LATimes. Red Ink, Executives' Departures Jolt Iridium
Tuesday, April 27, 1999
By JUBE SHIVER JR., Times Staff Writer
ASHINGTON--Iridium, whose launch last
year of the first global satellite telephone
network made its distinctive phones the latest
high-tech status symbol, is reeling in the wake of
wider-than-expected first-quarter losses and the
departure of several key executives.
The financially struggling company, backed by
Motorola Inc. and Japanese electronics equipment
maker Kyocera, said Monday that its loss for the
quarter would be $505 million, or $3.45 a share,
compared with a loss of $205 million, or $1.45,
during the same period a year ago.
The ambitious bid by the Washington-based
satellite consortium to launch a global wireless
phone service was never expected to be an
overnight success. But missteps by Iridium's
marketing team and its 16 overseas partners have
compounded the woes for a company that has
spent about $5 billion to launch 79 satellites that
allow subscribers to make wireless phone calls
from even the most remote outposts on the planet.
The company's setback has cast a cloud over
the emerging global satellite telecommunications
industry, which is spending billions to make the planet one wireless
global village. Several companies--from the Teledesic venture backed
by Microsoft Corp. Chairman Bill Gates to Globalstar Inc. to ICO
Global Communications--have announced plans to launch more than
500 satellites in the next five years.
"This is not a very good business to begin with," said Bruce Kasrel, a
senior analyst with Forrester Research Inc. in Cambridge, Mass. "It's
capital-intensive, and there are very few people who really need global
service that stretches into the Gobi Desert. The majority of wireless
phone service takes place in metropolitan areas and you don't need
satellite service for that. It's a tough sell."
Iridium's chief executive, Edward Staino, was the first to succeed in
offering global wireless service. But he left abruptly last week after he
was unable to get Iridium's sales and marketing under control.
During a conference call Monday, a spokeswoman attributed
Staino's resignation to "differences of opinion" with Iridium's board of
directors. His departure follows that of Chief Financial Officer Roy
Grant, who resigned April 16. In addition, Iridium announced Monday
that its top marketing executive, Mauro Sentinelli, will leave the
company in May.
Before Iridium began offering global wireless phone service last
November, the company predicted it would need about 500,000
customers to break even. Iridium has attracted only 10,294 customers,
according to Leo Mondele, senior vice president of business
development.
Company executives and outside experts cited a number of reasons
for Iridium's slow growth. They range from slow production and
distribution of the telephones to poor coordination of marketing with
regional partners and the high cost and user-unfriendliness of the bulky
Iridium handset itself.
Unlike the sleek, pocket-size devices offered by traditional wireless
carriers, Iridium's $3,000 handsets weigh nearly a pound and resemble
Vietnam War-era walkie-talkies. Many customers have complained
about their size, the complexity of hooking them up to a companion
satellite antenna and the $3-a-minute fee Iridium charges for each call.
Iridium's Mondele acknowledged Monday that his firm's telephone
has some "usability issues." He said Iridium is considering lowering
prices for its equipment and wireless phone service and is working with
suppliers to do more education and training to help customers adjust to
the technology.
Analysts are divided over whether the contemplated changes can
rescue the company before a wave of newcomers enters the business.
The stock, up 38 cents to $16.38 on Nasdaq on Monday, has
crashed from $72.19 last year.
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