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Reaching Beyond the Sky to Be 'Hertz of Satellites'

Telecom: An El Segundo firm sees a lucrative enterprise in launching backups for rent. But some experts think it's too risky a business model.


They were beeping one minute and then they suddenly went silent--45 million pagers in all--as a $250-million satellite hovering over Earth spun out of control and stopped transmitting.

It was May 1998, the first time the nation was exposed to the fragility of space-based telecommunications that it had come to depend upon for pager communications, data transmissions and much of its television.

It was also a seminal moment for Mark Fowler, former chairman of the Federal Communications Commission, and Jerald F. Farrell, former president of Hughes Communications Inc.

Satellites were getting increasingly complex, raising the risk of failure, and the two veterans of the telecommunications industry figured there was money to be made on the novel concept of renting backup satellites.

In a first for the industry, they formed AssureSat, a private El Segundo company that hopes to offer satellites to customers whose multimillion-dollar machines explode after liftoff or stop working once in orbit.

"We'll be the Hertz of rental satellites," said Farrell, who as a Hughes executive until his retirement in 1997 was in charge of operating many of the satellites that are now in space.

Although the first two backup satellites aren't expected to be in operation until 2002, the company said it already has lined up several customers who have signed contracts worth $150 million, including Sea Launch, a satellite launch company partly owned by Boeing Co. Sea Launch would use AssureSat's backup satellite in case of a failed launch.

In addition, investors have pledged most of the $500-million financing needed to start building the two backup satellites early next year. The company, whose investors include Securitas Capital, an equity investment firm of Swiss Reinsurance Co. and Credit Suisse Group, and venture fund Spacevest, hopes to eventually have a system of six backup satellites in space.

But the market for rental satellites is uncharted territory, which some outside experts think represents an uncertain business model. AssureSat believes it could be lucrative.

There are more than 200 so-called geostationary satellites in orbit, most of them providing telecommunications for television broadcasts, pagers and bank transactions, and the numbers are expected to grow by about 5% a year. Also known as geo satellites, the machines orbit the Earth at the same speed as Earth's rotation, allowing it to hover over a certain geographic position. Acting like a giant radio transmission tower, it relays signals from one place on Earth to another.

But about 1 in 8 new satellites will never make it into space because of launch failures, and two satellites in orbit fail each year, according to AssureSat.

On Wednesday, a PanAmSat Corp. satellite that provides backup television and data services in the U.S. stopped working after a electrical failure. It was the second time this year that electrical problems had downed a satellite for PanAmSat, the world's largest commercial satellite operator.

It also came just days after a QuickBird 1 commercial satellite, which would have provided images for the Pentagon's National Imagery and Mapping Agency and other customers, was lost after a Russian rocket booster shut down too early.

And three months ago, in an eerie repeat of the 1998 blackout, a communications satellite stopped transmitting, knocking out television broadcasts, rural telephone service and thousands of automated teller machines in Mexico.

The failures are very costly to the operators. Although banks insure the cost of a failed satellite, operators can't recover lost revenues--about $1 billion a year in some cases--or the cost of building and launching a new machine that could take up to 18 months and cost $250 million or more.

The failure can be catastrophic in other ways. When the Galaxy IV satellite failed and knocked out pager service for 90% of the customers nationwide two years ago, many investors dumped PanAmSat stock. The operator's market share eventually dropped by more than a $2.2 billion as the company reported that it had lost $200 million in revenue.

"We discovered a hole and we are going to fill it," said Fowler, the former FCC chairman.

To fulfill the task, AssureSat said it will rely on specially built satellites under development by Loral Space & Communications Ltd. Each satellite, for instance, will have three years of extra fuel to help it move around in space, unlike other communications satellites that remain in the same orbiting spot and don't require much fuel. The extra fuel will be needed even though the initial satellite will be aimed at providing backup for malfunctioning spacecraft over North America.

The custom-built satellites will also be fitted with 72 "flexible" transponders, 50% more than a typical communications satellite, so it can operate at a wider variety of frequencies and be a "twin sister" of the satellite being replaced.

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