Sky The Limit for Hughes Telematics' Growth

For a Company That's Barely Two years old and won't produce its first telematics unit for production vehicles for at least a year, Hughes Telematics has a definite swagger as it prepares to enter a market that continues to emerge as potentially lucrative, while enhancing occupant safety.

General Motors Corp.'s OnStar subsidiary is the giant in the telematics sector, linking some 5 million GM vehicle owners in the U.S. and Canada to security and communication services delivered automatically or by call-center operators.

But the privately owned Hughes Telematics has something OnStar doesn't: non-GM business and the probability of winning a lot more of it. Hughes Telematics CEO Jeffrey Leddy estimates his company will provide telematics units for “tens of millions of vehicles in the next several years.”

While OnStar focuses on serving GM's North American product portfolio - supported effectively with real-life commercials illustrating the value of OnStar - Hughes Telematics figures the remaining 75% of the vehicle fleet is up for grabs.

The telematics provider that meets this “very large, unaddressed market” with the best value, technology and service is bound to cash in, Leddy says.

Next year, Hughes Telematics will start filling that hole when it delivers the first telematics modules for Chrysler LLC vehicles in North America, followed later in the year by Mercedes-Benz.

The hardware unit will be installed as standard equipment on 100% of Chrysler and Mercedes vehicles sold in North America for the '10 model year.

A huge variable in Hughes' success is pricing. All Mercedes and Chrysler vehicles will be equipped for a range of services, but they will not be activated unless the vehicle owners pony up on a monthly basis. Leddy says pricing will be announced closer to launch next year, and he recognizes the fees must be reasonable and easy for consumers to grasp.

“There's always a balance between offering too many choices to the consumer and confusing them,” he says.

“We'll have a full suite of infotainment-type capabilities, as well as location-based services. Not just calling for a phone number but also actually getting directions through your navigation system or turn-by-turn directions.”

For comparison, OnStar charges $18.95 per month (or $199 per year) for its basic Safe & Sound plan, which provides remote diagnostics, roadside assistance and emergency services, such as alerting authorities when a vehicle's airbag deploys. The service also can track stolen cars and remotely unlock doors.

Hands-free voice-activated calling costs between $39.99 for 100 minutes and $299.99 for 1,000 minutes. Likewise, OnStar's Directions & Connections turn-by-turn navigation service costs $28.90 per month, or $299 per year.

Meanwhile, Hughes Telematics says its services will be competitively priced. The cost of the hardware module, for instance, is less than what most auto makers pay for basic radios, the supplier says.

Hughes' embedded telematics control unit will include a global-positioning system, cellular modem and the necessary memory and processor. The device will enable 2-way communication via satellite and connect with the vehicle's CAN communication bus.

Integrated with the vehicle's “nerve center,” Hughes says its telematics unit can support driver-assistance services and messaging. The system enables “multicasting,” allowing Hughes to download new software for the ever-growing number of electronic controllers in vehicles.

By virtue of its earlier connection to Hughes Electronics (and eccentric aviation wizard Howard Hughes), the upstart telematics company figures its satellite communications expertise is a distinct advantage in ushering automobiles into an era of networked connectivity.

And the enabling technology will be transparent to the consumer, Leddy says.

Hughes' first call center is located in Atlanta - its headquarters - and is slated to begin operation in December 2009. Another will be announced in the near future, Leddy says. The company, majority owned by private-equity group Apollo Management LP, has 200 employees currently and will size up based on the volume of its customer base.

Leddy says he does not consider OnStar a competitor, although the GM subsidiary dominates its sector. He is optimistic about Hughes Telematics one day being bigger than OnStar. “We offer a broader range of services than OnStar does today,” he says.

But for now, Hughes Telematics remains a bit player, kept afloat by deep-pocketed owners and modest revenue from aftermarket fleet business.

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