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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.

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