COMPANIES & FINANCE THE AMERICAS: Iridium swaps starry-eyed vision for sharper focus
Financial Times, Mar 28, 2001
By KEVIN GOLDSTEIN-JACKSON and CHRISTOPHER GRIMES
Iridium, the satellite company that burned billions of dollars before filing for bankruptcy last year, is expected to re-open for business today.
The new Iridium has far more modest ambitions than its original incarnation, launched in 1997. At the time, Iridium's satellite network was envisaged as the backbone for the world's most extensive mobile telephone service. Its phones were advertised as the must-have device for globe-trotting executives, but they never caught on.
Today, Iridium's management team hopes success will come from a more limited vision. The company is targeting the defence, mining and maritime industries - all groups that need a reliable phone service in remote locations.
A group of investors bought Iridium's assets for Dollars 25m in December, gaining a network of 66 satellites - but not the old company's crippling debt burden of Dollars 5bn. "Every business has its risks," said Dan Colussy, an aviation industry veteran who is the chief executive of Iridium Satellite LLC.
"But we think we've got an excellent chance of providing a return for our investors."
The original Iridium needed 1m subscribers to break even, but Mr Colussy said the new Iridium only needs 60,000 to cover costs - about the same number of customers the original company had when it went bankrupt.
Iridium won a multi-year contract with the US Department of Defense in December and has agreements with 13 partners that will distribute the service.
Iridium's scaled-back customer base could be too narrow, however, and the company acknowledges that it needs to find ways to expand.
One way it hopes to do this is by offering narrowband data-transmission capabilities soon.
"I'm sure the next few years probably look fantastic for Iridium Satellite, but that's because they practically got the system for free," said Jeff Abramson of satellite consultancy DFI International. "The question is whether there is a sufficient revenue base in the vertical markets to manufacture and launch another 60 satellites when the time comes."
One of Iridium's original problems was its unwieldy handset, often compared to a brick. The company's new phones are still bigger than the average mobile phone, but industrial customers are less concerned with having a sleek handset. Over the long term, Iridium faces the challenge of replacing its satellite fleet.
The company hopes to squeeze another seven years out of the current constellation, all of which were designed by Motorola, but Iridium must find a new design for future models.
"There hasn't been any real reduction in industry costs," said Mr Abramson, "so even if the satellites last another nine years, they're just kicking the can down the road." Copyright: The Financial Times Limited
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