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Technology Stocks : IRID - Iridium World Communications IPO Announced!
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To: Joe Brown who wrote (1374)2/24/1999 9:10:00 AM
From: Goodboy  Read Replies (1) of 2693
 
The cellular companies have a proven model of the usage by their subscribers and thus can subsidize the handset price knowing their payback period. Satellite TV companies such as Echostar have now reached the point where they can give away their equipment for free as long as the new sub commits to a certain amount of programming for one year.

The difference here is financial flexability by the cellular/SatTV companies along with the unknown usage pattern of these Iridium phones. It is likely that the government or corporations will buy lots of phones, but only put them in use under certain circumstances or for limited usage. No corporation will be canceling their cost effective cellular or paging contracts for Iridium.

With debt convenants not met, bank debt, bond debt and a nice chunk of money now owed to Motorola, eating the cost of the phone does not seem to be smart. From Motorola's standpoint, they would give up their profit margin on the phones if Iridium did not eat the cost (subsidize) to discount the phone to the consumer. Kyocera has even less of an incentive to do this. The more you look at this thing the more you see how a restructuring makes sense ( and the conflicting positions of the financial and strategic partners). With a restructuring, they would have the flexibility to do more with pricing and Motorola would have a larger ownership stake in the end. It will be interesting.
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