Iridium Faces Hurdles Other Than Financing, Subscriber Growth
Washington, April 4 (Bloomberg) -- Iridium World Communications Ltd., which lost 28 percent in its stock price last week on doubts over its funding and subscriber growth, faces other obstacles selling its global satellite-telephone network.
One of the most significant is price. Iridium, which offers voice and data transmission through a constellation of 66 satellites, sells its phone for about $3,000 and has per-minute charges of $1 to $8 a minute. Competitors Globalstar Telecommunications Ltd. and ICO Global Communications Ltd. will be much less expensive.
The biggest threat is the world's most-popular current satellite standard, the global system for mobile communications standard, or GSM. GSM is extending its reach around the world at much cheaper prices. Omnipoint Corp. charges $199 for a phone that works on cellular networks worldwide. The phone works also on digital systems. ''The big issue came down to you-and-me basics,'' said John LaForge, an analyst at Phoenix Investment Partners, which sold its Iridium stock in November at about $42 a share. ''Could they sell the phone to you and me?''
The company that will be successful is the one that ''can sell to the business consumer at a price point they find appealing,'' LaForge said.
The Issue is Cost
GSM phones work on most continents in most major cities, and customers aren't charged an extra monthly fee to get worldwide roaming capability. GSM is in 118 countries and serves over 150 customers worldwide.
For example, U.S. Omnipoint customers traveling in Germany pay 67 cents a minute for calls to anywhere in Europe or 81 cents for calls to the U.S. In Israel, customers pay 64 cents a minute for local calls and $2.56 for calls to the U.S., while in Hong Kong, Omnipoint customers are charged between 37 cents and 42 cents a minute for making local calls within the country and $1.65 to $1.76 for calls to the U.S. ''Everything depends on the cost of the service and the hardware,'' said Marco Caceres, a space analyst with Teal Group, a Washington-based consulting group. ''As soon as the prices start coming down and the costs come down, their market is going to expand. The whole market is going to be delayed by a few years.''
Washington-based Iridium, which is 19.5 percent owned by Motorola Inc., has said it's a supplement to existing cellular service, not a competitor. Of the 320 million cellular subscribers, Iridium expects its market to be less than one-half of one percent.
Industrial Users ''The cellular customer in general is not our customer,'' Iridium's Chief Executive Ed Staiano said last month at the Fourth Annual Bloomberg Telecom Day. ''It is the exceptional cellular customer who travels significantly and requires these additional services who is likely to be our customer -- a very small percentage of the existing cellular base.''
Iridium sees industrial users as its other primary market. They include companies in industries such as oil and gas, cargo shipping, military, aircraft and others with employees working in remote areas. These customers tend to be extremely heavy users of satellite minutes, sometimes spending as much three or four hours a day on the phone, Staiano said. ''It's extremely important for us to penetrate these ... markets initially because they will generate the most revenue for use as they come online,'' Staiano said.
Iridium's competitors will soon be knocking on its door with a lower price offering. Globalstar is building a $3.3 billion system with the backing of Loral Space & Communications Ltd., which is expected to be running by September. The phone will cost $800 to $1,100, and calls will cost 65 cents to $1.50 a minute.
London-based ICO is creating a $4.6 billion system scheduled to begin service in August 2000. The phone will cost $700 and the per-minute charges run from 50 cents to $3 a minute
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