To all - WSJ article about Iridium.
June 14, 1999
Iridium, in Bid to Bolster Service,
Cuts Staff, Prices; Shifts Marketing
By QUENTIN HARDY
Staff Reporter of THE WALL STREET JOURNAL
Iridium LLC, trying to stop a slide in its satellite-communications service, is
cutting staff, slashing prices and reorganizing its marketing structure.
The Washington, D.C., company 10 days ago dismissed 15% of its staff of
about 550 people, including most executives involved in marketing the service.
Iridium, which originally planned to have 500,000 users by year end, has only
about 15,000 users, people familiar with the matter said. That is up modestly
from 10,300 users at the end of March.
In addition to cost-cutting, the staff reductions appear to reflect a larger move
by some investors to assume more decision-making power in the Iridium
consortium. These investors, called "gateways," sell the service and operate its
ground stations around the world. Recently, many executives from the
gateways have taken jobs at the consortium's headquarters.
Michelle Lyle, an Iridium spokeswoman, confirmed the job cuts. "The
reduction was all across the board," she said. Ms. Lyle said she couldn't
provide a current count of Iridium's subscribers. "We still think there is a
market for the service, we just didn't do it right."
Shares of Iridium World Communications Ltd., an offshore company that
Iridium uses as an investment vehicle, are off about 90% from its year's high
of $61.625 a share, and down 26% on the week. The stock closed Friday at
$6 a share, off $1.1875 on the Nasdaq Stock Market. Some of the recent
decline may have come from worries about a Chinese launch of replacement
satellites for the 66-satellite constellation, which was carried out successfully
late Friday. The company is in talks with lenders over an $800 million credit
facility, and faces a June 30 deadline to restructure its debt.
The job cuts came after a meeting of the consortium's gateway partners. Many
of Iridium's new marketing executives formerly worked at the gateways.
The Iridium service was originally aimed at a broad audience of international
business travelers, but had found few takers in this group. Ms. Lyle said
Iridium will soon raise its advertising budget to the gateways, and the company
will concentrate on sales to specialized markets, such as maritime and
oil-industry users.
So far, analysts say, Iridium's moves haven't been enough. In recent days,
several Wall Street firms have downgraded their outlook for the company. The
downgrades came despite word that Iridium had lowered its service fees to
$1.89 a minute from $3.99, compared with prices of as much as $7 a minute
when commercial service began in November. The price of the phones, made
by Motorola Inc., have been lowered to $3,000 from about $4,000 in some
markets.
"If this is new pricing, they don't understand how serious their problem is,"
said Thomas Watts, a Merrill Lynch analyst who recently lowered his
recommendation on Iridium to a long-term "neutral" from "accumulate." He
said the company should consider giving away the phones, adding "they need
users, they need good buzz ... we still haven't seen whether there is a market
for this."
Ms. Lyle said Iridium would be "working on further reductions" in the price of
its phones and service. Those close to the company say Iridium may also
mothball some of its ground stations to save money while usage is low. Ms.
Lyle said no decision has been made about this.
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