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Thinking Small : San Diego's ComStream Hopes to Help Launch Many Into Space Age of Telecommunications

December 08, 1987|CHRIS KRAUL | San Diego County Business Editor

Over the next decade, a large number of businesses and government agencies will enter the space age, telecommunications-wise, and a San Diego company called ComStream would like to help launch them.

The new age revolves around satellite-based telecommunications technology called VSAT, an acronym for very small aperture transmission, a term that refers to the relatively small diameter (under 5 feet) of the antennae or dishes used in the systems.

In a sense, the new age has already dawned. Many large businesses, including Walmart, K mart and Southland Corp., and public entities including the U.S. Secret Service have begun converting their data communication systems away form telephone line-based systems to private VSAT systems linking hundreds, even thousands of locations.

Companies can use the systems to check the validity of credit cards, keep track of inventory and place reservations more quickly and inexpensively when compared with telephone line-based systems. Through VSAT, government entities can transfer records and other data at vastly higher quantities and speeds than currently possible over telephone lines.

The VSAT Age

ComStream, a San Diego-based manufacturer of VSAT earth stations and components that both receive and transmit satellite data, says it is trying to accelerate the coming of the new VSAT age by making VSAT earth stations more affordable and therefore accessible to a wider market.

ComStream President Franz Birkner said his company has reduced the costs of VSAT earth stations through innovations in hardware and integrated circuit design to the point that ComStream's products, which include dishes and electronic receiving and transmission equipment, now cost as low as $8,000 per unit, or one-tenth the cost five years ago.

That's important because the cost of earth stations accounts for about two-thirds of the entire network, Birkner said.

The high cost of VSAT equipment, particularly that of the computerized "hub" that processes and routes the data sent through the satellite, currently means that VSAT systems make economic sense only for customers that need to tie together 200 or more locations, Birkner said. The hubs, which consist of a larger dish and two computers, today cost $1 million and up.

But the increasingly lower cost of the hardware offered by ComStream and others, plus the advent of common VSAT carriers such as Cylix Communications of Memphis, indicate that VSAT will be available to a growing number of potential customers in the coming years. Cylix recently becameComStream's largest customer by ordering 1,000 earth stations.

"I'd like to see costs come down over the next 18 months to the point that networks with 50 locations become economically attractive," Birkner said. Birkner expects a new generation of hubs to soon be available based on personal computers or engineering work stations instead of minicomputers, reducing their cost to as little as $250,000

Birkner acknowledged that the lower costs of his products are being driven down not only by better technology but by its intense competition with Nippon Electric Corp. (NEC) of Japan, which also supplies VSAT earth stations. Neither ComStream nor NEC sell their products to end users, but to intermediaries called system integrators who tailor VSAT systems to a client's specific needs.

The three largest system integrators today are Contel, GTE Spacenet and Hughes Network Systems.

Good Prospect

Regardless of the reasons, the declining costs of the VSAT systems persuade industry observers such as Phil Freedenberg, executive vice president of Federal Engineering Inc., a Fairfax, Va.-based telecommunications consulting firm, that VSAT networks will grow from about 15,000 earth stations installed today to between 100,000 and 150,000 stations installed by 1992.

"A good prospect for these systems is a business that has what we call 'star topology' -- a central location and lots of remote locations that need to communicate with the central location," Freedenberg said. Travel agents and regional retailing operations are good examples of such businesses, he said.

Formed in 1984 by a group that included former M/A-Com executives, ComStream expects revenue to reach $8 million for the fiscal year ended next March even though it has been shipping products only since late last year. Sales may double the following year, Birkner said. Employees now total 65, up from about 25 in May of 1986.

The size of the VSAT satellite dishes is decreasing and will shrink even more over the next year or two, Birkner said. The VSAT dishes, which operate on Ku-band microwave frequencies , are smaller than home video satellite dishes, which operate on C-band frequencies, because because Ku-band's higher frequencies allow VSAT dishes to focus in on tighter beams, Birkner said.

A typical VSAT dish is about four feet in diameter, whereas a home video dish is at least 10 feet wide, Birkner said. Although home satellite broadcasting will eventually shift to VSAT technology, Birkner said ComStream has no plans at present to pursue the "home consumer market."

ComStream was funded initially with $5.5 million in venture capital from investors including Oak Industries, John Hancock Venture Capital, General Electric, Paragon Partners and Wolfensohn Ventures. Birkner said the company has been profitable over the last five quarters and is planning an acquisition.

Birkner, 43, was joined at the founding of ComStream by former M/A-Com executives Stephen Blake and Itzhak Gurantz.

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