Independent analysts and investment bankers revealed markedly divergent views on the prospects for the future of global mobile at last week’s Sat 2000 conference in Washington DC…

Mixed fortunes were predicted at last week’s Sat 2000 conference in Washington (February 1-3) in two separate panel discussions on the prospects of the depressed LEO-based mobile satellite services market.

If the future of LEO systems looks bleak, however, the garden may not be much rosier for GEO satellites: one speaker argued that the Internet-led boom in GEO transponder demand could also be over.

With two would-be LEO operators (Iridium and ICO) in Chapter 11 bankruptcy, LEO systems clearly took a hard knock in 1999. The LEO business was “massively depressed”, and the excitement that surrounded LEO stocks previously had, at best, been replaced by “a new sense of realism”.

The prospects may be not that much brighter elsewhere. Stephane Chenard of Paris-based Euroconsult argued that the apparently insatiable demand for GEO satellite capacity from Internet providers could also be about to evaporate. He cited updated forecasts for transponder demand that showed demand was now declining, with traffic switching to increasingly competitive and plentiful land and maritime fibre-optic networks.

Transponder growth will pick up, he said, but he warned: “In the end we have to cling to the hope that video-based multimedia will use up this spare [satellite] capacity, and boost the take-up of new transponders.” He added that just because consumers were now buying new cars and other goods on-line, it did not follow that this would lead to an increase in demand for capacity. “They are frequently low volume applications,” he said. Chenard said that new satellite-led services such as video on demand could succeed and boost demand.

“The problem is that the [multimedia and data-based products] that satellite has been promising for the past few years are still [to come], perhaps next year or the year after,” said Chenard. “Consumer products are [late to market] while telcos are building huge stakes in fibre. There is a tremendous amount of overbuilding.”

An even more gloomy opinion on likely LEO demand came from industry consultant Roger Rusch, president of TelAstra Inc., who said the outstanding success in global satellite telephony was Inmarsat, with about 150,000 voice users at the end of 1999, “a growth rate of 50-80 per cent depending on how you calculate the figures.”

However, predictions that satellite telephony would be a mass market product had failed to be borne out, said Rusch. Iridium has no more than 60,000 users (“and it could be half that,” said Rusch) while Globalstar had no more than 3,000-4,000 users at the end of 1999. “Interestingly it’s cheaper to use Inmarsat than the newcomers,” said Rusch, citing comparisons between the various operators. He praised Inmarsat as having “plenty of built-in wisdom from 20 years of operations.” Globalstar meanwhile is still expecting to pick up 600,000 users by the end of 2000.

Rusch’s predictions come a few days ahead of the expected February 15 announcement by Motorola of its decision on the future of Iridium. Later this year (in June), Thuraya, based in the United Arab Emirates, is expected to launch its first craft, adding to capacity in this sector.

“Mobile is growing apace,” said Rusch. “But it is all land-based.” He explained that while the phenomenal growth of terrestrial-based cellular systems was an established fact, “satellite-based services are different.”

Problems with LEO include the difficulty of making direct contact while inside buildings or vehicles. “Consumers living in Romania in the middle of winter don’t want to go outside to make a call when it’s 10 degrees below,” he said. The second problem was cost. “[The systems are] very expensive, four or five times more expensive, with heavier phones,” said Rusch. He also pointed out that satellite callers experienced dropped calls more frequently. “We are convinced that LEO systems are not affordable and probably will disappear within five to 10 years,” he concluded.

A separate panel at Sat 2000, drawn from some of the most senior figures in the investment banking sector, took a much more buoyant view of LEO prospects. For example Bob Peck, a senior equity analyst (covering satellite services) at Lehman Brothers, was highly bullish. While declining to predict at this stage whether Globalstar, ICO or Iridium would succeed in the short term, he nevertheless predicted the MSS market would be “highly successful” with 25 million subscribers by 2007. “Prices will come down, handheld units will be smaller and you’ll find handsets being subsidised,” he argued.

Lehman’s view was that specific aspects of the LEO business would succeed. Short-term messaging, monitoring and tracking will mean the so-called little LEOs will succeed, said Peck. “We see this translating to 16 million units being in the market by 2007, enough to keep several competitors happy whether they be Orbcomm, Final Analysis or others,” he said.

Peck said he was still backing Globalstar, rating the company as one of Lehman’s 1-Buy recommendations. “Globalstar has committed experience from its partners, in telephony on the retail side,” he said. “They have also pre-bought minutes and phones, and I like that.” Peck said that Globalstar’s full commercial service will be launched in late-February or March. The phones work, even inside buildings or cabs when standing near a window.”

Vijay Jayant, managing director at Bear, Stearns & Co. in New York, said he was also betting on the likely success of certain types of MSS activity, although he questioned whether voice-only systems could be successful. Bill Pitman, vice-president of satellite services at Merrill Lynch, said Merrill was still very much backing MSS, especially combined voice and data products. “But they have to come at much lower prices and they may take a lot longer,” he said.