More Heavy Lifting Awaits ICO Following G1 Satellite’s Launch

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PARIS – ICO Global Communications’ ICO G1 satellite, launched successfully April 14, will test several new commercial telecommunications technologies provided by its manufacturer, Space Systems/Loral, and ground-segment supplier, Hughes Network Systems.

Hughes and Loral, as well as Boeing Satellite Systems International, are working on other satellite systems using similar technology and scheduled for launch in the next two years. In particular, the satellites will employ a new ground-based beam-forming technology developed by Germantown, Md.-based Hughes that in ICO G1’s case will provide up to 250 transmit-and-receive S-band beams.

The beam-forming technique removes some of the technical demands from the satellite itself – long a goal of satellite system engineers – and places it on the ground. Hughes officials have said the technology gives satellite operators added flexibility in how they allocate frequencies and signal strength inside their coverage areas.

The technology should allow Reston, Va.-based ICO Global to adapt its coverage to customer demand. ICO plans to provide mobile video and two-way data links to customers in automobiles throughout the United States and, eventually, parts of Canada.

In addition to being the largest commercial satellite ever sent into orbit – at 6,634 kilograms, it edges out the Loral-built Ipstar broadband satellite launched for Thaicom plc of Thailand in August 2005 – the ICO G1 will be the first spacecraft to test a business model based on finding a cash-rich partner to deploy the ground-based infrastructure needed to close the business case.

Like all satellites, ICO G1’s signals will be stopped by tunnels, tall buildings and other obstructions, causing service interruptions that will be unacceptable to users paying a monthly subscription fee for the eight to 15 video channels beamed to their vehicles.

The required network of signal relay stations, or Ancillary Terrestrial Component (ATC), using the same frequencies allocated to ICO Global for its satellite-to-ground communications, has yet to be financed.

ICO, which already has spent about $500 million building its satellite and the ground installations necessary to operate it, has estimated it will cost between $300 million and $800 million to deploy the ATC network – money the company does not have.

As is the case with the two other ATC-dependent satellite operators whose space systems are in construction — Mobile Satellite Ventures and TerreStar Corp. — ICO is racing to find substantial new capital before its cash runs out.

ICO officials concede the timing is not good. The debt markets are closed to companies like ICO for the moment, and ICO’s current debt-holders have set limits on how much new debt the company can add. ICO sold $650 million in convertible bonds in mid-2005 and must begin repaying this debt in August 2009 – the same year it expects to begin commercial service – and will need extra cash for commercial rollout.

ICO faces the added difficulty related to auction-rate securities it purchased early this year. Most of these are backed by U.S. student loans. In calm financial markets, they are sold regularly at monthly auctions.

ICO had counted on these funds this year, but recent auctions have failed and the normally liquid market for auction-rate securities in general has been all but frozen, ICO said in a March 28 filing with the U.S. Securities and Exchange Commission.

A further challenge to ICO relates to its U.S. Federal Communications Commission (FCC) license. ICO’s launch occurred after the FCC deadline, and the company has appealed for an extension. Industry officials said the company is likely to receive the extension, in which case it must declare its ICO G1 satellite operational by May 15.

The company plans to start field trials in August of what it calls its mobile interactive media, or “mim,” service in Raleigh-Durham, N.C., and Las Vegas. ICO Chief Executive Tim Bryan, with the backing of ICO’s chief financial backer, cellular pioneer Craig O. McCaw, has said proving the system’s capabilities step by step is the best way to attract a financial partner for the ATC deployment. ICO does not yet have an FCC license to use the ground-based repeaters with the satellite, but is optimistic it will receive the license by September, according to an April 10 ICO presentation to investors.

If ICO does find an ATC partner, it must build a second satellite as a ground spare within a year of the start of commercial service using the ATC and ICO G1 satellite. ICO has estimated that the ground spare will cost $180 million to $225 million.

ICO Global started operations in the mid-1990s as a company planning a 12-satellite network of large medium Earth orbit satellites and spent $2.6 billion building satellites and a dozen satellite access nodes around the world.

Its first launch failed in March 2000. The second launch in June 2001 placed a satellite in the correct medium Earth orbit. Since then the satellite has been little-used, but ICO hopes its operational status will give the company an advantage this year as European government authorities allocate S-band frequencies for next-generation mobile services.

The company has 10 satellites in various stages of completion at a leased, 2,696-square-meter warehouse in El Segundo, Calif.

ICO and its former prime contractor, Boeing, have sued each other and ICO has raised the possibility that the court case ultimately will result in a payment of more than $2 billion from Boeing. Boeing officials have denied ICO’s allegations. Trial is scheduled to start May 5 in Los Angeles County Superior Court.

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