03.31.05
Fortune.com
Cell Calls by Balloon?
An Arizona entrepreneur's cheap weather balloons are replacing expensive telecom satellites.
Out in the arizona desert, Jerry Knoblach is preparing to launch the world's cheapest "satellite." A colleague counts down: "Three ... two ... one...." Then Knoblach simply opens his hand and releases a weather balloon with a lightweight communications device dangling underneath. Filled with hydrogen, the balloon bobs in the early morning thermals, drifting skyward, destined for the far reaches of the earth's atmosphere.
This may not sound like the stuff of aerospace revolutions, but Knoblach is a genuine pioneer, at least in terms of cost savings. A typical rocket-borne communications satellite today costs upwards of $100 million to build and launch. Knoblach's company, Space Data of Chandler, Ariz., can get one of his devices in the air for only $400. Because he needs to release a balloon every 12 hours, the annual cost is around $300,000. How does he do it?
Instead of using a rocket to blast a satellite into space, Knoblach sails his transponders up to the stratosphere tied to an inexpensive weather balloon. Because it's higher than storm clouds and heavy winds, yet closer than space, the stratosphere is a tantalizing place from which to transmit signals for cellphones, pagers, and other messaging devices. If you park a kind of poor man's satellite up there, it's possible to undercut the prices of existing telecom providers or fill in their coverage gaps.
For the past decade, all kinds of stratospheric dreamers have been in the chase, attempting some truly wacky inventions, including gargantuan solar-powered dirigibles and tiny planes intended to fly unmanned for months at a time. Only Space Data has succeeded. Right now, it serves one narrow customer niche: oil companies that want to monitor wells and pipelines by remote. But telecom balloons have big-bucks potential, such as offering cellphone coverage to underserved rural areas. "Think of this as either a very tall cell tower or a very low satellite," says Knoblach. "It just happens to be a balloon."
But like all space ventures, this one is risky. So far, Space Data has a tiny revenue trickle: $50,000 in 2004. That's set against a ferocious $750,000-a-month burn rate. Knoblach, 42, is smoking through the $33 million he has raised, mostly from his deep-pocketed dad. But he's confident that he can turn an operating profit by 2006. So-called remote telemetry—providing messaging from isolated oil wells and chemical depots—is a turbocharged market, projected to grow to nearly $4 billion in 2008, from $800 million in 2004. Sign up a few big customers, such as an ExxonMobil or a DuPont, Knoblach figures, and Space Data can float into the black.
But if Knoblach hopes to strike it really rich—not merely survive—at 100,000 feet, he'll need a more diverse customer base. Cellphones are the big opportunity. Currently, 40% of the U.S. land mass lies outside the range of cellphone service. Big wireless players such as Cingular and Verizon aren't in a rush to dot the countryside with expensive cell towers because much of that land is sparsely populated. But they might be amenable to letting Space Data become a roaming partner, thereby extending their networks into unserved rural areas.