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© 2005 UMFK.

Teledesic

internet business models

text and cases

Jeffery T. Pelletier

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© 2005 UMFK.

TeledisicIntroduction

• Teledesic founded by Calling Communications in 1990 by Craig McCaw.– Craig McCaw is a billionaire that built one of the world’s first and largest cell phone

companies called McCaw Cellular Communications • Sold his cell phone company to AT&T for $12.6 Billion in 1993

• Main objective of Teledesic was to try to the gap of the digital divide by bringing Satellite-based Internet service to everyone around the globe by being an Access Provider.

– The means of broadband service would be from Low Earth Orbiter(LEO) Satellites.• LEOs would rival fiber optics in speed and reliability.• Each satellite would have speed equivuilancy of 800 T1 lines• Each satellite would have solar panels to help keep them powered at all times.

• Teledesic had many big venture capitalist from Saudi Prince Alweleed, to Bill Gates who invested millions in this exciting new technology possibility.

• Teledesic would accomplish world-wide Satellite Internet by tying it to many different ground stations that handle uplinks and downlinks.

• Main strategy was to link the world’s problems like poverty, and being poor to information technology.

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Teledesic Introduction

• “The cost to bring modern communications to poor and remote areas is so high that many of the world's people cannot participate in our global community. Forcing people to migrate into increasingly congested urban areas in search of opportunity is economically and environmentally unsound. All of the world can benefit from efforts to expand access to information technologies.”

• Craig McCaw about Satellite technology

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Teledesic Introduction cont…

• Teamed up with Motorola and Boeing.– Motorola had tried something similar earlier with it’s own version called Celestri.

• Main goal was to have the company up and running and online by 2004.

• Gained FCC approval in 1997.– Teledesic was allocated 500 MHz of Ka-band spectrum by the World Radio communication

Conference.

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Teldesic Technologies Employed

• Among other things, a space-based, global, high bandwidth wireless communications system could:

– Build a global sensor network that could provide: • Much more accurate long-range weather forecasting (which, in turn, could increase agricultural

production by 15% and reduce the annual loss of life to floods and mud slides by up to 75%);

• Much more precise and timely tracks and gauges of environmental threats (which in turn, could reduce premature deaths due to respiratory disease by up to 12% globally);

• A global warning system for infectious disease (which, in turn, could reduce the annual loss of life to infectious disease by up to 40%);

• Provide access to the world's storehouse of knowledge to the roughly 4.5 billion people who currently lack access to it. This could provide:

– A radical diminution of educational disparity throughout the world;

– A global transparency that could end military invasions

– A radical expansion of global commerce;

– A radical expansion of banking services throughout the world;

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Teledesic Stakeholders

• Major Investors and ownership stakes in Teledesic:– Motorola with a $750million investment and a 26% stake.

– Boeing with a $100million investment and a 4% stake.

– Saudi Prince Alwaleed with a $200million investment and a 11% stake.

– Craig McCaw with a 21% stake.

– Bill Gates with a 21% stake.

– Total company investment worth was $1.5 billion as of September 1999.• Other investors include Hyundai, AT&T’s cellular unit, and others.

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Teledesic Technologies Employed

• 3 main segments in technology were Space segment, Ground Segment, and Teledesic’s Technical Advantages.

• Technological Advantages:– Two key advantages:

• Uninterrupted signal with faster transmission rates and error-free signals.• Bandwidth on demand which Teledesic could provide the equivalent of many T1 lines at a time to the same area.

• Ground Stations:– Would have a total of 9 ground stations around the world.– Key was to have millions of users around the world at the same time.– Users uplink and downlink data using special receiver stations by using roof mounted motorized dishes.– Biggest feature of ground stations was to act as intermediary between the ever-changing technology and the

launched satellites which were frozen with their technology from their time of launch.

• Space Segment:– Deploy 288 satellites in near-polar orbits about 700 miles above the earth.– Satellites were to become a node in Teledesic’s network and cover the entire globe at all times.– Data up-linked to satellites from ground-stations by means of Fast Packet Switched Intersatellite Links(ISLs).

• FPSI is data and voice transmitted into packets like a packet-switched network. Also, each channel and circuit is available between two points and divided into different time slots as they are in circuit-switched networks.

– Each satellite would downlink the data at 1,200 Mbps of downlink capacity, which is the equivalent of 800 T1 Lines

– Planned to send on data on extremely high frequencies which made for faster data transmissions.

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Teledesic Competition

• Major competition came from other companies content to enter the access provider extra terrestrial market.

• Some of the competitors were Skybridge who were to deploy 80 satellites only 970 miles above the earth which would bring better signal with regards to latency.

• Another competitor was the company Hughes Douglas who introduced the idea of DirecPC. (Satellite Tv and Internet Access in one)

– Less of a competitor because this service was brought to the user by GEOs, which were higher in orbit than LEOs and brought about greater latency.

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TeledesicCompetition(technologies)

• A few technologies that might give Teledesic’s LEOs some competition:– Halos which were aircrafts that flew about 70,000 feet to challenge the LEOs latency issues.

• Disadvantage was lack of coverage in less densely populated areas.

– Fiber Optics which were capable of sending and receiving data in gigabits per second.• Disadvantage was the high price tag that came with installing fiber optics in a company.

– Cable modems, which had about 60% of the share of U.S. cable users by 1999.• Disadvantage was if too many users were online simultaneously, it was like regular dial-up.

– DSL which combined voice traffic with the data traffic and sent the combined signal to the customer via existing phone wiring.

• DSL had a disadvantage of high start up cost at first, but later on the start up cost leveled off.

• Conclusion was that all technologies were viable competitors but all had their faults as well.

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Teledesic Customers

• Residential users in developed nations:– The main market seemed to be users in rural areas because of the growth of cable-modems and DSL in

residential areas.

• One of the biggest Stakeholders would be the Governement:– Global Reach = Global Power.

• Business would be another Stakeholder:– Business wanted to connect to all aspects of their own, all over the globe.

• Telemedicine:– An example would be a hospital performing surgery in Boston could be sent live to a hospital in India to show

techniques and show proper practices.

• Military applications and peacekeeping:– One of the key features here is the Global Footprint this technology would give so militaries wouldn’t be so

quick to attack other militaries.

• Telemetry:– Let companies know supply levels and things like the day to day operations and how the company is being

affected as a whole.

• Distant education and tele-education:– Larger companies could run a single training session at once and have it broadcast around the globe.

• Telecommuters:– Videoconferencing and data-sharing.

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Teledesic GBF

• Teledesic had a Get Big Fast strategy that was fueled by many high powered, deep pocketed investors.

• The Payoff:– Satellite Access Providing would take off and Teledesic would have the market cornered.

• The Risk:– The technology would change so rapidly and other Access Providers like DSL and Cable

Modems would increase their availability globally.

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TeledesicGBF

• It appeared that Teledesic was applying a GBF strategy because of all the big time VCs that were dishing money into it.

– Big VC investors were not your average investors

• Network Effects: – Relatively weak.

• Scale of Economics:– Revenue coming from bigger business and government.

– Capital cost was high because of the price to launch and repair satellites

– Marketing and customer service costs would be dependant on Teledesic’s distribution partners and how they would use their own staff or resellers.

• Retention Rates:– Would be high because Teledesic is an access provider and with access providers the retention

rates tend to be high.

• Transit and access Costs:– Depended if Teledesic would team up with other ISPs or have a much larger customer base and

have to buy transit from other ISPs.

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TeledesicBusiness Plan

• Distribution:– Things like where and how to put ground stations.

• Concerns of less-than-honest individuals in politically unstable third world countries, and language barriers.

• Regulation:– Teledesic’s radio frequency spectrum would have to be regulated by over 200 agencies

throughout the world because regulations were constantly evolving.

• Finance:– Raise and spend billions of dollars before there is a chance to gain revenues.

• Technical Engineering:– Constantly upgrade equipment to meet customer expectations.

– Also keep producing satellites at a low cost to keep up with ever-changing technologies.

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TeledesicSummary

• It is unclear

• Consider many options when deciding:– “Would you bet against Craig McCaw and Bill Gates?”

– Teledesic has money in the bank.

– Teledesic has many deep pocket investors but how far will they go until they pull the plug?

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Teledesic• Questions?????????????????????

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