Lessons Learned from Iridium, ICO, and Globalstar – Part I

The communications satellite industry is facing a profound crisis. The financial disaster created by the Big LEO experiments has far-reaching implications. Not only has $15 billion been squandered on these projects, but the future prospects of the entire industry have dimmed.

Now we should ask what went wrong? Why did this happen? How can we avoid future problems? This is the first of several columns that will address the issues raised by the problems in the mobile satellite industry.

First the good news. Remember the situation 10 years ago. In 1990 the space industry was overwhelmed by problems. The Cold War had ended. The Strategic Defense Initiative, Star Wars, was winding down fast! Government space budgets were reduced. Furthermore, it took an average of more than 50 months to build a satellite and launch it. There were many launch and satellite failures. Satellites were very expensive. The GEO satellite market was stagnant.

The industry did some soul searching. We were going to improve the business. New ideas were fostered in every corner. Faster, better, cheaper became the mantra. Old ideas were abandoned. New concepts flourished.

Much progress was achieved during the decade. Satellite manufacturing costs dropped significantly. The average delivery schedule was shortened to about 24 months. Launch costs came down. Even reliability improved for a while. More GEO satellites were sold during the decade than in the prior 30 years.

The old concept of low-Earth-orbit (LEO) satellites was revived as a brilliant new idea. Iridium was announced in 1990. It was followed by a deluge of new applications to the FCC. Motorola decided to syndicate the program risk by inviting investors from all over the world to fund the program. Motorola planned to own only 15 percent of the project, but would serve as the prime contractor.

This concept started a gold-rush mentality. Aerospace companies loved the idea of huge production contracts. Few top managers criticized the business plans. Within a few months there were a dozen non-geostationary constellations proposed. More modest LEO proponents suggested that they were cost effective because their systems needed only 48 satellites or less.

By 1995 the ITU was accepting dozens of registrations for LEO constel-lations from all over the world. A mania had been created.

All of the proposed satellite construction activity led launch companies to expect a surge in demand for launch services. Many new launch systems were proposed to deploy the huge LEO satellite constellations.

During the past decade, some of the LEO systems have been built, but none is a demonstrated success. Iridium is bankrupt, ICO has emerged from bankruptcy for now. Globalstar [GSTRF] has few subscribers and increasing financial problems. Orbcomm is a smaller system, but the revenue buildup has been slow. It has large cash requirements before it becomes profitable. There is growing evidence that LEO systems are not a sound basis for a viable business.

LESSON ONE: NOT ALL NEW IDEAS ARE GREAT IDEAS. NEW CONCEPTS REQUIRE A CAREFUL AND OBJECTIVE EVALUATION.

Roger Rusch is the president of satellite consultancy TelAstra Inc. He can be reached at 310/373-1925 or via e-mail at [email protected].

Fallout From Big LEO Failures

• Fewer investors have confidence in the satellite communications.
• The perceived balance between risk and reward has been altered.
• Investments in sound new projects have been deferred to shore up bad investments.