Thuraya: $1 billion well spent?

If a company as large as Motorola can make a mess of satellite telephony, what chance does a regional consortium have of making it work? Thuraya's chairman argues his case.

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By  David Ingham Published  December 5, 2000

Thuraya's ambitious plan|~||~||~|Satellite telephony is really a very simple proposition. Despite the universality of GSM mobile phone networks worldwide, there are still considerable parts of the world’s surface that aren’t covered by these services. The answer: put satellites up in the sky to provide coverage to deprived areas.

The only problem with this idea is that no-one has yet managed to make it work. Thuraya, a project backed by Q-Tel, Etisalat and Arabsat, is betting that it can. If it does succeed, it will have done so where no less an industry giant than Motorola failed with the disastrous Iridium project.

“It is not an easy job, it is challenging,” says Thuraya’s chairman Mohammad Omran, with huge understatement. “We know the whole world is looking at us after what happened to others… I avoid saying names.”

The name he avoids saying is most definitely Iridium. Using satellites orbiting the earth, Iridium was intended to be the first mobile telephone network covering every corner of the globe. The only problem was that it cost way too much. Subscribers needed to be signed up in the millions, but with handsets at $3000 a time only a few thousand people signed up. Iridium went under and its investors, particularly Motorola, took the hit to the tune of hundreds of millions of dollars. The satellites that were launched to run the service are now being sold off at firesale prices.

Thuraya is a little different in that its coverage area is not the globe, but one hundred countries in Africa, the Middle East and Asia. Nevertheless, the parallels with Iridum are clear. So what makes Mohammad Omran think Thuraya can succeed and that the project’s $1 billion in paid up capital will be money well spent? “I think there are two elements that make success or failure,” Omran says. “Number one is the cost of the service. Number two is the quality of the service. If these two together are right, then you have a big market.”

||**||The specifics in detail|~||~||~|On call cost, Omran has earmarked three price bands. Within a country in the Thuraya network, calls will be charged at between 50 and 70 cents per minute. For international calls, Thuraya is targeting at a rate of between $1 and $1.30. For a call from one Thuraya phone to another, regardless of the country, the company is targeting a maximum cost of 75 cents per minute.

Meeting these rates depends on how much PTTs charge for calls that go onto their networks, but Omran says the targets are realistic. The handsets themselves will be sold to distributors for around US $600, which means they will reach consumers at $650 - $800. That is more than the average GSM handset, but way less than previous efforts to develop satellite telephones. The Thuraya handsets will also include global positioning system (GPS) capability and GSM to allow users to roam onto GSM networks.

The design of the handsets is also a considerable improvement on previous efforts, which were bulky and unwieldy. The Thuraya handsets weigh in at a very reasonable 210 grammes.

Thuraya is clearly the huge beneficiary of technological advances made since satellite telephony was first pioneered. Thuraya uses only one super satellite rather than a series of smaller ones to cover its area of 100 countries. Couple that with what Omran says is a very long life cycle and the costs of the system begin to drop.

The satellite also offers extra capabilities beyond straightforward telephony that could create extra revenue streams. Its GPS capability will allow Thuraya to offer fleet and manpower tracking services. Inmarsat has signed a deal with Thuraya that may result in Thuraya’s system being used as a backbone for high speed Internet traffic.

A deal has also been signed with Silki La Silki to develop Thuraya payphones. The devices, which will be solar powered, will open up Thuraya’s service to people in remote areas that could never afford to buy its handsets. Omran says payphone charges will be lower than Thuraya’s mobile call charges.

Thuraya’s target is to sign up 400,000 subscribers in its first year and fill the satellite’s capacity of 1.8 million users by year four of operation. Assuming service goes live next year, that will be sometime in 2005.

||**||But do enough people want it?|~||~||~|All of this assumes, however, that people want a service like Thuraya. The big question left unanswered by Iridium’s failure was whether or not there actually was a large enough market for satellite phone services.

Omran insists there most definitely is a desire for the service and a large enough market to make it financially viable. “We are offering our service in areas where there isn’t GSM,” says Omran. “If you look at the Middle East, Africa and South Asia, there are many areas without coverage.”

One of those areas without GSM coverage is the sea: Thuraya covers the Mediterranean, Red Sea, Gulf and North Sea and maritime is one vertical market targeted by Thuraya. Other obvious vertical sectors are mining and oil. Then there is the consumer market of people who live and work in areas outside GSM coverage.

However, John Tullett, editor of CommsMEA (owned by this magazine’s parent, ITP), thinks meeting its user targets could be a challenge. “There is a lot of work to be done marketing the services to niche markets like rural areas, and thereafter generating enough usage to make the system financially viable,” says Tullett. “Their expectations for initial uptake are very optimistic.”

He also believes Thuraya’s target markets could disappear as GSM providers grow coverage. “By 2005, wireless local loop and expanded terrestrial networks may be eating into their target space — regional telcos are spending money by the truckload to expand their infrastructure,” he says.

Omran’s current goal is to begin marketing Thuraya’s service to consumers by next March. The Thuraya satellite was launched last month (albeit after a couple of last minute delays) and now the process of equipment testing begins.

At the time of writing, Thuraya had signed up 28 partners to sell its services. The company believes it will have up to 40 partners in place by launch, located as far apart as Cameroon and Scandinavia.

If satellite telephony is to work, then Thuraya could be the one most likely of those who’ve tried it to pull it off. Its focus is on a geographical area where there is most need for it and it’s got costs down to a level that looks reasonable. Assuming testing all goes according to plan, it’s now a case of sitting back and waiting for the fish to bite.||**||

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