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September 9, 1998
Iridium Delays Phone Links;
Service Is to Be Fine Tuned
By QUENTIN HARDY
Staff Reporter of THE WALL STREET JOURNAL
Iridium LLC is delaying the start of commercial telephone service for its global
communications system and also will postpone some other services while
technicians fine-tune the company's satellite-based wireless network.
The delay will affect how much revenue Iridium may expect to collect this
year. Iridium, a $5 billion project that was hatched inside Motorola Inc. and
then spun into a separate company, had long planned to begin charging
customers for telephone calls on Sept. 23, and is now unlikely to see much
cash before year end.
Analysts said that postponing commercial service is not lethal to the finances
of Iridium, based in Washington, D.C. But the delays do create a significant
public-relations problem for both Iridium, which over the summer began an
unprecedented $180 million global advertising and marketing campaign keyed
to the service launch, and for Motorola, whose long-suffering investors have
been desperate for good news. Motorola is general contractor for building the
Iridium network.
Iridium officials are expected to announce Wednesday that Sept. 23 will now
mark the start of Iridium's "service offering," with a limited number of
customer handsets available for free telephone calls. The program will, in
effect, be a test of the network's ability to handle voice transmissions.
Initial Users Total About 5,000
The company is expected to start charging for calls after another month or
more, depending on how well the system handles what is expected to be about
5,000 initial users. The users still will be charged for the telephones, which
cost about $4,000 apiece.
In addition, Iridium's fax and paging services won't be available until some
time in October. They, like Iridium's pocket-sized phones, work with a system
of 66 low-orbiting satellites to offer communications to any point on the
planet.
People familiar with the system's problems said a series of software-loading
delays, plus difficulties with a few of the satellites, delayed a planned final
technical trial of the system. In discussions with Iridium's board last week,
people said, Iridium executives decided to complete the technical shakedown
by combining it with a limited, and free, customer offering.
With delays in getting bills out and money back, the delayed start of
commercial service means Iridium probably won't garner much cash from
voice service before December, at the earliest. Iridium must begin paying
down a large bank loan in December, but it is also spared paying some $375
million in system hardware and operating costs to Motorola until commercial
service begins.
Tuesday, Iridium officials didn't have any comment on the service delay.
But with potential paying customers using the phones in a final technical
tune-up, Iridium is taking a chance that major problems in call quality or
service could drive away those customers. While earlier problems with poor
call quality and dropped calls are said to have been solved by recent software
upgrades, there aren't any guarantees that a large number of users won't tax
the system in unforeseen ways.
The delay comes at a time when Iridium's stock price has already suffered,
due to earlier reports of failed satellites and software problems. From a high of
$72.19 a share in May, Iridium closed Tuesday in trading on the Nasdaq Stock
Market at $34.375, up $1.75, or 5.4%.
Some Analysts Positive
Despite the bad news about the delay, some analysts remain positive about
Iridium, based on a track record of timely execution and technical
competence. "The major issues at Iridium have been resolved," said Tim
O'Neil, analyst at Soundview Financial Group. Because of earlier problems, he
said, "people think the sky is falling, but the problems at Iridium do not seem
to be systemic."
Any delay on Iridium also may have an impact at Motorola, which is counting
on revenue both from the satellites and from handset sales.
Motorola's shares closed Tuesday at $43 apiece, up $3.125, or 7.8%, but
down from $78.13 a year ago. The company's problems are largely due to a
depressed semiconductor market, Asia's economic downturn, and lost market
share in its core cellular telephone business. But Motorola officials and
investors have hoped for a clear win with Iridium, both as a revenue generator
and to restore what has become a clouded reputation for delivering buggy
software systems.
Late Tuesday, a Boeing Co. Delta II rocket lofted five more Iridium satellites
into orbit, giving Iridium a total of 71 operational satellites. Two of the new
satellites, all of which should reach their final orbiting position in 12 days, will
replace defective satellites, and the other three will be used as spares should
future satellites malfunction.
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