Teledesic countdown: T minus five years

Co-CEO Steve Hooper has plenty to say, though satellite services won't be here until 2003.

Network World, 10/19/98

Teledesic is one of the all-time ambitious telecommunications projects. This global network of 288 low-earth orbit satellites will cost $9 billion to build, and is being funded by some big names, including Chairman and co-CEO Craig McCaw, as well as Microsoft's Bill Gates and Saudi Prince Alwaleed Bin Talal. The plan is to offer broadband services, including Internet access, voice and videoconferencing, anywhere in the world. The eight-year-old company is still five years away from offering service, but co-CEO Steve Hooper says it's not too soon for users to start learning about Teledesic. Hooper recently spoke with Network World News Director Bob Brown.

Q. Where is Teledesic at right now?

A. We're in the detailed design stage. We have a team of 40 engineers that are working to build the system with a partnership led by Motorola, Boeing and Matra Marconi Space, the largest manufacturer of satellites in Europe. We are the only carrier in the world that has a license to provide this service [in the high-frequency Ka-band of the radio spectrum - 28.6- to 29.1-GHz uplink and 18.8- to 19.3-GHz downlink]. We have a global priority in our spectrum and we have to go around the world and get licenses from all the other countries. We're in the process of fund raising. We have some incredible partners in Craig McCaw, Bill Gates and Prince Alawaleed.

Now we're also working on the service provider aspect. Who is going to be providing the service for us?

Q. What will be Teledesic's business model?

A. We'll be a wholesaler and we'll use systems integrators like IBM Global Systems and EDS, and regional telcos to market to the telecom managers of medium to large organizations. We don't foresee building a distribution system to do that; we'll go through existing channels.

Q. So as a customer, Teledesic would be transparent to me?

A. Probably not. Teledesic's offerings would be part of a portfolio of communications services and devices. But the end user will not know whether his calls are going over fiber or terrestrial or wireless or satellite because it's been designed to be agnostic from that perspective and fit in with any interface that the telecom or network manager has in his facility.

Q. Will Teledesic's offering be more of a backbone service or end-to-end one?

A. It's end to end. We're really not a trunking system. We'll provide broadband access to any point on the globe. We can take you across the street if that's where you want to go or around the globe. The goal will be to carry any type of traffic.

Q. How has the company worked around delays in sending voice traffic over a satellite net?

A. The whole system has been designed to be compatible with what we believe will be the standard out there, and that's fiber. From a bit error rate, from a channel size rate and from a latency perspective it's all designed to operate just like a fiber-optic network.

The benefit of a low-earth orbit satellite system is that you don't have the delay you have from a geostationary satellite system. So we can do end-to-end delay characteristics that match some of the service-level agreements being offered by some of the carriers right now.

Q. What are the chances the system design will change drastically again before you launch services in 2003?

A. We're at the point now we're we've pretty much got to say OK, that's it and let's wait for Version 2 for the new stuff. It's an interesting business proposition to design a system that will be in service five years from now and last 10 years after that. So we're designing a 15-year business.

One of the benefits we got when we signed up with Motorola was to get insight into their experience with Iridium, the good and the bad.

Q. How will Teledesic differ from Iridium?

A. The only similarities are we're satellite based and they also are a low-earth orbit satellite system. But they're all about narrowband voice and we're into broadband. They can do data rate speeds up to 2.4K bit/sec and we start at 2M bit/sec and go to OC-3 (150M bit/sec). And we're pretty much a fixed service, we're not a walk around service at all.

Q. How do you envision companies using your services?

We will offer the ability for LANs to be extended to a regional WAN and a global WAN.

Take a bank that has huge trunking needs, a thousand branches around the world. You'll connect a lot of those with fiber and you'll connect small and medium offices of that bank with a Teledesic terminal with the same kind of data throughput and reliability and quality of service that you would get on the fiber. The Teledesic terminal will be a device that you can ship anywhere in the world and that will plug into standard routers or PBXes. There will also be a satellite-based receiver that looks up at the satellite and goes on the roof of the building. Our real customer is the small to medium office of large multinational corporations that have a need to expand their wide-area network to all edges of their organization.

Q. Do you have any examples of customers you've spoken with?

A. We've talked to McDonald's and they would love to be able to communicate with every one of their franchises all over the globe. They can't do that today, they can't get into some places. A company like McDonald's could put in a VPN over Teledesic.

We don't think that Teledesic will serve all of your telecom needs. You'll continue to have big broadband pipes from Level 3 and Qwest connecting your branch offices and hubs in this country.

But how are you going to connect all your offices in Europe, Asia, Africa and Australia? That's where Teledesic will fit in.

We also will serve rural America quite well. I don't know if you've looked at the economics for the CLEC business or where people like Qwest and Level 3 are going. They don't go very far when you look at density factors. In telecom it's intensity and density that drive where you go. I know about the CLEC model from our dealings with Nextlink [another McCaw company] and I know what the capital requirements are and what business lines per mile you have to have in order for you to deploy a new mile of fiber.

With a low-earth orbit satellite system density is irrelevant. You've got the dollars already invested whether there's one person or a million people per square mile. So we have a unique value proposition no other form of infrastructure can really provide.

Q. How closely will Teledesic work with the rest of the businesses under the McCaw empire?

A. Nextlink is all about broadband access to the customer. Internext is the backbone piece that we need to connect all of these things together. We have LMDS for the last mile, then Teledesic is the final piece that will help fill in here and also connect it from a global perspective. So we have several arrows in our quiver to figure out what's the best way to get to the customer.

Q. How do you split the CEO title with Craig McCaw?

A. He's the visionary, the one talking about what this thing should do and how we're going to get it done, and I'm responsible for getting it done. He doesn't mettle too much unless he thinks we're kinda getting off the reservation.

Q. Do you get much input from your other high profile investors?

A. We do from Prince Alwaleed. He's instrumental in helping us around the globe with his contacts. I don't see Bill Gates often, but he's very helpful as he travels around the world. He's always asking about what we want him to say here and there, and he lets us know where he's heading in case we have any issues to deal with in those areas.

Q. Does Microsoft get anything out of this?

A. No. This is a Bill Gates personal investment.

Q. With Globalstar's recent failed satellite launch and Iridium announcing a delay in its planned service, the news surrounding satellite services hasn't been so good of late. How does this bode for the industry and Teledesic?

A. The Iridium delay, a couple of months' delay…I don't look at that as significant at all. That's on a five-year project. Being two months late in deploying something of that magnitude is quite remarkable. I grew up in the wireless world when CDMA was being promised every year back in 1989 and it finally came out in 1996.

The launch is a factor. It just reminds us all of the inherent risk in getting these satellites up into space. And it's cyclical. You can go back five or six years and we had another spat of some bad launches like that. Then we went through a period of very successful ones and started think, oh, we've got it figured out. Then all of a sudden we hit some snags again.

The good news is that Iridium didn't lose any launches even though they put up the largest constellation yet. They did lose some on orbit and we don't know why. We think the launch factor is an issue we have to deal with and continually manage but hopefully insurance premiums won't be too high.

Q. What have you launched to date?

A. One test satellite that we sent up earlier this year to do some testing in the Ka- band. We'll start launching for real in 2001.

Q. Given the pace of development of faster wireline services, what are the chances Teledesic's offerings will still be viable in five years?

A. It almost helps our plan. What will happen over time is that as broadband connectivity steps out of the world outside of the local-area network inside corporate headquarters and really starts to get out into the SOHO market and residential market, applications will be written that take advantage of that broadband capability.

As applications are out there and people want to extend the reach of those applications, there's no other way to extend that reach other than through a satellite-based system. You physically can't do what we're going to do with a terrestrial based system. Sure, cable modems are selling well today, but guess what? The vast majority of the world doesn't have a cable plant, so forget cable modems.

DSL: great saver to the residents, love it, can't wait for U.S. West to come to my home in Seattle in a year. When are carriers going to get to sub-Saharan Africa with DSL? Never. But companies will want all their offices connected because of the applications that will be available. The only way to cover that would be through a system such as Teledesic.

A lot of people talk about our system being a $9-billion system and isn't that a lot of money. Absolutely.

But Level 3 is spending more than that to build its infrastructure just in this country, and that doesn't touch end users. That's just a backbone. I've had our engineers try to calculate what it would cost to provide 2M bit/sec of connectivity to every square meter on the planet and the number is staggering. It would be trillions of dollars by terrestrial means. When you consider that and look where we are with the $9 billion price tag, it's a very small price.

Q. What can you say about pricing at this point?

A. We think we'll be very competitive based on where we believe megabit pricing is going to go and we think it's going to continue to fall at double digit rates forever.

These models that show you pricing going up can't happen. Our business philosophy is such that we don't believe that the network manager who goes into the budgeting process every year with the CFO of these major corporations will ever be given permission to spend more money on networking services.

Our whole value proposition is that you will be able to do more with fewer dollars on a Teledesic network than you could buying a fixed cost pipe into a location. We're trying to move in a direction where you pay for what you use. The average use of a T-1 is something on the average of 4%-7% of the T-1 over a 24-hour period is utilized, yet you are paying for this dedicated pipe the whole time. Some network models are already starting to do this, like UUNet, where they charge for bandwidth actually used.

With the technology we're putting in, we'll have both bandwidth on demand. If you only need 64K bit/sec because that's all you're doing right now but you need to burst up to 2M bit/sec, we'll be able to provide that service for you. But we won't charge you as if you had a T-1 or E-1 hooked up the whole time and didn't use it.

Q. Are there still more regulatory issues to overcome?

A. We have the license from the FCC perspective, though we are awaiting approval of a modification. Around the globe we will be getting licenses in all the countries we want to do business in. We don't see any real issues facing us in that area besides lots of work.

Q. Do you have a customer advisory board yet?

A. We're developing one. We're going to have a business advisory group, a technical advisory group and an ambassadorial group. We've worked with a number of the top broadband consultants in the world over the last few years and we're relying upon them to help us identify who some of those customers are that we'd like to start talking to.

Q. What does the typical IS manager need to do to prepare for the Teledesic era?

A. We think the network manager should start to be aware of what the opportunities could be as they start to think about their global networks of the future.

Teledesic will clearly make their job easier and could save them significant dollars when it comes to connecting all their offices. Our service will be available in five years, and that's not a long time, it's like three planning cycles for most corporations. A message to send would be don't lock yourselves into long-term, especially overseas, because so much is happening so quickly and bandwidth is going to become plentiful for a short period of time.