Competition takes to the skies: Satellites may spark price wars in cellular telephony

New low earth orbiting satellites will stiffen wireless competition in both narrow and wideband communications, a new SRI study concluded. If just a fraction of the planned satellite projects become operational, a price war in wireless voice services could result, and ready or not, cable TV and telephone companies may finally be forced to roll out high-performance Internet access services.

"If a reasonable percentage of these ventures are successful, there is going to be an incredible amount of competition," said Ed Christie, director of SRI Consulting's Media Futures program. "You are going to see people undercutting prices like crazy."

There is a big "if" associated with all of SRI's predictions, Christie admitted: Most of the announced array services do not yet have the financing or licenses to carry out their ambitious plans.

U.S. and European companies are planning projects that will place nearly 250 narrowband (voice and data) satellites and 300 high-bandwidth (Internet and video) satellites into orbit during the next few years. The SRI study determined that although satellite services initially will target successful business professionals who can pay airtime charges ranging from $1 to $3 a minute, competition for this relatively small group of customers will quickly drive prices below $1. These price drops will open up markets for handsets and satellite array services and cause a possible ripple effect through cellular telephone markets.

"You have all the possibilities of a price war," said Christie. Satellite networks are set up more for global communications and are much more expensive than land-based networks. Satellite services will find it difficult to remain competitive with land-based services for phone calls from New York to Washington, for example. However, once hundreds of millions of dollars have been sunk into satellites, service providers may get desperate for subscribers to use the capacity.

"They will try and sign up anybody they can," Christie said. "And they will probably start with voice services."

Cable TV companies and telcos have delayed delivery of promised broadband services to the home. Although cable TV and telcos should enjoy a price advantage on high-bandwidth services over the long term, the advent of large numbers of LEO satellites may finally galvanize them into action.

The direct broadcast satellite (DBS) industry already has taken customers from CATV companies, proving that consumers will adopt new satellite delivered offerings if made available.

"The only time people make investments is when they are forced to make investments," Christie said. "This is going to force [cable companies' and telcos'] hands."

Satellite services may have a sustainable advantage in several areas. Satellite arrays may offer important options for geographic areas that are under-served, for instance. Array services will also enhance areas without adequate cellular systems, and not only mobile products. The services may be cost-effective for fixed locations, such as the growing segment of small offices and home offices that might need high-performance Internet access and do not have conventional T-1 or E-1 services available.

"These companies are looking at different market segments and niches, everything from filling in gaps in cellular systems or serving rural or remote areas that have no existing wireline or cellular infrastructure," said Clayton Mowry, director of the Satellite Industry Association.

PAC BELL ENLARGES CUSTOMER SERVICE STAFF

Pacific Bell will hire 300 new customer care advisors and coaches for its Castle Customer Care Center, which opened in June in Atwater, Calif. Nearly 500 people have already been hired for the center, which is a hub for mostly PCS customer calls from California and Nevada.

DOING BUSINESS IN ESPANOL

BellSouth's Small Business Services division has created a Spanish Web site to serve more than 175,000 Hispanic-owned businesses in the carrier's nine-state region. The site includes a list of Hispanic chambers of commerce, access to on-line business publications and the ability to exchange information with other business owners.