Adaulto Baldo de Oliveira spends weeks at a time exploring remote reaches of Brazil, overseeing a business that collects old tires and retreads them for resale. In years past, reaching his office and family in Sao Paulo entailed lining up for a pay phone in a provincial town, then enduring scratchy, maddeningly unreliable connections.
Cellular service was no fix. Beyond the major cities, coverage is limited. So when de Oliveira saw an ad on Brazilian television six weeks ago for a new Globalstar satellite phone, he did not hesitate to buy one. Not even after he learned the price--$1,500 for the phone and as much as $3 a minute for the calls.
But as Globalstar Telecommunications Ltd. presses to make itself a worldwide satellite phone company--last week, U.S. national security officials cleared it to sell service in the United States--does the Earth really hold enough people like de Oliveira for the company to meet its goal? Are millions willing to pay the freight for satellites floating through space so they can talk to other people?
Recent history speaks unhopefully. Two other satellite ventures, Iridium LLC and ICO Global Communications Ltd., both landed in bankruptcy proceedings last summer, shot down by marketing mishaps, high costs and, some analysts contend, an odd modern twist: Despite their futuristic sheen, satellites may be an anachronism in the telephone world.
In the decade since industry brains first dreamed up the notion of a necklace of satellites bouncing phone connections far beyond the reach of wires, so much has changed here on earth. Cell towers sometimes seem to outnumber trees. Cellular phones have gone mainstream, shrinking in size and price.
"What all these satellite companies did not recognize is how far the terrestrial wireless networks would come," said Jane Zweig, a wireless analyst at Herschel Shosteck Associates. "It's pretty hard to go somewhere where you can't make a phone call."
Globalstar chief executive Bernard L. Schwartz scoffs at such talk. "You'd have to be deaf, dumb and blind over the last few years to not understand that cellular is increasing," he said. "We factored it into our calculations. . . . But there are parts of the world where it's just not going to reach."
Globalstar aims to piggy-back the success of cellular phones by offering satellite service as an add-on. The company has made deals around the globe with cellular companies that buy Globalstar service wholesale and sell it at retail. In North America, Globalstar is sold by Vodafone AirTouch PLC.
More than a few analysts are optimistic. They see customers in oil workers at the extreme reaches of the globe, aid workers, even suburban commuters who stray beyond the reach of cellular. But Globalstar's prospects may hinge on its risky bet that the developing world holds millions of people willing to pay top rates to connect to the global marketplace.
"We're talking about middle-class people who live in villages of 10,000 or 20,000 population and have contacts with the major cities," Schwartz said. "In India, there are 400 million people who live in villages like this."
But how many people in India, a country where the average annual income does not reach $2,000, are seriously in the market for a $1,500 phone?
"The pricing is too high," said William L. Schrader, chief executive of PSINet Inc., a commercial Internet service provider with global aspirations of its own. "Nobody's going to pay that."
It is a proposition with an outcome that holds more than the future of a single company. Legions of engineers have thrown billions of dollars and years of work into space in a bid to transcend the geographic limits of communications. So far, the extraordinary costs and technical uncertainties of satellite connections have brought two major ventures plummeting to earth. Only one company is left standing.
Globalstar says about 40 million people around the world are potential customers. It foresees at least 500,000 customers and profitability by the end of this year. But Iridium set similar goals--500,000 customers after a year. Analysts say it had perhaps 40,000.
Globalstar's backers say those numbers speak to Iridium's own failures and not demand. Iridium went bust, they assert, because it marketed service before its phones were commercially available, then failed to procure sufficient numbers of them. The phones were as big as bricks, required a mess of cables and didn't work indoors.
Globalstar's equipment, though bigger than a standard cellular phone, is smaller and less complex than Iridium's. And Globalstar's phone is equipped to function as both a satellite phone and a regular cellular phone. When the customer is in cellular range, cell rates apply. Satellite service fills in the gaps.
Believers have lately grown conspicuous.
Last month wireless pioneer Craig McCaw sunk $744 million into ICO Global Communications and considered taking a stake in Iridium, lending his prestige to a beleaguered industry. Globalstar's stock price, which plunged as Iridium fizzled, has nearly doubled since mid-December. Most analysts attribute the jump to general investor enthusiasm for CDMA, the type of technology that runs Globalstar's phones, and the company behind it, Qualcomm Inc., whose stock price rose 2,600 percent last year.
Schwartz gives investors assurance. Before taking over Globalstar, he ran Loral Space & Communications Ltd. for more than two decades, handing shareholders annual returns of 27 percent over his tenure. Loral owns 45 percent of Globalstar. "He comes with a tremendous amount of credibility," said Armand Musey, an analyst at Banc of America Securities.
Still, some maintain that Globalstar, however well it executes, is doomed by the reality that satellites have been eclipsed. In an era of dime-a-minute cellular calling, its prices are simply in the stratosphere.
Globalstar's proponents say the proper comparison is not between satellite and cellular, but satellite and no call at all.
"We have stations in remote areas where there is no cellular coverage," said Anjelo Barreto Aranha, an engineer at Cemig, an electrical company in Brazil that is leasing 18 Globalstar phones. "It's a useful tool."
And Globalstar says it has been pleasantly surprised by the level of interest from urban dwellers dissatisfied with cellular coverage. In Mexico, Globalstar's first customer was a doctor who rarely leaves Mexico City but needs reliable connections to his office and patients.
"We're perceiving a great deal of demand for our services from urban areas," said Lauro Gonzalez, chief executive of Globalstar de Mexico, speaking by Globalstar phone from Mexico City. "Even though there is a lot of wireless infrastructure, the quality of service is a bit patchy." His voice rang clear, though it sometimes faded.
From 50 percent to 80 percent of the U.S. landmass lies beyond cellular reach, according to various estimates. With land-use battles raging over plans for more cell towers and many companies spending dollars to make existing coverage more reliable before carving out new terrain, many analysts assume much of the continent will retain its cellular holes.
"I drive up the Hutchinson River Parkway to Scarsdale and I lose coverage," said John Bensche, an analyst at Lehman Brothers Inc., referring to his home in the New York suburbs. "We need Globalstar in Westchester County."
Globalstar's proponents take pains to distinguish the company from Iridium. Iridium runs on "smart" satellites that bounce signals from one to another, then to the ground, as a means of evading long-distance charges.
Globalstar's satellites can only transmit down to a ground station that connects to the local phone network. While Iridium's satellites will need to be replaced after five years, Globalstar's could last a decade or more.
Some analysts say the extra years could give the company time to attract customers to the system, then drop the price to get more. Improving technology should cut the size and cost of the phones.
The satellite-to-ground station connection necessitated U.S. national security clearance. Three ground stations serve North America--one in Texas and two in Canada. The FBI and other agencies expressed concerns that they could have difficulty wiretapping Globalstar customers making calls to or from the United States if they had to go through the Canadian government to gain access. Thus, authorities blocked permission for Globalstar to launch.
But under the agreement reached last week, Globalstar will, in the event of a legally authorized wiretap, route calls from its Canadian ground stations to officials in the United States, removing Canadian authorities from the equation.
Though the agreement allows Globalstar to sell service in the United States, it does not silence doubters.
"The track record of the other two hasn't been too great," said Zweig, the Herschel Shosteck Associates analyst, referring to Iridium and ICO Global. "This is an industry that's premised on promises and hype."
Staff writer Michael T. Shepard contributed to this report.
Following Some Major Missteps
The past year has not been kind to two of Globalstar's main competitiors.
Network: Has 66 low-earth-orbit satellites
1998: Iridium begins commercial service.
April 1999: Iridium's chief executive, Edward Staiano, resigns under pressure amid technical glitches and marketing mishaps.
August 1999: Iridium defaults on $1.5 billion of loans and applies for bankruptcy protection.
November 1999: Shares of Iridium are delisted by Nasdaq Stock Market after their first trading since August. Share price falls as low as 50 cents.
ICO Global Communications
(U.S. offices are in Washington)
Network: Plans to operate 10 to 12 satellites.
1998: ICO begins cellular phone service. Satellite phone service scheduled to start 2001.
April 6, 1999: ICO shares fall 16 percent, after the company says it is planning a stock purchase rights issue to raise $500 million.
August 1999: ICO applies for bankruptcyafter struggling to raise funds.
November 1999: Bailout of up to $1.2 billion for ICO, by cellular phone pioneer
Craig McCaw, is announced.