPA, GMR1-2G/3G, etc.).

Although a satellite phone will still call for a different antenna and more power, it will not call for a special chipset like the current generation Genus handset. In this development effort, SkyTerra and Terrestar largely are piggybacking on already ongoing development efforts. As a result they do not have to pay for the development of an entire chip. Instead, they are able to add their capabilities to mass-market chips that already are positioned as market leaders.

To me, this is the true future of satellites in the consumer market. While higher value business and government applications can support dedicated development efforts, mass-market consumer products cannot. To the degree to which satellite companies are able to avoid a premium price for satellite hardware they are in a much stronger position to compete for business on the basis of satellite’s inherent advantages. At the same time, they need not be burdened by forcing users to use satellite when another technology is a better choice.

Will the AT&T and Terrestar deal succeed? This remains to be seen, but it has the best chance of any North American offering yet.

Max Engel is and experienced satellite and telecom industry analyst and founder of The North Star Consultancy. He can be reached at maxengel@thenorthstarconsultancy.