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Iridium Cuts Prices
by Joanna Glasner
3:00 a.m. 10.Jun.99.PDT
After months of sluggish sales and rising debts, Iridium is getting
ready to cut prices worldwide for its pricey satellite phone service.
This week, one of Iridium's largest US distributors introduced a
flat-rate pricing plan that charges US$4.29 per minute for international
calls. At the same time, several of Iridium's overseas distributors are
also lowering prices and simplifying service plans.
Meanwhile, at least one of Iridium's major distributors is backing out
of the business altogether. The Maryland-based equipment and sales
provider US Digital Communications (USDI) announced this week that it's
firing its Iridium sales force.
"Due to the well-documented shortcomings of the Iridium satellite
telephone platform, and the corresponding inability of the International
Satellite Group's sales force to sell Iridium products and services in
any meaningful amounts, we are forced to lay off our employees and wind
down operations," said Robert Wussler, chairman of US Digital
Communications.
The changes come as Iridium (IRID), the first of several planned
satellite phone networks designed to make calls anywhere on Earth, is
under massive pressure to restructure its debt-ridden business. After
reporting losses of close to $1 billion since launching commercial
operation in November, Iridium has already negotiated two extensions
from lenders.
The latest extension expires at the end of the month, giving Iridium
only a few more weeks to restructure its debt and revamp its service
plan.
Analysts said Iridium's cost-cutting plans seem logical. However, the
company faces bigger problems, namely billions of dollars in junk-rated
debt.
"Those are all great moves and they make a lot of sense," said William
Kidd, satellite analyst for C.E. Unterberg Towbin. "But what we really
need to see from the company is the financial plan that gets it through
the next couple months and sets the tone for the next couple years."
Iridium said the most recent price cuts -- introduced through
mobile-phone distributor Seven Seas Communications -- are part of an
interim plan for revamping its commercial service. The changes should
set the tone for more sweeping revisions to be announced later this
month.
Under one of the Seven Seas plans, Iridium subscribers will pay a
start-up and monthly service fee plus anywhere from $1.79 per minute for
calls within the United States to $4.29 per minute for international
calls. Previously, the same calls could cost upwards of $6 per minute.
Prices of Iridium handsets have also been falling. After debuting in the
United States at about $3,000, the cost of an Iridium phone now hovers
at a little more than $2,000 at major distributors.
Besides simplifying its calling plan, Iridium said it is bulking up its
sales force. The company blamed some of its sales shortfall during its
first few months of commercial operation on a lack of trained
salespeople.
At the end of March, the last time Iridium released subscriber numbers,
the company had signed up only slightly more than 10,000 customers for
its satellite systems. And although the company has added a couple of
large US government contracts in the last two months, subscriber levels
are still far short of expectations.
Iridium hasn't disclosed plans for its overseas distributors, but
analysts said the company will have to pay more attention to affiliates
in Africa, Asia, Europe, and South America, particularly in markets
where satellite phones don't face as much competition from the
ubiquitous cell phone.
"In a lot of markets out there, you have problems where the chosen
distributor isn't doing what it's supposed to do," Kidd said. "A lot of
them haven't even been starting to market." |
