The much-maligned commercial satellite space is experiencing an awakening with the advent of ancillary terrestrial component, or ATC, service players that can offer combined terrestrial and satellite services. The market potential of innovative ATC players such as TerreStar Networks requires us to press the refresh button on our old assumptions for this new industry.

Memories of the Iridium debacle and of the grand failure of the original ICO business plan have shaped observer perceptions of satellite as a niche, slow-moving industry that's best forgotten. Nothing could be further from the truth. Today the industry is experiencing an exciting and resurgent period, driven by both regulatory intervention and the entry of inventive new players.

When the FCC issued its ATC rulings in 2003-2004, it opened new horizons for a number of players in the L and S Bands, including TerreStar Networks and MSV, and gave them the opportunity to turbo-charge their business plans. In the S Band alone, 40 MHz of spectrum is available to licensees for combined terrestrial wireless and satellite service use. The ATC ruling not only presents these satellite spectrum holders with the ability to better serve satellite customers but, more important, allows these providers to use their spectrum more efficiently. It provides the flexibility to offer terrestrial wireless services in areas where the satellites cannot provide the same quality as the cell towers of a Cingular or Verizon Wireless.

Many point to the requirement that ATC handsets must speak to the satellite at all times, thus potentially driving larger and non-standard handsets as well as uncompetitive pricing. Our detailed analysis of this market has shown that the ATC requirements do little to prevent ATC players from competing for terrestrial customers. Not only are ATC terrestrial networks competitive, but handsets are expected to offer form factors comparable to today's smartphones.

The combination of these factors and satellite capabilities will allow ATC players to enjoy a competitive advantage over existing players — the combined technologies can simply do more. This advantage lies in the ubiquitous coverage of combined terrestrial/satellite network — there literally is nowhere in North America where the user can see the sky, that a call cannot be made. The deployment of new, more powerful satellites and greenfield IP networks secure a further advantage. In addition, ATC capabilities provide powerful emergency capabilities — when all terrestrial networks are down during the next Katrina-scale hurricane, ATC phones will continue to operate. This also makes the ATC space interesting to the government.

The second reason to change the established views is the entry of new players that have emerged to exploit new ATC opportunities. For example, Terre-Star is an S Band ATC player with the right to use 20 MHz of spectrum in the S Band at 2 GHz and is driving a “build, own and operate model,” combining terrestrial and satellite services. TerreStar's strength comes from its planned advanced 3G, all-IP terrestrial network, its large and powerful Loral satellite and its handset strategy, which leverages the best of new technology and the scale power of global air interface and chipset standards. Its handsets will be competitive in terms of form factor and cost — no large antenna à la Iridium of old.

The U.S. government also has expressed its need to maintain lines of communication in the event of a terrorist attack or natural disaster. To that end, DISA and TerreStar have announced a “cooperative research and development agreement” — an unusual public commitment — as a first step to supporting the government in a substantive way. ATC thus allows the government to dramatically enhance first response capabilities, and reduces the digital divide in super-rural regions.

ATC players have the potential to expand wireless competition and improve first response capabilities. Consolidation within the L and S Bands, as well as the ongoing support of global technology vendors, is key to being still more effective. We should all watch the skies with interest.

Andrew Cole is president of CSMG Adventis. He can be reached at (617) 943-2367 or at Andrew.Cole@csmg-global.com.

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