The carrier will resell satellite service and phones from TerreStar Networks, a startup that is set to have its first satellite launched on July 1. TerreStar is developing hybrid satellite/cellular handsets designed to be about the same size as a conventional smartphone.

TerreStar's satellite will sit 22,000 miles above North America and provide service across the U.S. and Canada, including Alaska, Hawaii, Puerto Rico and the U.S. Virgin Islands. Using licensed 2GHz radio spectrum, it will provide voice service as well as data at approximately 64K bits per second, said TerreStar Chief Technology Officer Dennis Matheson.

AT&T will resell that service in a hybrid offering, aimed initially at local, state and federal governments, Matheson said. The carrier will also resell the handsets, though not initially in its retail stores. The handsets will switch between satellite and 3G (third-generation) coverage as users roam in and out of cellular coverage areas. TerreStar is still working on a resale deal with a Canadian carrier.

Satellite phones have the advantage of working essentially anywhere across a region of the world, but the market has been limited by large handsets and high prices for devices and service. TerreStar is taking advantage of SDR (software-defined radio) chips coming from Infineon and Qualcomm to integrate satellite capability into the same processors that handle cellular connectivity. This will help the company match the size of other smartphones and eventually bring the cost of its handsets down to that of a BlackBerry, Matheson said. Qualcomm's work should lead to a satellite and CDMA (Code-Division Multiple Access) phone, which might allow for a future hybrid service from Verizon or Sprint Nextel.

The first handset, which will use separate cellular and satellite chips, will cost about US$700 without a carrier subsidy. That compares with an unsubsidized cost of about $400 to $500 for a typical BlackBerry, according to Matheson. The cost should match the BlackBerry as volume grows, he said. Pricing of the satellite service will be up to the service provider but should be lower than today's going rate of about $1 per minute for satellite calls, according to TerreStar. AT&T officials were not immediately available for comment.