teledesic presentation version 9 final version
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Teledesic: Bringing Satellite Communications to the World
Mark Allers Chad Karnes
Stanislav KomskyRob MondayAyinwi Muma
Darryl Thompson
“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
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2000 Technical Details
288 LEO Satellites: 12 orbital planeswith 24 satellites each
700 miles altitude 1200 Mbps downlink, 800 T1 lines per
satellite 10 years life expectancy per satellite 3-4 satellites in range of every user within
any given time Expected Cost $9.5 Billion
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Major Stakeholders
Founders Craig McCaw and Bill Gates - $30 Million Motorola - $300 Million Boeing - $50 Million Prince Alsaud - $200 Million Other Investors Include Hyundai and AT&T
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Company Timeline
1990 Teledesic founded 1994 Funded by personal investment of McCaw and
Gates, FCC application filed 1995 Original concept required 800 LEO satellites @
700 km above earth at cost of 9B. 1997 Scaled concept to 288 LEO satellites @ 1400
km (or 700 miles), Teledesic receives FCC license, Boeing joins effort
1998 Motorola and Prince Alsaud become investors 1999 Teledesic and Lockheed Martin sign major
launch contract
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2000 – Satellite Industry is expanding
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2009 Internet Statistics
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World Satellite Industry Revenues
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Underwater Cable Comparison
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2009 Assumptions (Start of Case)
Teledesic is about to launch its operations in 2009 with $1.5 Billion in Capital
No Satellites have been built or launched and Teledesic is re-examining its plan
Teledesic still has its original FCC license for broadcast satellites
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Competitors Today
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Satellite Communications Platform Providers SES Americom, SES Astra, SES New Skies, EutelSat, IntelSat,
InmarSat
Satellite Communications and Terrestrial Technology Providers Hughes Network Systems, AGS Americom, ICO Global
Communications, Mobile Satellite Ventures, Global Star Satellite Phones, Stratos
WiFi, Cable, Dial-up, and DSL Internet Service Providers Clear Communications, Comcast (partnership with Clear), Time
Warner (partnership with Clear), Verizon, Sprint, AT&T
Teledesic Relative Advantages
Largest LEO Network Connection/Communication Possible for the Entire World Fiber Deployment Will Not Happen in Most of the World Faster than GEO/MEO Satellites
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Teledesic Relative Disadvantages
$9.5 Billion Initial Investment 10 Year “Locked Into” Technology unless Significant Cost
Outlays for Upgrades Per User Bandwidth Demand growing in step with
Bandwidth Supply (User Needs vs. Provider Supply) Development of Ground Networks has outpaced
Teledesic Expectations Best Case Scenario with 100% Market Penetration – Still
Losing Money After 10 Years
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Financials – What We Know 1 Satellite’s Maximum Capacity Equivalent to ~800 T1
Lines in Year 2000 User to Modem Ratio of 10:1 Year 2000 Max. Customers Per Satellite of 8,000
800 T1 lines X 10 Users/Modem
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Financials – Best Case Revenue Assumptions Technology has Significantly Improved since 2000 User Demand has also Significantly Increased
Demand Increasing at a similar rate as Bandwidth Best Case Max. Capacity per Satellite Still 8000 Users in 2009
Also Assume Best Case $1000/month Revenues/Customer Equivalent to Year 2000 T1 Line access Current T1 Rates are ~$500/month
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Financials- Competitor Cost Analysis HughesNet (Direct TV) had 6.1% 2008 Profit Margin
But, Negative Free Cash Flow Earnings Last 8 Years Due to Additional Capital Requirements for Upgrades/Subscribers
ClearWire is significantly unprofitable in first year Lost ($493MM) on $3.2B in Assets in 2008 Lost ($233MM) on $2.9B in Assets in First Quarter 2009
($930MM) Loss 2009 Run Rate (32% of Assets)
Hughes Communications Financials
Total revenues 1,060,353 970,648 858,699
Total operating costs and expenses 996,061 887,012 806,057
Operating income 64,292 83,636 52,642Profit Margin 6.1% 8.6% 6.1%
2008 2007 2006
ClearWire Financials2009 2008 2008 2007
Revenues 62,137 — 20,489 —
Total operating expenses 295,086 95,101 513,567 212,385
Operating loss (232,949) (95,101) (493,078) (212,385)Profit Margin -374.9% NA -2406.5% NA
1st Quarter Full Year
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Financials- Best Case Scenario Summary Best Case Max. Capacity Revenue $96MM/Year Aggressive Assumption of Only $20MM Cost/Satellite Still Cost Structure
Satellites have 10 year useful life Loss of 32% of Assets in Year 1 (Similar to Clearwire 2009) Loss of 15% of Assets in Year 2 (Similar to all Competitors) Free Cash Flow Positive by Year 5
Neither Hughes nor XMSR are FCF Positive After 8+ years
Continue Profitability Improvement thru Year 10 10% Margin by Year 10
Still Results in $3.6MM Loss after Year 10 Does Not Take into Account Discount Factor
Would Be an Even Larger Loss if Considered
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Best Case Scenario Free Cash Flow
Per Satellite Cost (20,000,000.00)
Profit Year 1 (6,400,000.00) year1 -32%2 (3,000,000.00) year2 -15%3 (2,000,000.00) year3 -10%4 (1,000,000.00) year4 -5%5 - year5 0%6 1,920,000.00 year6 2%7 3,840,000.00 year7 4%8 5,760,000.00 year8 6%9 7,680,000.00 year9 8%
10 9,600,000.00 year10 10%Total Cash Flows (3,600,000.00) Loss per Satellite
Per satellite Projected Profit
Does not take into account any discount rate since still unprofitable even in best case scenario
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Major Challenges
The plan is unprofitable, unrealistic, and outdated $9.5 billion initial investment needed before first $1 of
revenue is earned Not comparable to cable or fiber lines Massive 2000-2001 ground fiber networks makes
satellites unnecessary New wireless technologies exists today (3G, 4G,
Clearwire)
Ways to Move Forward
Drop Out Entirely Transitional Lease Terrestrial WAN Geosynchronous + Subsidies
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Complete return of capital to investors.
Pros: Certainty of Result Low Risk Perception of “responsible” action (in the absence of better
options). Maintain credibility with investors for future projects.
Cons: Small loss is guaranteed. No way to capitalize on possible future growth in satellite
industry. Abandonment of sunk costs.
Drop Out Entirely
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Structure: MEO; Transition from “Bent Pipe” to Direct.
Target: Lease to service providers INSTEAD of selling to end users; horizontal integration.
Pros: No need to build any one customer base over time. Increased profitability through better utilization of service
capacity. Scalable “bent” structure, which could later take advantage of
Direct structure quality of service. Differentiation: middle-earth orbit mitigates latency.
Cons: Challenge to standardize satellite technology among uses. Other “private label” networks exist (ex. Hughes Net)
“Transition Lease”
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Terrestrial WANStructure: No satellites; use 4G networks instead.
Target: End Consumers(Similar strategy to Clearwire WAN)
Pros: Currently being pursued by industry guru, McCaw through
Clearwire. Low-cost alternative to launching satellites.
Cons: Clearwire is not currently profitable. Intense competition with Clearwire. Reduced ability to service populations in less-dense regions.
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Geosynchronous + SubsidiesStructure: Geosynchronous Satellites
Target: Consumers or Service Providers in Remote Areas.
Pros: Reaches original goal of bringing internet to the world. Only 3 satellites would be required due to larger “footprint.” Populations in remote areas are reachable. Large worldwide customer market
Cons: Not profitable without subsidies.
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GEOs + Subsidies Social Good
Main reasons for lack of progress in global access Prohibitive price of public services in relation to per capital GNP Underdeveloped landline networks Inadequate bandwidth on backbone infrastructure Poor international IP transit
Teledesic’s satellite platform would Partner with Local Service Providers & Entrepreneurs Utilize existing government programs that support these
ventures
Examples of Current Opportunities Rural US Business Opportunity
US Congress set aside $7.2B to close digital divide in rural areas
Net neutrality rules restrict major carriers from applying for these funds
Smaller companies can enter if they have a viable platform
Opportunities in Developing Countries
European Commission funded creation of Digital World Forum - “To connect the unconnected”
Forum on Broadband Access & Infrastructure issued call for investment ideas for Africa – Uganda, May 2009
Australia’s Government offered subsidies of $2750 per customer for providers who created new access opportunities in rural areas. (2007)
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Appendices
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Sources Harvard Business Review – Teledesic http://www.google.com/url?sa=t&source=web&ct=res&cd=6&url=http%3A%2F%2Fperleybrook.umfk
.maine.edu%2Fslides%2FFall%25202005%2Felc498%2FTeledesicPresentation.ppt http://www.nndb.com/people/423/000118069/craig-mccaw.jpg http://web.archive.org/web/*/http://www.teledesic.com/ http://www.seattlepi.com/business/90737_teledesic11.shtml http://sia.org/news_events/2009_State_of_Satellite_Industry_Report.pdf http://www.internetworldstats.com/stats.htm http://awesome.good.is/transparency/web/trans0309seamail.html http://www.dishtvtips.com/earth-satellite.jpg Individual Company Websites http://www.digitalworldforum.eu/workshops/20-future/66-workshop-on-broadband-access-a-
infrastructure-call-for-paper http://www.wired.com/epicenter/2009/07/4-billion-in-broadband-stimulus-grants-tied-to-strict-net-
neutrality-rules/ http://www.theage.com.au/news/business/subsidy-plan-to-beam-broadband-into-bush/
2007/03/07/1173166799297.html http://broadbandusa.sc.egov.usda.gov/ http://sec.gov/Archives/edgar/data/1442505/000095012309009087/y75541a3sv1za.htm
Clearwire S1 filed May 19 2009 for year ended 2008 http://sec.gov/Archives/edgar/data/1345840/000119312509045023/d10k.htm
Hughes Communications Annual report filed March 5 2009 http://sec.gov/Archives/edgar/data/908937/000119312509049874/d10k.htm
XMSR Annual Report filed March 10 2009
Appendix - Important Considerations
Implementation Launch entire network (as before). Launch network at higher altitude fewer satellites.
Minimized Costs Possible through strategic selection of service offerings and better
latency compensation (i.e. Caches). Launch partial network first; build out entire network over time. Don’t launch; sell satellites to others.
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Appendix - Important Considerations
Structure Direct Communication Between Satellites
Best Quality of Service; NOT Scalable. “Bent Pipe” Satellites/Terrestrial Forever
Lesser Quality of Service; Scalable. “Bent Pipe” Transition to Direct
Gradual Transition to Direct Communication. Possibility to Reach Best Quality of Service. Still Scalable!
Terrestrial WAN or Other Very Scalable.
None
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Appendix - Important Considerations
Market Direct: Sell to Customers (as before).
Populated Areas (Many Already Wired) Established Market; More Competition
Remote Areas (Many Not Yet Wired) Pre-mature Market; Less Competition
Indirect: Sell or Lease to Third-Party Service Providers. Need for standardization of technology. Increased efficiency through better utilization of capacity. No need to gradually build customer base.
None
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Appendix – Alternate Breakeven Analysis
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Common Size (% of Sales)
$s in millions ClearWire HughesNetRevenues 9,500 100.0% 100.0% 100.0%
Variable CostsSatelite Costs 5,760 60.6% X% X%Other 0.0% 110.0% 74.0%
Total Variable Costs 5,760 60.6% 110.0% 74.0%
Total Gross Margin 3,740 39.4% -10.0% 26.0%Fixed Costs
SG&A 0.0% 174.0% 16.8%Launch Costs 2,500 26.3% X% 0.0%R&D 0.0% X% 2.5%Other 1,240 13.1% 190.9% 0.6%
Total Fixed Costs 3,740 39.4% 364.9% 19.9%Operating Profit - 0.0% -374.9% 6.1%Operating Margin 0% 0.0% -374.9% 6.1%
Total Costs 9,500
Revenues Needed to Breakeven 9,500
Satelites 288 Equivalent T-1s per Satelite 800 Each satelite can carry equivalent up to 800 T1sCustomers per T-1 10 Total Potential Customers 2,304,000
% of Satellites Useable 30% Satelites over inhabited areas (Aggressive)
Total Potential Customers 691,200
% of Customers Penetrated 100% Amount of Customer Penetration (Best Case)
Total Expected Customers 691,200
Yearly cost per Customer 13,744$ Breakeven Yearly Cost per CustomerYearly cost per Month 1,145$ Unrealistic (Current rates $500/month)
Total Revenues 9,499,990,500 Notes:-Assumes no operating costs (Only $9.5B investment)-Assumes best case scenario
Year 0 $9.5B Breakeven Analysis
Year 0 Financial Statement Comparable Companies
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