When it comes to satellite navigation, the U.S. Global Positioning System (GPS) has long been the only game in town. But on Dec. 28, a consortium of European governments and companies launched the first in a network of satellites, dubbed Galileo, that will put an end to that monopoly. Scheduled to become fully operational by 2011, Galileo will consist of 30 satellites providing worldwide coverage. At a cost of $4 billion, it's Europe's biggest-ever space project.
Backers argue that Europe needs an alternative to GPS, which is run by the U.S. military and might not always be available for civilian use. Galileo, however, will be an all-civilian operation that offers two levels of service, one free for anyone with a receiver, and one fee-based for users willing to pay for access to a higher level of accuracy.
TEAM EFFORT. Galileo's sponsors contend they can win clients in such industries as transportation, telecommunications, security, and search-and-rescue by offering more-precise and highly specialized navigation services than those now offered by GPS. Galileo could offer services to small airports that can't afford land-based radar systems, enabling them to use satellite navigation to guide aircraft takeoffs and landings. Galileo also plans to peddle its services to phone operators, which could install Galileo chips in mobile phones so that users could navigate with their handsets.
European governments are kicking in one-third of Galileo's price tag, but the rest is coming from eight companies: Thales and Alcatel of France, Inmarsat of Britain, Finmeccanica of Italy, AENA and Hispasat of Spain, TeleOp of Germany, and the Franco-German European Aeronautics Defence & Space Co. Together, they'll make up Galileo Operating Co., which will manage the network and sell services to customers.
Can Galileo really make money? Even its corporate backers say it could take 10 or 15 years for the network to start producing a steady revenue stream. "A lot will depend on our ability to create attractive products and services," says Patrick McDougal, an Inmarsat executive who oversees that company's involvement in Galileo.
POLITICAL IMPETUS. Improved reliability could be a key selling point. Olivier Houssin, an executive vice-president at Alcatel who works on the Galileo program, says signal availability in urban areas will be 97%, compared to an average 50% for GPS. And while GPS pinpoints locations within a 10-meter to 30-meter margin of error, Galileo's margin will be just 1 meter for the more accurate paid service.
That might persuade some big industrial clients to sign up, but what about individuals for whom satellite navigation is a luxury rather than a necessity? "For the broader public, that's relatively unclear right now," says Felix Oberdorfer, an analyst with Fortis Bank in the Netherlands.
For now, the most powerful rationale for Galileo is political, not financial. Western European governments are eager to have a navigation system that isn't under the control of the U.S. military.
Several non-European countries, including China and Ukraine, also have expressed interest in becoming Galileo clients. "If it was purely left to private enterprise, this wouldn't get off the ground," says McDougal of Inmarsat. "But when you add it all up, we believe there are potentially revenue streams that are worthy of our investment." Houssin estimates that within a decade, Galileo could generate $500 million to $1 billion in annual revenues.
Pie in the sky? Perhaps. But it's a risk that Europe is ready to take on.
Bandhari is an intern in BusinessWeek's Paris bureau
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