The Opportunity

Our world grows smaller. The Internet is already a worldwide phenomena and a preeminent medium for commercial and consumer communications, commerce, and entertainment. International travel, both for business and pleasure, increases every year. Liberalization and privatization in developed and undeveloped countries creates open markets, driving down telecommunications tariffs, duties, and settlement rates. As these trends conflate they create new telecommunications customers: some looking only for a basic telecommunications service by which to enter the global economy, others having long enjoyed the basics are seeking universal mobility and continuous access to information.

In this study INSIGHT examines one of the enablers of the new telecommunications infrastructure. Global mobile personal communications via satellite, or GMPCS, networks offer a unique technical solution to the limitations associated with terrestrial networks. Defined by the International Telecommunications Union (ITU) as, ‘any satellite system (i.e., fixed (FSS) or mobile (MSS), broadband or narrow-band, global or regional, geostationary or non-geostationary, existing or planned) providing telecommunications services directly to the end-users from a constellation of satellites,’ GMPCS networks offer messaging, voice, and data communications accessibility to anyone, anywhere, at anytime.

The hard reality of telecommunications services today is that the world currently consists of islands of sophisticated terrestrial telecommunications network infrastructure, located primarily in North America, Western Europe, and the Pacific Rim, which serves less than 40 percent of the world’s population. If you do not live in the right part of the word, or if you travel outside of the developed countries, you are essentially non-participants in the information age.

Intense unmet demand exists on the part of these prospective users for messaging, narrowband, and wideband telecommunications services. According to the ITU, of the 1.5 billion worldwide households, 500 million have telephone service, 50 million are waiting for service, and 250 million more could afford telephone service. The waiting period for some of those 50 million households currently in queue will exceed 1.5 years; and service establishment will cost up to $3,000. Over three and one half billion people have no home phone service; at least 50 percent of the world’s population does not even have access to a telephone! By the year 2000, well over 60 percent of the world’s population will still not have access to terrestrial wireless service, let alone broadband data communications service.

The technical, regulatory, and economic environment conducive to fostering a healthy GMPCS industry seems to be in place. Within this operating environment, over 50 GMPCS service providers plan to join the handful of pioneers who have already launched GMPCS satellites, and deploy at least 80 additional constellations, consisting of over 2000 telecommunications satellites, during the next ten years. In order to achieve this extremely ambitious objective, an estimated $140 billion to $175 billion in investment capital will have to be raised, in addition to the $15 billion to $26 billion that has already been invested in GMPCS ventures.

In the event that even a small majority of the planned GMPCS networks ultimately prove to be successful, their combined impact will extend far beyond the telecommunications industry, creating new technologies, new services, new customers, new vendors, new organizational structures, new regulatory apparatus, and a new definition of telecommunications service provider.

Insight believes the long term impact on the worldwide economy resulting from GMPCS networks will be:

• The emergence of the first truly trans-border business organizations, in terms of actual ownership and control. The ownership base and management responsibilities associated with many GMPCS ventures are spread among various countries, with no single investing entity holding a majority interest. Diversified ownership and control on a worldwide basis will present interesting challenges to GMPCS managers, but it will prove to be a major facilitator of free trade and open market access among countries of all sizes and cultures.
  
• A reassessment and possible overhaul of the existing telecommunications regulatory apparatus. Country-by-country regulation of telecommunications services as exists today will be difficult, if not impossible, in an environment of trans-border business organizations. The concept of national regulation will have to be re-evaluated, although this would be an extremely difficult venture to carry out.
  
• The flow of increasingly large volumes of investment capital into satellite communications and supporting industries. Investors worldwide have allocated between $15 billion and $26 billion to GMPCS ventures through the end of 1998. The top 20 public GMPCS related ventures already have a combined market capitalization of $100 plus billion. Funds flowing into the satellite industry are not expected to dry up any time soon, nor is the potential associated with the market.

Which is not to say that there are not obstacles to overcome. Potential technical impediments to GMPCS’ success include satellite signal propagation delay, which is especially problematic with GEO satellites; the line of sight visibility requirement for most satellite communications; and signal interference from terrestrial and atmospheric obstacles, as well as from other radio-based services sharing common operating frequencies. Other technical impediments relate to satellite communications network reliability, security, and interoperability.

Regulatory concerns relate to the fact that many undeveloped countries have yet to adopt, and do not appear ready to adopt, open market policies in the near future. The possibility also exists that the current trend toward liberalization in countries that are in the process of implementing such policies may be reversed, and that a return to protectionism would undermine worldwide GMPCS acceptance. Finally, local telecommunications jurisdictions may restrict competition by showing favoritism to select GMPCS providers, or local service providers may establish excessive price mark-ups at the retail level, thus restricting take up on GMPCS services.

The primary prospective economic impediment to GMPCS industry success is a reversal in the favorable treatment currently afforded to GMPCS ventures by the capital markets.


The Challenge

Winners over the long term will be carriers that can assimilate large groups of people from different companies and from diverse corporate and international cultures into a cohesive worldwide federation. The federation will ultimately evolve into a single mega-carrier. In order to meet this challenge, management must untangle problems in:

• Network technologies: by providing seamless network integration;
  
• Back office support systems: by offering one bill and one customer service organization;
  
• Products and services: by delivering consistent offerings, pricing, and service quality; and
  
• Cultures: by functioning as a single entity from the customer’s perspective on a worldwide basis.

The challenge for telecommunications industry decision makers is to identify, select, and integrate the best of breed terrestrial and celestial organizations into a world class company, capable of addressing the telecommunications services requirements of customers ranging from individuals in undeveloped regions to major multinational corporations.

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