AT&T, TerreStar see hybrid phones expanding into consumer market

AT&T's new partnership with TerreStar to provide hybrid satellite-cellular service may be initially targeted at niche vertical markets such as government and public safety, but it has the potential to grow into something bigger, AT&T (NYSE:T) and TerreStar (NASDAQ:TSTR) officials said.

The TerreStar Genus introduced today and available in early 2010 looks like a standard tablet-shaped smartphone--complete with Qwerty keyboard and Windows Mobile operating system--rather than something out of a spy-thriller movie. It does all the things a consumer smartphone would do, send e-mail, surf the Net, and make phone calls. The difference is a satellite radio chip kicks in whenever a GSM or high-speed packet access (HSPA) network isn't available—whether on a mountain top, in US territorial waters or simply in a field outside of cellular coverage.

It also carries a hefty price tag: between $800 to $900, according to Jeffrey Epstein, president of TerreStar Networks, and adding satellite service to an AT&T plan will cost $25 a month plus per-minute and per-megabyte charges. Those prices probably put the device out of reach of the typical consumer, and for now AT&T is targeting it at the utility, government and public safety workers that find themselves on remote ‘bar-less' locations more often than not.

But Epstein and AT&T vice president of mobility product management Chris Hill named off several other vertical markets and even a few consumer ones the service could expand into. Among them are the maritime trades, where off shore workers find themselves outside of terrestrial network coverage more than in. Hunters, outdoorsman and adventurers would also be likely candidates, wanting to stay connected for emergency and logistical reasons. Eventually as the service scale, satellite could become a general consumer service—something unimaginable a few years ago, Hill said.

"We're a couple years out before we see mass consumer adoption," Hill said. "But you can easily imagine a ruggedized candybar-style phone that had both terrestrial and satellite services."

Half the battle is already won with the launch of the Genus, Hill said. Rather than create a separate category of satellite services, it makes satellite connectivity a feature on a cellular service over a typical mobile phone. "Fifty percent of the satellite phones out there are probably sitting in desk drawers or in a closet," Hill said. By creating the hybrid device and making it look and function like a mobile phone, the distinction between the standard and specialty service disappears.

Epstein added that prices will only come down, particularly on the hardware, as the service scales. The first-generation Genus is an unintegrated solution, but both Qualcomm (NASDAQ:QCOM) and Infineon Technologies plan to release integrated chipsets combining cellular and satellite radio technologies on the same chip, which eventually could make the incremental cost of adding satellite connectivity to a phone just $10 to $15.

Over the summer TerreStar launched its commercial communications satellite with the aim of partnering with terrestrial carriers like AT&T for remote connectivity services. TerreStar is also applying for permission to use its 2 GHz satellite spectrum for both terrestrial and orbital communications, which would allow it to sell a hybrid HSPA-satellite IP data service to its customers.