WSJ. Iridium to Cut Prices, Alter Marketing Strategy
The Wall Street Journal -- June 22, 1999
Technology & Health:
----
By Quentin Hardy
Staff Reporter of The Wall Street Journal
Iridium LLC, struggling to recover from a less-than-stellar launch of its satellite-telephone service, said it
will cut prices and change its marketing strategy to focus on a few key markets.
The company's chief executive officer also tied its future to more customerfriendly phones from Motorola
Inc., which he hopes to have by December.
Iridium of Washington, D.C., is a $5 billion global phone-and-paging service based on a network of 66
low-orbit satellites. It was hoped that the project, managed and 18% owned by Motorola, would attract
500,000 users by the end of this year. Since Iridium went commercial in November, however, only about
15,000 users have signed on, and the company has been dogged by complaints about poor quality of
service.
Iridium's stock price has dropped about 85% from last year's high, and it is in negotiations to reset the
terms of an $800 million credit facility. In Nasdaq Stock Market trading yesterday, shares of Iridium
World Communications Ltd., a stock that tracks Iridium LLC, rose 17%, or $1.28125, to $9.03125.
One of Iridium's problems has been an expensive and confusing pricing structure, keyed to a premium on
a variety of international phone tariffs. That will be replaced, effective July 1, with a standard set of prices
that the company says are as much as 65% lower than current prices.
Under the new pricing, international calls will cost about $3 a minute; calls inside a single country, or
within Europe, or between the U.S. and Canada, will cost $1.60 to $2.50 a minute; and calls between
Iridium phones will be $1.50 a minute.
In addition, Iridium phones, which had cost about $3,000, will probably retail at $1,000 or below, and
prices for the service's pagers will also drop. Besides Motorola, Kyocera Corp. of Japan also makes
phones for Iridium.
John Richardson, who became Iridium's chief executive in April, said he hoped the new prices, coupled
with a stronger sales effort to industrial users such as oil companies and fishermen, show progress "by the
end of July."
While the new pricing may help sell phones to specialized markets, Iridium is also targeting these users
because they already use satellite phones and know that these products are bulky and don't work well in
urban areas. The international business travelers that Iridium hoped to attract were turned off when they
found out Iridium neither looked nor worked like a cellular phone.
Mr. Richardson said the company hasn't given up on the broader market but will wait to attack it until the
company has a smaller phone, possibly one that is more effective around buildings. "Our destiny is within
the control of Motorola and Kyocera," he said, adding that he would like to "catch the Christmas market
with something lighter." But real progress in a mass-market phone might take longer, he said.
While the lower prices may attract more users, Iridium still faces other difficulties, some stemming from its
poor debut. Early on, Iridium had scored some encouraging sales with the U.S. military and was in talks
with other governments. Now, Mr. Richardson said, the government customers are "sitting back, saying
'how good is the new management?' " This will slow any sales, he said.
In addition, much of Iridium's problems in managing customer expectations stemmed from its own shaky
corporate structure, a global quilt of alliances among service providers, manufacturers, and outside
investors. The regional service providers have recently rebelled, causing a near-wholesale replacement of
marketing executives at headquarters. But it is still unclear whether the new group can better execute a
sales campaign. |
