"Between heaven and earth there's little we can't do" -- American Satellite Co. slogan
American Satellite Co. and Satellite Business Systems are locked in an earthly battle to get American business to make greater use of the skies.
Both Washington-area companies are striving to get corporate America to turn away from American Telephone & Telegraph Co., MCI Communications Corp. and other largely land-based telecommunications firms and rely instead on the satellite systems ASC and SBS have set up for increasingly sophisticated communications needs.
The focus of the two companies' sales pitch is in the skies -- with each touting the clean, crisp transmission of satellites as well as the low costs of messages sent over long distances.
But the battle for customers is becoming increasingly down-to-earth, as each firm strives to quickly recoup the hundreds of millions they have invested over the past decade.
With every new customer and contract, ASC, the smaller of the two companies, issues a press release to herald its success. The latest salvo in this press-release war is expected to come this week to announce that ASC has lured away one of SBS' two dozen major clients, Allstate Insurance Co.
Allstate's departure will be a blow to SBS, which in some of its promotional material has cited the huge insurance company as one of its most satisfied customers.
But SBS is not sitting still. With a marketing department more than three times the size of ASC's, SBS is busily trying to win new customers. At the same time, it is striving to get its existing customers to make greater use of its system to increase the revenue flow.
Additionally, as part of a massive effort to bring in more revenue quickly, SBS is offering a host of new services it hadn't originally planned to offer -- and to customers it initially hadn't planned to serve.
Chief among these efforts is the discount long-distance telephone service SBS plans to begin marketing to residential users this January. Up to now, SBS has been going after business customers, and mostly large ones at that.
But with its new "Skyline" service, SBS will try to convince consumers that its service will be cheaper than AT&T's long-distance service, and less expensive and more extensive than the long-distance service offered by AT&T's current competitors, such as MCI and Southern Pacific Co.
This new service will play a critical role in SBS' plans to be profitable by 1984 -- a task that has proven difficult given the 7-year-old company's large investment in its system.
To date, the McLean-based partnership of International Business Machines Corp., Communications Satellite Corp. and Aetna Life and Casualty Co. has spent about $800 million on its system -- with nearly $600 million invested by the three partners and the remaining $200 million coming from a $400 million line of credit the company arranged from 17 banks last year.
Now, after a year and a half of commercial operation, "it's time for us to see revenue growth of a relatively large order," says SBS' senior vice president for marketing, Ray H. Fentress.
But to date, the revenue flow has been less than the company and outside financial analysts had hoped for. Last year -- its first year of operation -- the company tallied up $5.6 million in revenues. For the first half of this year, revenues totalled $10 million.
For the company to meet its target to be a billion-dollar company by the end of the decade, Fentress says revenues must increase significantly. And given the success MCI and Southern Pacific have had in attracting customers, SBS is counting on its new "Skyline" service to push the company into the black by 1984.
Yet some financial analysts and communications experts who remember the company's earlier predictions that SBS would make a profit by 1983 are skeptical that the company will be able to make its current projection, given SBS's huge expenditures.
"They keep saying they will make a profit man ana, man ana, man ana," says one satellite expert who asked to remain anonymous because he does business with both SBS and ASC. "But the trouble is that like the song says, man ana may never come because of the extremely expensive system they have built."
ASC, on the other hand, will finally begin to turn a profit this year -- after eight years in operation and more than $175 million invested by the company's parents, Fairchild Industries and Continental Telecom Inc.
According to ASC's projections, the company hopes to earn $1.9 million on revenues of $44 million this year.
"We're now in the take-off stage of our economic growth," says ASC President Lee M. Paschall. The revenue and earnings "curve is going to be sharply upward for the remaining decade," he says confidently--even with increasing competition from SBS.
Although the two companies offer similar satellite services for businesses and are vying for many of the same customers, they vary greatly in their outlook and operations.
"They have two entirely different approaches to the same marketplace," says telecommunications consultant Robert LaBlanc, who, as a former executive of Continental Telecom, played an influential role in getting Continental to become a partner of ASC.
"One company is the Rolls Royce, the other the VW of the satellite market," LaBlanc says, echoing comments made by many analysts.
By all accounts, the VW is ASC, which has spent about one-fourth as much on its system as has SBS.
Begun as a division of Fairchild (Continental came in as a partner much later), ASC started very slowly, Paschall notes. "Fairchild's style was to build the company very slowly, constraining company input to a limited amount of investment each year. It was a Chinese torture way to build a company."
Instead of building and launching its own satellite facilities as SBS has done, ASC leased capacity from other companies. When it became clear ASC needed a firm amount of satellite capacity, ASC bought 20 percent of Western Union's Weststar satellite system. Only now -- assured of a steady customer base -- is ASC getting ready to launch its own satellites -- and those aren't expected to be in orbit for another three to four years.
But even with this extra capacity, ASC has decided to go after a very limited market. Unlike SBS, which is now seeking to enter the entire long-distance market, ASC has made a conscious decision to limit its operations to businesses that need high-speed communications networks.
"The long-distance voice business is AT&T's bread and butter," Paschall says. "We've decided that competing with AT&T for their bread and butter may not be a good long-term strategy for us. We're going after a smaller niche, but the one with a higher rate of growth -- 35 to 40 percent a year, compared to the 8 to 10 percent yearly growth in regular long-distance."
SBS, on the other hand, is going after AT&T's prime market, trying to use up some of its satellites, which communications experts say are less than one-third full.
Unlike ASC, SBS built the most up-to-date satellite system before it had any customers, confident that once the system was created, customers would flock to it for the latest technological innovations in communications.
For unlike other communications systems, its would be able to transmit voices, high-speed data and video pictures quickly and cleanly -- all without having to go through the Bell System network. SBS hoped that the nation's top 100 corporations would eagerly use its network, setting up earth stations on their parking lots or rooftops to transmit messages to their different facilities across the country. As a result, SBS launched two satellites, with a third scheduled to go into orbit Thursday as the first commercial payload of the space shuttle Columbia. (SBS is paying the National Aeronautics and Space Administration $10 million to place its $30 million communications satellite in orbit.)
At the same time, SBS designed the most sophisticated and expensive earth stations to receive the signals.
"SBS entered the field with a basically sound premise -- that the business community wants and needs satellites for business communications," says Elizabeth Young, president of the nonprofit Public Service Satellite Consortium. "But instead of building a better mousetrap, they built a better mansion, building the most expensive, most complex system possible."
SBS was hoping its attractive system would create the demand for its services. "Unfortunately that didn't turn out to be true," says New York analyst Steven Chrust of Sanford C. Bernstein. Not only were businesses not ready to use this sophisticated system, but the sagging economy made many potential users say no to such a costly new system.
As a result, SBS has been able to line up only 24 major corporations for its private telecommunications network that allows companies to transmit voice, computer data, electronic mail and video pictures, including those created through teleconferencing, to their offices around the country.
An additional 200 firms are using the SBS' network for long-distance calls -- a service the company had not initially planned to offer. But with the usage of its satellites down to about a third of capacity, SBS had to revamp its plans quickly if it was ever to make money. That is one large reason why SBS will offer its Skyline long-distance discount service to residential users this winter.
Despite a less sophisticated system, ASC has approximately the same number of customers as SBS: 29 companies and government agencies use ASC's facilities for private telecommunications networks, while 220 share ASC's network for the transmission of data, voice and video.
For SBS President Robert C. Hall, any comparison to ASC is unfair. "The comparison is a little bit like apples and oranges. We both have different bends in life," he says.
Among other things, he notes, SBS wants to offer a full communications network to all types of customers, while ASC wants to market a much more limited communications service to a much smaller market. "We expect to grow very rapidly into revenues of hundreds of millions of dollars a year, as opposed to $40-60-80 million dollars of yearly business," Hall says.
What's more, he adds, bristling at the mention that ASC already profitable, "we are in a very early time frame, not in our eighth year of operation as ASC or MCI is."
Hall's comments are echoed by several Wall Street analysts who are still banking on SBS, not ASC, for large returns in the long term.
One reason: The analysts reason that with the deep pockets of its parents, SBS will certainly be able to survive and compete effectively not only with ASC but also with AT&T.
"I'm much more optimistic about SBS' turnaround," Chrust says. "It has a potential to be much bigger and there is still plenty of money around to support it. If it is successful in redirecting its marketing and winning customers for its voice service, it should be able to pull away from ASC very quickly."
Given the anticipated large demand for satellite services, both companies are expected to prosper, provided they can both compete with AT&T, which now has 95 percent of the market.
"The biggest competitive threat we have is AT&T," says SBS' Fentress. "It has always been, and it always will be."