IBD. Iridium Is Set To Connect First Satellite Phone Calls
Date: 9/1/98
Author: Reinhardt Krause
Seven years and $5 billion later, Iridium
World Communications Ltd. is ready to
throw the switch on a new era in global
phone and paging services - almost.
Motorola Inc.-backed Iridium has widely
advertised plans to activate commercial
service over its satellite network - the first of
three such systems in the works - on Sept.
23. But the target date might slip a tad.
''We're still shooting for September 23,'' said
Roy Grant, Iridium's chief financial officer.
''But depending on the status of the system,
we may not be charging customers (right
away). Worst case, we may not have paying
customers for a short period of time.''
Getting out of the starting gate hasn't been
easy for the company since its '91 founding.
But its goal is ambitious.
Its plan calls for a web of 66 working
satellites and six backups that orbit about
480 miles above Earth. The last two birds
were launched in late August. Seven
satellites have failed and have been replaced.
Iridium, 20% owned by Motorola, is doing
final tests of software that routes calls
between its satellites and ground networks.
Unlike today's land-based cellular systems,
Iridium promises global phone and pager
coverage.
The system might not be operating reliably
for another month or so after Sept. 23,
Grant says. In the meantime, it likely will
offer free service.
But any minor setbacks won't hurt its
long-range potential, say some analysts.
''My working assumption is that first-quarter
'99 is when they'll be firing on all cylinders,''
said Thomas Watts, an analyst with Merrill
Lynch & Co. ''Whether you have 40,000 or
200,000 subscribers this year is irrelevant to
how successful they'll be in the long run.''
Iridium will be the first to market among the
new breed of satellite ventures, getting a
jump on those rivals. But at the same time,
its earthbound cellular rivals are quickly
extending their geographic reach.
Iridium, though, has signed up 275
companies to either sell its global phone
service or hook up with it as a roaming
partner -assuring global reach. It has set up
distribution channels, billing systems and
customer service operations. One last hurdle
is for Motorola and Japan's Kyocera Corp.
to start making more of the special satellite
phones needed.
Besides Motorola, other investors are
Japan's DDI Corp. , Germany's VEBA AG,
Lockheed Martin Corp., Bell Canada and
Sprint Corp.
The satellite network will handle thousands
of calls at the same time. Most calls will be
routed through the 66 satellites, requiring
less use of ground networks, analysts say.
As a result, Iridium will get most of the
revenue from its customers' calls and will
have to share less with the ground-based
long-distance carriers, whose networks
some of its calls will use, analysts say.
''Iridium is trying to capture a greater portion
of the value chain,'' said John Coates, an
analyst at Salomon Smith Barney Inc. in
New York. ''The higher-revenue opportunity
justifies a higher-cost system.''
Another satellite system is being developed
by Globalstar Telecommunications Ltd. It's a
joint effort between New York-based Loral
Space and Communications Inc. and
Qualcomm Inc. The $2.6 billion Globalstar
system, which has been often delayed,
hopes to be running in mid-'99.
The other satellite rival is ICO Global
Communications Inc. It was spun off in '95
from Inmarsat, a satellite consortium of 80
countries. ICO's services are expected to be
available in '00.
The new-age satellite phones provided by
Iridium and others will be larger and will cost
more than conventional cell phones. Priced
at about $3,000 retail, Motorola's phone will
weigh about 16 ounces. Users will be able
to talk for up to 5 1/2 hours before
recharging batteries.
Washington-based Iridium expects to charge
about $50 in monthly access fees and about
$3 to $4 a minute for service. That's about
35% more than standard cellular roaming
rates, analysts say.
But the difference is that users get blanket
coverage. Iridium hopes to sign up
jet-setting business travelers. It's also
targeting government employees and news
reporters, who travel often and need
dependable communication. Other markets
are the maritime, petroleum, utilities and
transportation industries. These industries
have many employees in remote locations.
The Iridium system lets customers roam on
local wireless phone networks when they're
available. If not, calls are bounced up to the
satellite network.
Optional ''smart card'' modules, bought
separately, can be plugged into the phones
built by Motorola and Kyocera to let them
work with existing cellular systems.
Meanwhile, traditional cellular operators are
on the move to combat the satellite threat.
They're working with wireless gear suppliers
to develop phones that operate at different
radio frequencies. That might extend their
coverage area enough to pose a threat to
Iridium. Bosch Telecom GmbH is marketing
one so-called ''world phone.'' Sweden's
L.M. Ericsson AB plans to debut its world
phone in late '99. These phones will work
with different cellular formats, increasing
coverage.
''(Ericsson's phone) will be a great product
for AT&T,'' said Dan Hesse, chief executive
of AT&T Wireless Services Inc. ''If you
look at cost, terrestrial-based wireless
systems have a much lower price-per-minute
than the rates that are being discussed by the
satellite carriers.''
Nokia Corp. and other vendors are readying
world phones, too.
''They're clearly going to cut into Iridium's
market for international business travelers,''
said Matt Hoffman, an analyst at market
researcher Dataquest Inc. in San Jose, Calif.
Grant says Iridium expects competition.
World phones, he said, ''are good news,
because they'll increase awareness that
people would like to use telephony
worldwide.''
(C) Copyright 1998 Investors Business
Daily, Inc.
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