Iridium Phones Fail to Win Accolades As They Are Tested in Kosovo Crisis
April 27, 1999
By HUGH POPE and QUENTIN HARDY
Staff Reporters of THE WALL STREET JOURNAL
MORINI, Albania -- Norwegian television reporter Erik Stephansen is on
the remote mountain frontier of Kosovo with some cutting-edge personal
technology in his hand: the new Iridium satellite telephone. Luckily for him,
there is no breaking news: He has had to dial a number on his Iridium unit
five times. When he finally gets through, the connection drops after three
minutes.
"I wanted to talk to my daughter. She's 12 now, so at least she
understands when it cuts off," says Mr. Stephansen, circling round and
pushing the hefty mobile phone's baton-shaped antenna up and down. He
reconnects on the second attempt.
Journalists and aid workers, among Iridium's prime
potential customers, have swarmed into Albania for the
Kosovo refugee crisis, providing an ideal test run for the
highly touted system. But the $2,300 Iridium phones,
billed as allowing subscribers "to communicate virtually
anywhere in the world," are proving to be less than ideal.
Many users report trouble making connections and
complain, as Iridium concedes, that the phones rarely
work inside buildings.
Iridium LLC is backed by a consortium of global
telecommunications companies that spent about $4 billion
to make the ideal use-it-anywhere phone. With investors
including Kyocera Corp. of Japan and Motorola Inc.,
Iridium, based in Washington, launched 66 low-orbit satellites and spent
$180 million in advertising before the system's launch on Nov. 1.
Iridium says any problems with its global satellite-communication system
are due to improper use by customers, marketing glitches and financial
problems. But the troubles in the field come at an awkward time for the
company. Monday, it reported lower-than-expected first quarter revenue,
a wider-than-expected loss and fewer-than-predicted subscribers. And
just last Thursday, chief executive Edward Staiano quit amid a plunging
stock price. Iridium said it risked technical default with its lenders until it
won an extension on covenants related to $800 million in secured loans.
The company, for its part, says the phone has performed well in the crisis.
It says it has offered aid agencies in Kosovo free use of the phone to allow
ethnic Albanians expelled by Yugoslavia to contact their relatives. In one
week this month, Iridium adds, 12,000 calls were successfully completed
from the region around Kosovo.
What about the commercial customers in Albania conspicuously fiddling
with, and cursing at, their hand-held units? "It sounds like they haven't had
any training," says Michelle Lyle, an Iridium spokeswoman. "If people
don't use it properly, it won't work."
The inability to use the phones indoors or in cities has been a serious
shortcoming in the field. Even amid crises, many satellite-phone users
prefer to make their calls from offices or hotel rooms, not standing
outdoors. During a recent downpour, Tina Hager, an American-born
photographer, tried unsuccessfully to place an Iridium call on the steps of a
hotel in Kukes, a small town 10 miles from the Morini border crossing.
"Once you do get through, it's addictive," she said. "But it isn't as good as I
hoped."
Like other satellite phones, Iridium doesn't work inside buildings because
of the relatively weak signals to and from an orbiting satellite. Motorola
didn't think this would be a big problem when it first planned Iridium a
dozen years ago, because there were relatively few cellular-telephone
users then.
To handle calls from cities, Iridium built a parallel circuitry inside the phone
that uses the increasingly common GSM mobile-phone standard. But that
isn't working in Albania. Albanian authorities switched off GSM roaming
agreements when their system was swamped by a sudden inrush of
foreigners toting ordinary mobile phones.
Frustrated users believe they are following instructions, and have many
theories about their Iridium problems. One theory holds (correctly, Iridium
says) that Albania's mountains may block signals. Many users think their
calls fail after a couple of minutes because they are dropped while a signal
moves from one satellite to another, but that's a rare occurrence, Iridium
says.
The World Food Program, a United Nations agency that helps feed poor
people and refugees in more than 80 countries, has tested the Iridium unit
in Africa and East Europe and decided not to buy more. "The idea is
beautiful. But it's new technology. The product doesn't quite do what they
wanted," says Gianluca Bruni, one of the WFP's senior communications
coordinators.
Inside the hotel restaurant in Kukes, aid workers, Western officials and
media people -- whom Iridium views as prime customers -- prefer phones
using the rival Mini-M technology developed for the Inmarsat system.
Inmarsat, too, has its limits. Subscribers use Norwegian-made Nera and
Danish-made Thrane & Thrane models, which are bulky, weighing five
pounds and shaped like laptop computers.
Made by a London-based consortium called the International Maritime
Satellite organization, the Inmarsat phones run about $1,700. The Iridium
phone's typical $2,300 cost can run much higher in countries that have high
import duties.
The Kosovo crisis is bringing congestion on the Inmarsat satellites, though
it rarely lasts more than half a minute. But the Inmarsat models are proving
to be relatively reliable workhorses, robust and easy to point at their two
stationary satellites over the Atlantic and Indian Oceans. Their flat antennas
lift off and sit on an inside window ledge, enabling users to make calls or
link their computers indoors.
The World Food Program uses Inmarsat mini-M phones for satellite calls
placed by its officers. In the long term, Mr. Bruni says, heavy users may
move away from commercial satellites. The WFP, for instance, has
pioneered a way to bypass satellite calls as much as possible, due to the
call rate of about $2.70 per minute. Internet mail is now the WFP's first
means of communication, done through local phone systems; even
countries like Albania now have good Internet access. The group uses
handheld radios for local voice calls. For remoter stations dealing with
refugees, a new radio system links computers in the field with base in the
capital, Tirana.
"It works," says Mr. Bruni. "Our theory is that you don't need long-haul
communications. On Day One of an emergency, yes, the satphones are
used, but that's pretty much it. The satphones are now last in the line."
Back in Washington, meanwhile, Iridium has its hands full with searching
for a chief executive, a new chief financial officer and a head of marketing.
The company said arguments within the Iridium board room were behind
Mr. Staiano's departure. Analysts said the disagreements related to
distribution and marketing arrangements. Iridium is also facing a late-May
deadline for renegotiating its bank loans, which came in technical violation
after the company failed to deliver promised first-quarter subscriber
numbers.
And Iridium Monday said that it had a net loss of $505.4 million, or $3.45
a share, compared with a net loss of $203.6 million, or $1.45 a share, a
year earlier. Analysts polled by First Call were looking for a per-share
estimate of $3.17. Iridium had revenue of $1.45 million in the recent
quarter, and none a year earlier because it hadn't begun operating the
system commercially.
Partner Motorola has already put several hundred salespeople on direct
sales of Iridium phones, and Iridium itself plans to better tailor the product
prices and service for specific markets, such as oil-rig workers, aid
agencies, or governments. There are also plans for speedier training aids,
such as inserting a laminated card on the phone that gives usage
instructions and technical shortcuts.
And Iridium thinks its answer is more and better training, both of its own
salespeople and its customers, to avoid improper use or false expectations.
Says Leo Mondale, senior vice president of strategic planning at Iridium,
"We've identified dramatically higher customer satisfaction among users
who were properly informed of the capabilities and limitations of the
satellite service and trained in its use, versus those who opened the box
and turned on the unit."
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