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ABI Questions Potential Of Sat/Cellular Services

7/21/2009 04:15:00 PM Eastern

New York - Hybrid satellite/cellular service doesn't represent a "viable
high-growth market," but satellite-communications carriers TerreStar and SkyTerra
Communications
might have other motives in mind in launching such services,
ABI Research contended.

Both carriers plan a
hybrid, or dual-mode, satellite and terrestrial-cellular service in North America and will offer hybrid satellite/cellular
smartphones. TerreStar plans to launch commercial service in the fourth
quarter, followed by SkyTerra in the first half of 2010, ABI said.

ABI analyst Kevin
Burden called the companies' plans "puzzling," given potential demand, and suspects
the satellite companies really hope to sell their companies and satellite
spectrum to existing cellular carriers, who might want to use the spectrum to
expand future terrestrial 4G capacity.

"It's unimaginable
that there would be enough subscribers to keep companies like this profitable
in the long term," Burden told TWICE.

Terrestrial carriers
that buy the spectrum would have to continue offering satellite-based service
because of a government regulation, Burden pointed out. That regulation, the U.S.
Federal Communications Commissino Ancillary Terrestrial Component Order of
2003, permits satellite operators to offer a dual-mode satellite/cellular
service using licensed satellite spectrum and terrestrial cellular spectrum. Should
the companies be purchased by a terrestrial wireless carrier, however, it's not
clear how much of the satellite spectrum could be repurposed for terrestrial 4G
use under the regulation, Burden said.

Nonetheless, he
said, "We believe that the green-field satellite companies' plan is to forge
short-term [terrestrial] roaming partnerships with AT&T and other cellular
operators and then, when [4G] LTE [Long-Term Evolution] services are deployed,
position themselves to be acquired by these major players, including their
prized spectrum. It's unorthodox but clever."

Handset vendors seem
to be preparing for this eventuality by embedding "dormant" satellite
connectivity in their LTE chipsets, ABI added.

"The likely number
of public safety, law enforcement and government market adopters is not enough
to support a viable, high-growth [hybrid satellite/cellular] market," Burden
said.

TerreStar previously
told TWICE that it will offer hybrid phones, its IP-based satellite service and
AT&T roaming service on a wholesale basis to companies that will resell the
service to vertical markets, including the government, public safety and
maritime markets. The company will also target business users, people in rural
communities where cellular coverage is spotty and outdoor adventurers. Partner
companies could include carriers as well as retailers, a spokesman said.

SkyTerra will pursue
a similar strategy of selling handsets and services on a wholesale basis,
Burden said.