Next: The Super-Cell

By DECLAN MCCULLAGH/WASHINGTON

Wouldn't it be great if you could call your friends or family, your boss or stockbroker--even while you're trekking in the Himalayas? If you didn't have to lug around one of those briefcase-size satellite phones, but instead had a cell phone just slightly larger than the one you carry now? How much of a premium would you be willing to pay for such convenience? Two American-based firms with a list of global backers that reads like a high-tech Who's Who are rolling the dice in a multibillion-dollar gamble that they can answer those questions. In their effort to find that new plateau in communications, however, they're off to a rocky start.

It all began in 1985 while Barry Bertiger, an engineer at Motorola, was vacationing in the Bahamas with his wife Karen. She wondered aloud why she couldn't call home from their secluded getaway on Green Turtle Cay. Good question, thought her spouse. By 1988, Bertiger and two colleagues had drafted blueprints for a revolutionary new system that would blanket the heavens with communications satellites--77 in all--bounce a cellular call from one to another, then beam the data stream downward 420 miles to one of 12 earth stations where the call would enter the terrestrial telephone network. Motorola dubbed the system--and the company it spun off to build and operate it--Iridium, after the 77th element on the periodic table. (After trimming the number of satellites required to 66, Motorola wisely chose not to go with the name of the corresponding element, the practically unpronounceable Dysprosium.)

Iridium is now a consortium whose major shareholders include Motorola (which kept a 20% stake), Lockheed Martin and Sprint, plus Germany's Veba AG and Russia's Krunichev State Research Production Space Center. The joint venture was supposed to go live on Sept. 23, but then software glitches led officials to disclose that they will delay until Nov. 1 what amounts to the final roll of the dice in its $5 billion gamble to revolutionize telecommunications--or become the best-publicized flop in history. The announcement nudged its stock price on the NASDAQ exchange down to the mid-30s in mid-September, from a stratospheric high of $72 a share in May. The firm also revealed that it has not yet received a license to operate in France. Nonetheless, the advertising campaign for the system is under way, and Iridium's backers continue clinging to their high-flying hopes.

They are not alone. A clutch of new satellite-based services from a half-dozen similar corporate alliances is launching into orbit. They are likely to turn the earth's lower atmosphere into a space jam of communications links promising to keep us in touch--anytime, anywhere. The systems rely on a new version of an old (at least for the aerospace business) and proven technology.

It was science fiction writer Arthur C. Clarke who in 1945 was the first to suggest a band of geosynchronous satellites, dubbed "extra-terrestrial relays," hovering 22,000 miles above the equator and bouncing signals back to the ground. Until recently, most communications satellites have imitated that high-cost-and-high-altitude model, drifting in what scientists call the Clarke orbit.

Boosting heavy chunks of metal that high is expensive, however, and Iridium and its brethren are trying to fly into space on the cheap, relatively speaking. They rely on so-called low-earth-orbit satellites that zoom just a few hundred miles above the planet's surface. They're cheaper to launch since they weigh less; and since the satellites are closer to the ground, devices with small antennas and comparatively small battery packs can reach them. Most important, signals can go up and return with no perceptible delay, which is vital for voice communications. But more of them are needed to cover the earth's surface, and their expected lifetime--five to 10 years--is shorter.

Iridium's chief competition for a piece of this pie-in-the-sky is Globalstar, based in San Jose, Calif. The company, which will build a rival constellation of 48 satellites 879 miles up, was founded by Loral Space and Communications and by Qualcomm, a leader in cellular technology. Its European partners include France Telecom, Daimler-Benz Aerospace and Britain's Vodafone Group. Globalstar's plan is much less expensive than that of Iridium, which has built intelligent satellites that route calls among themselves, sometimes halfway around the planet. That kind of smarts makes for a system that's more flexible but more expensive and time-consuming to debug. Globalstar is betting on a network of satellites that will act as simple repeaters with all call-setup and processing accomplished in its 60 ground stations. "If you look at the two companies, they're really taking quite different strategies," says Tom Watts, a satellite analyst for Merrill Lynch. "Iridium is taking a global approach. Globalstar is focusing on a few key countries." The total cost to build and launch Globalstar's system? A mere $2.6 billion, half of Iridium's cost. The consortium's Qualcomm-manufactured handsets are slated to cost less than $750, only a quarter of the price of an Iridium set.

Coming second is Globalstar's chief drawback. Its service is not scheduled to kick off until 1999--a year behind Iridium's schedule. And this month Globalstar ran into a potentially more serious snag. Minutes after a Ukrainian-built Zenit-2 rocket carrying 12 Globalstar satellites thundered skyward from the Baikonur cosmodrome in Kazakhstan on Sept. 10, its engine failed. The 460-ton rocket fell back to Earth, showering debris across southern Siberia and driving Globalstar's stock down 40% overnight. The $190 million payload was covered by insurance, but the disaster delayed the system's debut even further. It was a big blow. Like the first cold-beer vendor on a hot beach, Iridium is more likely than ever to win those first and most eager customers--and the ones probably willing to pay top dollar for the new service. The company is betting that its charter customers will then balk at ditching their expensive handset for a Globalstar unit--even if the rates are cheaper.

True, not everyone wants to be in touch all the time; some of us actually want to get away on our vacation getaways. But the market for satellite-based services still promises to be vast, and pieces of it are rapidly being filled in. Using existing satellite-communications technology, Magellan, a subsidiary of Orbital Sciences Corp., is targeting hunters or outdoorsmen, who now can send and receive pager messages from even the most remote corner of the frozen Siberian tundra. Iridium's biggest subscriber so far is the U.S. Department of Defense, which has an obvious need to reach out and touch its forces anywhere in the world at any time--immediately. Globalstar is eyeing sub-Saharan African nations, which average just one telephone line for every 200 people. And in other locales where local telephone companies are riddled with corruption or where land-based systems get too pricey, satellite-based phones that can leapfrog those obstacles may be in high demand. Even in well-wired America, where taxes on long-distance calls subsidize rural phones, isolated towns don't always have comprehensive phone service. It would cost an estimated $30,000 a person, for example, to wire up the 40 people in Granite, Oregon, a remote settlement in the mountains of the Pacific Northwest. At anywhere from $1,000 to a few thousand dollars apiece, the new sat phones aren't going to be exactly cheap, but they could be a bargain compared to the alternatives.

The most promising candidates for the new gizmos, however, are business travelers and industrial users--and Iridium and Globalstar must woo them mightily to succeed. Ed Staiano, the dynamo who powered his way through the ranks to run Motorola's $12 billion-a-year cellular operations, now oversees the Iridium empire from an office on 15th Street in downtown Washington, a few steps from the White House. He calls the traveling businessperson "our primary target market" who can best afford $2,800 phones, $500 pagers, monthly charges of perhaps $50 and sat-phone rates starting at $1.79 a minute and rising much higher, depending on where you call from. A Washington research organization, the Strategis Group, says an optimistic projection would have 15 million nomadic elite by 2000. Staiano claims he'll recruit 5 million of them by 2002. Even these figures will balloon, he says, as Iridium launches an aggressive $180 million ad and direct-mail campaign. One gimmick, since canceled, was to aim high-powered lasers at clouds to beam the company's hitherto obscure seven-star logo onto the skies above major cities. But most customers will probably sign up after an old-fashioned call from a salesman. The company says it has more than 100 marketing licensees who will hawk the phones, manufactured by Motorola and Japan's Kyocera Corp. through existing cellular dealers.

The arrangement with existing cellular dealers turns out to be a serendipitous marriage of marketing and technology. Without resellers, customers would be few, and without cell technology, service would be limited. At first Iridium planned a purist, sky-to-ground approach that would have cut out the local cellular-network middlemen. But that wasn't very feasible in the glass-and-steel canyons of bustling cities, where customers would be out of the line of sight of the heavens and service would be spotty. (Imagine explaining to an irked CEO that his pricey new handset won't work from his office building unless he climbs to the roof.) Bowing to technological reality, Iridium decided that its phones should piggyback on terrestrial cell-phone networks. Then the question became--which ones? An Iridium phone needs different plug-in modules to speak the language of different cellular standards, like NADC in the U.S. and GSM in most of the rest of the world. You get your choice of one when you buy the phone, but additional modules cost $500 each.

As with almost everything else these days, the most promising future growth area for the low-orbit-satellite phone market will be the Internet. If the Net keeps expanding at its current pace, companies figure that demand for digital connections will skyrocket. Currently, firms in the U.S. pay about $1,000 a month for a 1.5 megabit-per-second pipeline to the Internet. Eventually, satellites should be able to provide an equivalent uplink at one-tenth the cost. Some analysts even see rates plummeting to $50 a month in the future.

The prospect of such low prices has spawned even more consortiums eager to be top dogs in the satellite-Internet communications business. The most ambitious venture is Teledesic, founded in 1990 by deep-pocket investors including Microsoft CEO Bill Gates, Saudi Prince Alwaleed bin Talal (with a 13.7% stake), and cellular pioneer Craig McCaw, who is the chairman and co-chief executive. Motorola, after a frosty initial reaction to the project, dropped its own system, Celestri, and joined in with $750 million for a 26% stake. Once jeered as the most starry-eyed start-up ever, the $9 billion Teledesic project has lately won some respect. Early this year the venture launched a test satellite--a long way from the total of 288 needed for its massive data-transmission needs. Eventually, however, it will offer download rates as speedy as 64 mbps, some 2,000 times as fast as today's modems.

Trying to shoulder Teledesic aside is Skybridge, an Alcatel venture with allies including Sharp, Mitsubishi Electric and Toshiba. This summer, Skybridge upped its number of proposed satellites from 64 to 80 and plans to deliver zippy Net connections to the world's more populated areas by 2001. Then there's Angel Technologies, a privately held firm that envisions bouncing signals off a squadron of high-altitude planes circling above metropolitan areas. (Finding pilots may be a problem.) Angel execs say they'll be able to provide commercial Net access by 2000. Another scheme, from Sky Station, would employ blimps the size of football fields, tethered 14 miles above large cities. Last July, the Federal Communications Commission (FCC) okayed the radio frequencies that the company will require.

All of these may be full of hot air. Modem technology has a habit of improving beyond what anyone thought possible, and satellite's competitors--digital phone lines and cable modems--are getting cheaper and better, making it unlikely that most city dwellers will opt for satellite or blimp connections anytime soon. How well ventures like Teledesic, Globalstar and Iridium will do depends largely on the answer to one question: Are they offering something radically new, or just another incremental feature for an existing technology?

If ordinary cell phones are any guide, the signs are promising. Back in 1982, according to FCC data, only 43,000 people in the U.S. had mobile phones. Optimists predicted that number would increase to as many as 900,000 American users by 2000--peanuts compared with the 50 million-some subscribers today.

Will sat phones follow suit? Well, here's one clue: in 1979, Neiman Marcus featured a $36,500 home-satellite TV system in its Christmas catalog. This year, its stores are selling Motorola's Iridium handset. Those who buy it will not only be able to call home and wish folks Happy Holidays from their Caribbean vacation this December; they'll also be able to look up and watch the three large-array antennas on an Iridium satellite line up with the sun, triggering a flash of light for careful observers back down on Earth.

--With reporting by Bruce van Voorst/Washington

With reporting by Bruce van Voorst/Washington