Analysts Warn of Diminished Long-Term Opportunity for Iridium and Its Rivals.

BURLINGTON, Mass.--(BUSINESS WIRE)--Oct. 29, 1998--New research released today by respected independent telecommunications analysts, Ovum Inc, has sounded a note of caution ahead of Iridium's planned launch of the world's first handheld mobile satellite service (MSS). Ovum points to a gradually shrinking window of opportunity for Iridium and other MSS operators as key target markets, such as international business travelers, are able to choose from a growing number of global communications alternatives by 2004. Ovum posts cautious projections for growth in the MSS market -11 million subscribers worldwide by 2007. The findings are published in the second edition of Ovum's report, LEOs, MEOs and GEOs: The Market Opportunity for Mobile Satellite Services.

According to Ovum, the key events moving against Iridium are:

-- the introduction of the WorldPhone from the end of 1999. This will enable mobile subscribers to roam between GSM (global systems for mobile communications), AMPS and D-AMPS networks. These technologies cover over 80% of the mobile subscriber population. However, Ovum anticipates that the phone will take a couple of years to become established.

-- the continued roll out of cellular networks. For example, coverage of GSM networks in the US is currently only limited to some urban areas. However, the continued build out of these networks (licensees that are committed to GSM cover over 90% of the US population) over the next few years will reduce Iridium's potential market.

-- introduction of third generation mobile systems from 2002 onwards.

"The Iridium project represents one of the biggest ever global service launches," says Alex Nourouzi, a senior analyst with Ovum Inc. and world authority on MSS. "It is significant because it is the first of potentially 10 MSS systems that are planning to launch over the next three or four years. If all systems launch, collectively around $20 billion will have been spent pursuing the market for mainly voice based mobile satellite services."

The Iridium service will mainly be sold by approved service providers, many of these are existing cellular operators. Nourouzi continues, "Although Iridium will be complementary to existing cellular services, there will be a number of constraints to the service which mean that users will not get a seamless transition between cellular and Iridium. For the Iridium system to be a success, service providers must make potential subscribers aware of the differences between cellular and Iridium, as people's expectations will be set by the performance of their cellular services."

Ovum believes Iridium must address four critical factors to ensure success:

-- terminal appearance - the Iridium phone compares unfavorably with a high-end cellular phone. The Iridium phone will be larger, heavier and will have a shorter battery life.

-- service offerings - at present, the most widely used digital cellular service is GSM. The most important difference between GSM services and MSS will be data services. For international business travelers in particular, the seamless availability of data services is critical. GSM data rates will increase to 64 kbit/s from 2000 and will be packet based. Iridium's 2.4 kbit/s service will look increasingly inadequate.

-- in-building usage - cellular operators are increasingly looking at ways to encourage the substitution of call traffic from fixed networks to mobile networks. This trend will continue with the introduction of cellular home base stations. While cellular subscribers are using, and will continue to use their phones in buildings, Iridium subscribers will need line of sight of an Iridium satellite to be able to communicate with the system. This not only greatly limits usage in buildings, but also makes usage in built up areas problematic. The minimum angle of elevation that an Iridium subscriber could experience is about eight degrees.

-- cost - the monthly fee and cost of an Iridium terminal will vary between individual service providers. If terminals are not subsidized, they will cost about $3,000. Usage costs will also be dependent on service providers, although expectations are that $3 per minute will be a likely average initial tariff. Although the Iridium system will be a complementary service to existing cellular, its tariffs will have to bear some relation to cellular tariffs, particularly roaming tariffs. Ovum's price comparisons show that in only 14% of cases would it be cheaper to use Iridium system. A similar comparison in 1996 revealed that Iridium would have been cheaper in 52% of cases.

"The Iridium system was mainly developed to enable international travelers to use a mobile phone anywhere in the world," concludes Nourouzi. "In the late 1980's, the idea was a good one. At the time, the mobile industry was plagued by more than ten incompatible proprietary technologies making roaming difficult. But the originators of handheld MSS, Motorola, could not have foreseen the ensuing changes that have resulted in the development of GSM. We see GSM as the primary threat to the success of MSS."

LEOs, MEOs and GEOs: the Market Opportunity for Mobile Satellite Services, is available from Ovum Inc. in November and costs $3,150. The report provides detailed analysis of current developments in the global market for MSS. It identifies the consortia that will succeed and those that will fail, provides an assessment of the impact of MSS on cellular telephony, and offers a comparison of satellite systems. For more product information contact Ovum Inc. on Tel: [phone] or http://www.ovum.com

Ovum is an independent information technology and telecommunications analyst group, providing high quality, authoritative information and advice on key market, technical and regulatory developments. Ovum funds its own research and accepts no sponsorship from vendors or interest groups. Ovum's customer base comprises leading blue-chip organizations including suppliers, users and policy makers worldwide. With offices in Boston, London and Melbourne, Ovum currently employs over 170 staff worldwide.

Note to editors: Detailed white papers on the market for MSS and the implications of the Iridium project are available from Ovum press contacts free of charge to journalists.