Sale, IPO Loom Large for VSC During 2002

Bob Friedman, chairman and CEO of Virtual Satellite Corp. in Fayetteville, said he expects to either sell his company or make an initial public offering during 2002. National interest in the satellite signal innovator has taken off following 90 days of successful testing.

VSC, which incorporated in February 2001, uses proprietary technology to combine unused transponders on geostationary satellites and thereby create higher power “virtual” satellites. By 2004, the company intends to put the equivalent of additional “birds” in the sky without incurring the $300 million cost of launching a satellite.

Friedman, who is also director of the University of Arkansas’ Genesis Technology Incubator, said several entities — including a government agency, private corporation and direct broadcasting company — have expressed an interest in using VSC’s technology to enhance their own systems. Friedman declined to name the interested firms.

But existing direct broadcast leaders with the size and efficiencies to absorb the new technology would include Hughes Electronics Corp., GTE Telecommunications Services Inc. and EchoStar Communications Inc.

Combined, Hughes and EchoStar already have 16 million Direct TV subscribers.

“We have also had discussions with the FCC regarding how our patents work and their impact on regulations,” Friedman said. “The results were very positive. We as a company, however, have a huge number of action items to carry out in terms of business planning for interested parties.

“I expect that this year we will see a major shift in the ownership of Virtual Satellite … Probably before the year is out, we will see ourselves in some kind of IPO or an actual sale of the company.”

Ten local venture capitalists, organized as Northwest Investment Group LLC, supplied VSC with the initial $3 million it needed to develop, demonstrate and commercialize its virtual satellite system. They include UA Athletic Director J. Frank Broyles, Athletic World Advertising President Gregg Ogden and prominent developers Jim Lindsey, Mark Marquess, Vic Evans, Gary Brandon and Greg House.

About a month of the testing took place in the San Francisco Bay area where VSC got assistance from Space Systems Loral and two orbiting Tel-Star satellites that are 23,000 miles above the earth.

A team of electrical engineers and professors led by John Thacker supervised the testing. John Bush, former chief engineer of Telecomm General Corp., and Fayetteville engineer Greg Garner were also on the testing team.

The particular Tel-Star satellites were 17 degrees apart in space. But one Virtual Satellite system will have the capacity to simultaneous uplink and downlink with up to six satellites over a 30-degree arc.

Friedman said the rights to Virtual Satellite systems could be sold in one piece or divvied up into parts that make sense for potential buyers. He declined to disclose an asking price but said the project’s successful tests have obviously increased VSC’s appeal.

Even if he sells the company, Friedman said, he still hopes to make Fayetteville the manufacturing center for the four pieces of equipment needed in VSC systems. He said antennas, combiners, splitters and set-top boxes would have to be mass-produced to take the product to the public.

“The company will require a lot of equipment to be manufactured, and we hope to find additional investors who would be interested in that venture,” Friedman said.

Designs for VSC’s product parts are already under way. Friedman said the goal “over a few years” would be to establish a subscriber base of about 8 million people.

The project is already almost a year ahead of schedule. The original goal was to have the product completed in three years. But given the current rate of interest in VSC, it could happen this summer.

VSC actually creates a broadband signal by mingling transmissions to and from many transponders at once. The signal may be used for entertainment broadcasting, Internet and data use or even simple voice communications.

The breakthrough is significant for the satellite industry because it is the first method and apparatus for combining bits of unused capacity on the 4,103 transponders that are in operation today.

The distance of geosynchronous satellites from the earth changes gradually, and adjustments down to the millisecond must be made when recombining multiple signals. Therefore, Friedman’s technique for getting the bits spliced back together so that they made sense was a real discovery.