Iridium slashes prices, alters focus. Effort to boost subscribership for troubled satellite carrier
By Jeffry Bartash, CBS MarketWatch
Last Update: 3:02 PM ET Jun 21, 1999
NewsWatch
Earnings Surprises
NEW YORK (CBS.MW) -- Iridium, the world's only global satellite
phone provider, said Monday it's slashing prices, revamping its marketing
strategy and zeroing on industrial customers, highlighting the troubled
carrier's effort to boost low subscribership and stave off bankruptcy.
Investors reacted favorably to the news, bidding up the stock that has
been battered down from its high last July of 61 1/2. Shares (IRID: news,
msgs) climbed 1 1/4, or 16 percent, to 9.
Iridium, which started
offering service last
fall, said the price of
its specialized phones,
pagers and other items
will fall, effective July
1. Those devices are
provided by its main
suppliers, Motorola
(MOT: news, msgs)
and Kyocera of Japan. In addition, Iridium will cut per-minute charges.
Some phones, for instance, could cost as little as $1,000, down from as
much as $3,500, while per-minute charges, which ranged as high as $5,
could drop to $3 for international calls and $1.50 to $2.50 for local calls,
satellite analyst William Kidd of C.E. Unterberg Towbin told clients.
All together, Iridium said the changes mean customers could save up to
65 percent of the original price of service.
"Handset and service discounts are significant and likely to generate
significant interest," Kidd said. He's maintaining his "sell" rating, however,
until Iridium manages to resolve problems with paying down its exorbitant
debt.
Marketing mania
Iridium, meanwhile, is also altering its main focus
from the international business traveler to industrial
users in sectors such as mining, maritime oil and
gas, where demand is seen as being potentially
higher.
Still, "all of these initiatives do not mean we have
given up on the global business market," Chief
Executive John Richardson said during a
conference call with reporters.
Motorola, which holds a 19 percent stake and is
the primary financier of Iridium's multibillion dollar
network, will also put several hundred of its own
salespeople to work selling the service in North
America, indicating that the company won't
abandon its offspring. Iridium's biggest problem has
been poor marketing, many analysts say.
Iridium recently received a 30-day waiver from
lenders under an $800 million senior secured credit
line. The company sought the waiver after it failed
to meet subscriber and revenue growth targets and is trying to restructure
its debt.
In the first quarter, Iridium lost a whopping $505 million on just $1.45
million in revenue and had just 10,294 customers -- far below the 57,000
required under the lending agreement.
Richardson said the company has continued to "load up customers in the
last two months" despite its highly publicized problems, but declined to
provide current subscriber numbers. He said the company would issue an
update in a few weeks.
While potentially boosting subscribers and sales, the price reductions may
also crimp revenue, Richardson acknowledged. Still, "we believe that the
combination of attractive pricing and customer-driven service will
ultimately help us to load the customers, and see the usage we need to
make this business a financial success," he said.
Richardson assumed leadership a few months ago after Edward Staiano
resigned. Staiano, a former executive at Motorola, is credited with getting
Iridium's widely praised satellite system up and running, but is blamed for
neglecting the marketing of the service, contributing to its current
problems.
Richardson's first moves were to cut up to 15 percent of the work force
and shift Iridium's focus.
Jeffry Bartash is an online reporter for CBS MarketWatch.
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